Regulations Securities Exchange Act of 1933

Companies that already have completed a registered IPO, that have been registered for 1 year, and that have a minimum market capitalization of $75 million.

"seasoned issuers"

Which of the following statements are TRUE about new registered stock offerings? I Any purchaser who received a preliminary prospectus must also receive the final prospectus II Any purchaser who received a preliminary prospectus need not receive the final prospectus III Any purchaser will pay the Public Offering Price IV Any purchaser will pay the Public Offering Price plus a commission or mark-up A. I and III B. I and IV C. II and III D. II and IV

A I & III New stock issues are sold under a prospectus that states the Public Offering Price which is inclusive of any compensation to the underwriter (the spread). Additional commissions or charges above the P.O.P. are not allowed. Whether or not the purchaser received a preliminary prospectus is a moot point - any purchaser must get the final prospectus at, or prior to, confirmation of sale

To be defined as an "accredited investor" under Regulation D, an individual that wishes to purchase a private placement offering must have an annual income of: A. $200,000 B. $300,000 C. $400,000 D. $1,000,000

A. $200,000 For an individual purchasing a private placement to be accredited and not count in the 35 non-accredited investor limitation, he or she must earn at least $200,000 annually.

Under Rule 144, no filing is required if the sale amount every 90 days is for no more than 5,000 shares, worth no more than: A. $50,000 B. $100,000 C. $500,000 D. $1,000,000

A. $50,000 Form 144 does not have to be filed to sell restricted or control stock if 5,000 shares or less, worth $50,000 or less, is sold during each 90 day period.

Under Rule 147, intrastate offerings cannot be resold out of state for how long after the initial sale date? A. 6 months B. 12 months C. 18 months D. 24 months

A. 6 months Rule 147 requires that resale of securities sold under the intrastate exemption be restricted to intrastate only for 6 months following first sale. Thereafter, they can be resold interstate. Note, however, that because these securities were never registered with the SEC, they cannot be publicly traded. The only way to resell them is in a "private transaction."

Which statement is TRUE regarding Banker's Acceptances? A. Banker's Acceptances may be sold without a prospectus B. Banker's Acceptances must be sold with a prospectus C. Banker's Acceptances must be sold with an Official Statement D. Banker's Acceptances must be sold with an Offering Memorandum

A. Banker's Acceptance may be sold without a prospectus. Since Bankers Acceptances are an exempt security under the Securities Act of 1933, they may be sold without a prospectus. The prospectus is the disclosure document for new issues that are not exempt from registration. The Official Statement is the disclosure document for municipal bonds (which are an exempt issue). An Offering Memorandum is the disclosure document for a private placement - which is a security sold in an exempt transaction.

Which of the following is an exempt issue? A. Fixed annuity contract B. Variable annuity contract C. Government bond mutual fund D. Municipal bond unit investment trust

A. Fixed annuity contract Fixed annuity contracts are considered to be an insurance product, since the insurance company bears the investment risk, and are exempt from SEC registration. On the other hand, variable annuity contracts, where the investor bears the investment risk, are a non-exempt security under the 1933 Act and must be registered. Investment company issues such as mutual funds and unit trusts are also non-exempt and must be registered with the SEC. It makes no difference that the investment company is investing in exempt securities such a U.S. Governments or municipals

Which of the following activities are allowed once a registration statement for a new issue is filed with the SEC? I Sending a customer a "red herring" preliminary prospectus II Accepting an indication of interest from the customer III Accepting a deposit from the customer IV Accepting a firm order from the customer A. I and II B. III and IV C. II and III D. I, II, III, IV

A. I & II Once the registration statement is filed, the issue enters the 20-day cooling off period. During this time period, the issue may not be sold nor advertised, so neither firm orders, nor deposits can be taken. It is permitted to send a preliminary prospectus (red herring) to obtain indications of interest during the cooling off period, because legally, these are not offers to sell the security. Once the registration is effective, the final prospectus is used to offer and sell the issue.

A wealthy customer has been asked by his neighbor to invest in the private placement of a "start-up" technology company as a venture capital investor. This is the first time that the customer has considered such an investment. The customer contacts his registered representative and asks: "Aside from the investment risk associated with a "start-up" company, what are the other issues that I should consider before making such an investment." The registered representative should inform the customer that: I there is no public resale market for these securities unless the company "goes public" and is current in SEC filings II these securities can only be sold to customers that have a minimum net worth of $100,000,000 III these securities must be held for at least 6 months before a public resale is permitted under the provisions of Rule 144 IV after issuance, these securities can only be traded in the PORTAL market A. I and III B. I and IV C. II and III D. II and IV

A. I & III Private placement securities are not registered and hence, cannot be publicly traded. Only if the company subsequently "goes public" and begins reporting its results to the SEC can the shares trade in the public markets. However, these securities can be resold "privately" - but there is not much of a market for private resales of unregistered securities. If the company does go public, and if the customer holds these securities for 6 months fully paid, then they can be sold under Rule 144 and the sale via the rule will register the shares. There is no trading of Rule 144 issues in the PORTAL market.

Under SEC rules, filing of the Form 144, required when selling restricted stock, is: I the responsibility of the seller II the responsibility of the broker-dealer III filed at, or prior to, the time that the sell order is placed IV filed within 10 business days of the placement of the sell order A. I and III B. I and IV C. II and III D. II and IV

A. I & III Filing of the Form 144 to sell restricted stock is the responsibility of the seller. The form must be filed with the SEC at, or prior to, the time that the sell order is placed

A new issue private placement offering is: I exempt under Regulation D II non-exempt under Regulation D III allowed to be sold to a maximum of 35 non-accredited investors IV allowed to be sold to a maximum of 35 accredited investors A. I and III B. I and IV C. II and III D. II and IV

A. I & III Regulation D allows a "private placement" exemption if an issue is sold to a maximum of 35 "non-accredited" investors. The issue can be sold to an unlimited number of "accredited" (wealthy and institutional) investors under this exemption and still be considered a private placement.

The final prospectus for a new registered securities issue: I contains the Public Offering Price II does not contain the Public Offering Price III must be given to the customer at, or prior to, confirmation of sale IV must be given to the customer at, or prior to, settlement of the transaction A. I and III B. I and IV C. II and III D. II and IV

A. I & III The final prospectus contains the Public Offering Price and the underwriter's spread on the front cover (this is not in the preliminary prospectus). Any purchaser of the new issue must be given the final prospectus, at, or prior to, confirmation of sale.

In order to sell restricted stock under the provisions of Rule 144, the stock must be: I fully paid II either properly margined or fully paid III held for at least 6 months IV held for at least 1 year A. I and III B. I and IV C. II and III D. II and IV

A. I & III To sell restricted stock under the requirements of Rule 144, the stock must be held, fully paid, for at least 6 months

Which of the following Securities Acts define(s) exempt issuers and exempt transactions? I The Securities Act of 1933 defines exempt issuers II The Securities Exchange Act of 1934 defines exempt issuers III The Securities Act of 1933 defines exempt transactions IV The Securities Exchange Act of 1934 defines exempt transaction A. I & III B. I & IV C. II & III D. II & IV

A. I & III The Securities Act of 1933 covers the new issue (primary market) and defines exempt issuers and exempt transactions. If an issuer is exempt or if a new non-exempt issue is sold in an exempt transaction, that new issue does not have to be registered under the Act. Otherwise, registration is required. The Act of 1934 consists of a variety of rules covering the secondary (trading) market.

Exempted issuers are defined under the: A. Securities Act of 1933 B. Securities Exchange Act of 1934 C. Trust Indenture Act of 1939 D. Investment Company Act of 1940

A. Securities Act of 1933 The Securities Act of 1933 defines exempt issuers and exempt transactions. If an issuer is exempt or if a new non-exempt issue is sold in an exempt transaction, that new issue does not have to be registered under the Act. Otherwise, registration is required

A customer who has his primary residence in Montana, has a vacation home in Colorado. An intrastate offering is being made in the state of Montana. Which statement is TRUE regarding the customer purchasing this securities offering? A. The customer is permitted to buy these securities B. The customer is prohibited from buying these securities C. The customer can buy the securities if he spends at least 2 weeks per year in the state of Montana D. The customer can buy the securities if he files an affidavit of domicile in the state of Montana

A. The customer is permitted to buy these securities. To purchase an intrastate offering, the purchaser must be a primary resident of that state. Having a vacation home in another state does not invalidate that person's "primary residence."

The President of PDQ Corporation donates restricted PDQ shares to the United Way after holding them for 3 years fully paid. United Way can sell the stock without restriction: A. immediately B. after holding the securities for 90 days C. after holding the securities for 2 years D. after holding the securities for 3 years

A. immediately As long as the 6-month holding period requirement has been met on the restricted shares (the officer held them 3 years) when they are donated, the charity can sell them immediately. There is no requirement that another 6-month holding period be met.

Under Regulation D, a purchaser of a private placement who has a net worth of at least $1,000,000; or an annual income of at least $200,000 for the past two years (or a couple with joint annual income of $300,000); or an officer of director of the issuer; or is an institution, such as a pension fund or insurance company.

Accredited Investor

An unregistered hedge fund creates a website and uses it to promote itself to investors. Potential investors are invited to enter a password-protected area where they can get details about the fund's investment strategy and performance. Which statement is TRUE? A. This is prohibited under SEC rules B. This is permitted under SEC rules as long as the potential viewer completes and signs an accredited investor questionnaire before being given the password to enter C. This is permitted under SEC rules as long as the potential viewer completes and signs an arbitration agreement before being given the password to enter D. This is permitted without restriction

B. Private placements are typically only offered to "accredited investors." These are wealthy individuals and institutional investors. The SEC encourages the use of the internet and permits private placements under Regulation D to be offered via the web. However, the offerer must set up a password-protected website and can only allow access to accredited investors. To document that the purchasers are, indeed, accredited, an "accredited investor questionnaire" must be completed and signed by the potential purchaser. This is submitted to the offerer through the website, who then can give access to the potential investor.

An "accredited investor questionnaire" is required when which type of offering is made to investors? A. Rule 147 B. Regulation D C. Regulation A D. Rule 144

B. Private placements under Regulation D are typically only offered to "accredited investors." These are wealthy individuals and institutional investors. To document that the purchasers are, indeed, accredited, an "accredited investor questionnaire" must be completed and signed by the potential purchaser. This is retained by the broker-dealer or issuer selling the securities and is proof that the purchasers were accredited

A director of a publicly held company wants to sell 5,000 registered shares of that company's stock at $8 per share that she has held for 3 months. Does the Form 144 filing requirement apply to this sale? A. Yes, because any sale of shares by a director requires the filing of a Form 144 B. No, because the shares are being sold under a "de minimis" exemption C. Yes, because she has not held the shares for 6 months D. No, because the shares are not restricted

B. Rule 144 includes a "de minimis" exemption, permitting the sale every 3 months of 5,000 shares or less, worth $50,000 or less, without having to file a Form 144. The transfer agent is authorized by the SEC to transfer the shares without a copy of the Form 144. Because this sale is 5,000 shares @ $8 = $40,000, it can be done under this exemption

Excluding the percentage of the outstanding shares test, the maximum permitted sale under Rule 144 is the weekly average of the last: A. 2 weeks' trading volume B. 4 weeks' trading volume C. 8 weeks' trading volume D. 12 weeks' trading volume

B. 4 weeks trading volume Rule 144 allows the sale of 1% of the issuer's outstanding shares or the weekly average of the preceding 4 weeks' trading volume (whichever is greater) to be sold every 90 days.

Which of the following is subject to the registration requirements of the Securities Act of 1933? A. Eurodollar Debt B. American Depositary Receipts C. Municipal Debt D. Foreign Government Debt

B. American Depositary Receipts ADRs (American Depositary Receipts) are non-exempt securities and must be registered with the SEC under the Securities Act of 1933. ADRs are the way that most foreign corporate issues trade in the United States. The bank that structures the ADRs handles the registration. Municipal debt, U.S. Government debt and Foreign Government debt are all exempt. Eurodollar bonds are sold outside the U.S. and thus do not fall under the Act.

An investor owns 20% of the outstanding shares of ABC Corporation, a publicly traded company. The investor's spouse owns 5% of that company's stock. If the spouse wishes to sell her holding, which of the following statements are TRUE? I The spouse is considered to be an affiliated person subject to Rule 144 II A Form 144 must be filed if the shares are to be sold III Solely from the standpoint of percentage of shares outstanding, a maximum of 1% of the company's shares can be sold at this time IV Up to 6 sales per year are allowed A. I and IV only B. I, II, III C. II, III, IV D. None of the above

B. I , II, III Rule 144 is applicable to officers, directors, and "affiliated" persons - meaning someone whom they "control." A spouse is considered an affiliated person. To sell, a Form 144 must be filed. The rule allows the greater of 1% of the outstanding shares or the weekly trading average of the last 4 weeks to be sold under the filing. 4 filings are allowed per year.

Which of the following statements are TRUE regarding the preliminary prospectus? I The preliminary prospectus may be sent to a potential customer prior to that customer expressing an indication of interest II The preliminary prospectus may not be sent to a potential customer prior to that customer expressing an indication of interest III The preliminary prospectus constitutes an offer to sell the issue IV The preliminary prospectus does not constitute an offer to sell the issue A. I and III B. I and IV C. II and III D. II and IV

B. I and IV A "red herring" preliminary prospectus may be sent to any prospective purchaser of that new issue once the issue has entered into the "20 day cooling off" period that commences upon filing of the registration statement with the SEC. The use of the "preliminary prospectus" does not constitute an "offer" under the 1933 Act, and the red ink statement on the cover of the preliminary prospectus states this (hence the name "red herring"). The red herring is used to obtain non-binding indications of interest in the issue, and may be sent to anyone during the cooling off period, whether or not that person has previously expressed any interest in the issue.

Which of the following are non-exempt securities under the Securities Act of 1933? I Government National Mortgage Association Mortgage Pass Through Certificates II Small Business Investment Company Shares III Commercial Paper maturing over 270 days IV Variable Annuity Contracts A. I & II B. III & IV C. II, III & IV D. I, II, III & IV

B. III & IV Government National Mortgage Association is owned by the U.S. Government. Its issues are exempt from the provisions of the Securities Act of 1933. Small Business Investment Companies are also exempt from the Act's provisions (though regular Investment Company issues are non-exempt). For commercial paper to be exempt, its maturity must be 270 days or less. Since the maturity in this question is over 270 days, this issue is non-exempt. Variable annuity contracts are also a non-exempt security that must be registered under the 1933 Act, because the customer is basically buying a mutual fund in an insurance company "wrapper." Note, in contrast, that fixed annuities sold by insurance companies are not defined as a security and hence are not subject to registration requirements.

Rule 144 applies to: I purchases of control stock II purchases of restricted stock III sales of control stock IV sales of restricted stock A. I and II only B. III and IV only C. I and III only D. II and IV only

B. III & IV Rule 144 does not apply to stock purchases - it only applies to stock sales. It applies limits to sales of restricted (private placement) stock in the open market and sales of registered stock being sold by control persons.

What risk is the greatest concern in a Rule 144A transaction? A. Inflation risk B. Marketability risk C. Interest rate risk D. Credit risk

B. Marketability Risk Rule 144A issues are private placement securities sold in minimum $500,000 blocks only to QIBs - Qualified Institutional Buyers (institutions with at least $100MM of assets available for investment). Whereas normal private placements cannot be traded, these can be traded from QIB to QIB. The market for this is PORTAL, but trading activity is thin in this market, especially as compared to the market for publicly traded securities.

Which of the following is an exempt security under the Securities Act of 1933? A. Unit Investment Trust B. Small Business Investment Company C. Open-End Investment Company D. Closed-End Investment Company

B. Small Business Investment Company Small business investment companies are an exempt security under the Securities Act of 1933. Other investment companies - whether they be open-end or closed-end management companies; or unit investment trusts; are non-exempt and must be registered with the SEC.

A registered representative has prepared a research report about a new stock issue that is currently in registration. The registered representative wishes to send the report to customers. Which statement is TRUE? A. The report can be mailed without restriction B. The report constitutes an "offer" under the 1933 Act and cannot be sent C. The report can only be mailed if approved or prepared by a Supervisory Analyst D. The report can only be sent if accompanied or preceded by a preliminary prospectus

B. The report constitutes an "offer" under the 1933 Act and cannot be sent During the "cooling off" period, the only items that do not constitute an "offer" or "sale" are the sending of a preliminary prospectus and the acceptance of an indication of interest. Anything more, such as sending a research report, is considered to be an "offer," which is prohibited until the registration is effective

To claim a private placement exemption: A. a registration statement must be filed with the SEC B. a Form D must be filed with the SEC C. a Form 144 must be filed with the SEC D. no filing is required with the SEC

B. a form D must be filed with the SEC Private placements are exempt transactions under the Securities Act of 1933. No registration is required. The issuer must file a Form D with the SEC within 15 days of the offering to claim the exemption. The filing of Form D is not a registration. It simply notifies the SEC that the issue is being offered in compliance with the exemption.

Under Rule 144, a customer wishing to sell must file the 144 "Notice of Sale" with the SEC: A. 10 business days prior to the placement of the sell order B. at, or prior to, the placement of the sell order C. 10 business days after the placement of the sell order D. 90 days after the placement of the sell order

B. at, or prior to, the placement on the sell order. The Form 144 is simply a notification to the SEC that stock will be sold in compliance with the Rule - the SEC does not approve of the sale. The Form must be filed by the seller at, or prior to, with the placement of the sell order.

Rule 144A applies to trading of: A. restricted stock in the open market B. private placements by qualified institutional buyers C. restricted stock in a private securities transaction StatusD D. private placements by individuals

B. private placements by qualified institutional buyers. Rule 144A allows qualified institutional buyers ("QIBs") to buy and trade between themselves large blocks of privately placed issues. Thus, issuers can sell private placements to these QIBs, who can then trade the private placement issues among themselves. This market is not available to individuals

Which statement is FALSE about Rule 147? A. Both the issuer and all purchasers must be state residents B. Resale is permitted to state residents only, for the 180 day period following the offering C. The rule exempts intrastate issues from State registration D. The rule exempts intrastate issues from Federal registration

C. Rule 147 exempts "intrastate" issues from registration with the SEC. However, the issue is still subject to state (blue-sky) registration. To obtain the 147 exemption, both the issuer and the purchaser must be state residents. Resale is restricted to state residents for 6 months following the offering; thereafter, the issue can be sold interstate. Note, however, that because these securities were never registered with the SEC, they cannot be publicly traded. The only way to resell them is in a "private transaction."

A seller who has filed Form 144 can sell 1% of the outstanding shares or the weekly average of the last 4 weeks' trading volume. This amount can be sold every: A. 30 days B. 60 days C. 90 days D. 180 days

C. 90 days Rule 144 allows the sale of 1% of the issuer's outstanding shares or the weekly average of the preceding 4 weeks' trading volume (whichever is greater). This amount can be sold every 90 days (every 3 months), so a sale can occur 4 times per year.

Which of the following securities are exempt from the Securities Act of 1933? I Benevolent Association issues II Small Business Investment Company issues III Common Carrier issues IV Industrial Company issues A. I and III B. II and IV C. I, II, III D. I, II, III, IV

C. I, II, III Benevolent association, small business investment company, and common carrier issues are all exempt under the Securities Act of 1933. Industrial companies are not exempt - their securities must be registered and sold with a prospectus.

An officer of a company has acquired shares of that issuer in the open market. If the officer wishes to sell the shares: I a 6 month holding period must be completed II there is no holding period requirement III a Form 144 must be filed with the SEC IV there is no requirement to file a Form 144 with the SEC A. I and III B. I and IV C. II and III D. II and IV

C. II & III "Control stock," which is registered stock of a company bought in the open market by an officer or director of that company, is subject to all Rule 144 requirements when the officer or director wishes to sell, except for the 6 month holding period. The 6 month holding period is required for restricted stock, but not for control stock

Intrastate offerings are subject to: I SEC registration II State registration III FINRA regulation A. I only B. II only C. II and III D. I, II, III

C. II & III Intrastate offerings are exempt from SEC registration, but are still subject to registration within the state where the offer is being made. In addition, the terms of the offering must be filed with FINRA and must comply with FINRA rules.

Which of the following statements are TRUE regarding restricted shares? I They are normally acquired through Rule 144 transactions II They are normally acquired through Regulation D private placement transactions III They can be sold publicly under a Rule 144 exemption IV They can be sold publicly under a Rule 147 exemption A. I and III B. I and IV C. II and III D. II and IV

C. II & III Restricted shares are normally acquired through private placements. If there is a public market for the stock at a later date, to sell the restricted shares in the market, they must either be registered or sold under a Rule 144 exemption.

Which statements are TRUE regarding intrastate offerings? I Intrastate offerings are subject to Federal registration II Intrastate offerings are exempt from Federal registration III Intrastate offerings are subject to State registration IV Intrastate offerings are exempt from State registration A. I and III B. I and IV C. II and III D. II and IV

C. II & III The Federal Government has no jurisdiction over intrastate offerings. The Federal Government only has jurisdiction over interstate offerings. Thus, intrastate offerings of securities are exempt from Federal registration, but still are subject to registration within that State under the State's Blue Sky laws.

Under Regulation D, which of the following statements are TRUE? I A Prospectus must be delivered to all purchasers II An Offering Memorandum must be delivered to all purchasers III Full disclosure must be made to investors IV No disclosure is required to investors A. I and III B. I and IV C. II and III D. II and IV

C. II & III Under Regulation D, purchasers of private placements must be given full disclosure about the issue, even though no prospectus is required (the issue is exempt). Disclosure is accomplished by providing the purchaser with a copy of an "Offering Circular," which for smaller private placements is called the "Offering Memorandum.

Which of the following are exempt issues under the Securities Act of 1933? I Real Estate Investment Trusts II Savings and Loan Issues III U.S. Government Bonds IV U.S. Government Bond Funds A. I and II only B. III and IV only C. II and III only D. I, II, III

C. II & III Only Investment companies, such as mutual funds, are non-exempt; therefore their securities must be registered and sold under a prospectus. Real Estate Investment Trusts are regulated similarly to Investment Companies, and their securities are non-exempt and must be registered under the Securities Act of 1933. U.S. Government issues, savings and loan issues, and municipal issues are exempt

Which statement is TRUE about credit on new issues? A. New issues are marginable as long as the offer is made with a prospectus B. New issues are not marginable until the effective date C. New issues are not marginable until 30 days from the completion of the offering D. New issues are not marginable until 60 days from the completion of the offering

C. New issues are not marginable until 30 days from the completion of the offering.

All of the following are exempt issues under the Securities Act of 1933 EXCEPT: A. U.S. Government Bonds B. Savings and Loan Issues C. Real Estate Investment Trusts D. Municipal Revenue Bonds

C. Real Estate Investment Trusts Real Estate Investment Trusts are regulated similarly to Investment Companies, and their securities are non-exempt and must be registered under the Securities Act of 1933. U.S. Government issues, savings and loan issues, and municipal issues are exempt.

Commercial Paper is a: A. money market instrument subject to the Securities Act of 1933 B. capital market instrument subject to the Securities Act of 1933 C. money market instrument exempt from the Securities Act of 1933 D. capital market instrument exempt from the Securities Act of 1933

C. money market instrument exempt from the Securities Act of 1933. Commercial paper is a money market instrument issued by corporations. It is an exempt security under the Securities Act of 1933 as long as its maturity does not exceed 270 days and can be sold without a prospectus.

When the Securities and Exchange Commission sets the effective date for a new issue in registration, this means that the: A. SEC has approved the offering for sale to the public B. SEC has certified that the offering documents give full and fair disclosure C. proper documents for registration have been filed with the SEC D. effective cost to potential purchasers has been established by the SEC

C. proper documents for registration have been filed with the SEC If the SEC sets the "effective date" for an issue in registration, this means that all proper documents have been filed with the SEC. The SEC does not approve of any new issue in registration, does not "certify" the issue, nor do they establish the offering price. Think of the SEC as a big filing cabinet - once the proper documents relating to a new issue offering are filed, the issue may be offered and sold to the public

Stock held by an officer or director of a company, or by a person or family with a controlling interest in the company. This kind of stock is registered stock of a company bought in the open market by an officer or director of that company, is subject to all Rule 144 requirements when the officer or director wishes to sell, except for the 6-month holding period.

Control stock

Which of the following securities are exempt from the registration provisions of the Securities Act of 1933? I U.S. Government issues II U.S. Government agency issues III General Obligation Bonds IV Industrial Revenue Bonds A. I & II B. III & IV C. I, II & III D. I, II, III & IV

D. I, II, III & IV Securities that are exempt from the registration provisions of the Securities Act of 1933 are principally governmental issues, including U.S. Government debt, U.S. Government agency debt and municipal debt. Industrial revenue bonds are a type of municipal bond, and hence, are exempt.

To sell restricted stock in compliance with the provisions of Rule 144, which of the following are required? I Filing of a Form 144 II Issuer's representation that the corporation is current with all required SEC filings III Seller's representation that the securities have been held fully paid for 6 months IV Broker's representation that it did not solicit the transaction A. I only B. I and II only C. III and IV only D. I, II, III, IV

D. I, II, III, IV

Which of the following are prohibited during the 20 day cooling off period for a new issue in registration? I Sale of the issue II Advertisement of the issue III Recommending the purchase of the issue IV Soliciting orders to buy the issue A. I only B. II and IV only C. I and III only D. I, II, III, IV

D. I, II, III, IV During the 20-day cooling off period for a new issue in registration, the worry of the SEC is that the underwriters will "hype" the issue to increase investor interest and hence increase the final Public Offering Price. Thus, while the issue is in registration, the issue cannot be offered, sold, advertised, or recommended, and orders to buy the issue cannot be solicited. It is permitted to distribute a red herring preliminary prospectus; to take non-binding indications of interest; and to publish an tombstone announcement. Legally, these are not considered to be offers of the security.

Which of the following securities are exempt from registration under the Securities Act of 1933? I Insurance company issues II Bank issues III Savings and loan issues IV Common carrier issues A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

D. I, II, III, IV When the Securities Act of 1933 was written, issuers that were already regulated under other laws were generally exempted from the provisions of the Act. Insurance companies were already regulated under State insurance laws; banks and savings and loans were regulated by both State and Federal banking laws; common carriers were regulated by the Interstate Commerce Commission (now part of the Department of Transportation).

Which of the following statements are TRUE about a Regulation D private placement? I The offering may be made to a maximum of 35 accredited investors II The offering may be made to a maximum of 35 non-accredited investors III The offering may be made to an unlimited number of accredited investors IV The offering may be made to an unlimited number of non-accredited investors A. I and II B. III and IV C. I and IV D. II and III

D. II & III A private placement is an offering of securities to a maximum of 35 "non-accredited investors" and an unlimited number of accredited (wealthy or institutional) investors.

Which of the following are defined as "accredited investors" under Regulation D? I Non-profit organization with assets in excess of $2,000,000 II Trust with assets in excess of $5,000,000 whose purchase is directed by a sophisticated person III Partnership with assets in excess of $5,000,000 formed for the specific purpose of acquiring the securities offered IV A bank or savings and loan institution A. I and III B. I and IV C. II and III D. II and IV

D. II & IV A non-profit organization, trust, or institutional investor is accredited if it has at least $5,000,000 of assets and was NOT formed with the intent of buying the private placement. The idea here is that people could attempt to get around the 35 non-accredited investor limit by having these non-accredited investors contribute to a trust that would buy the issue. If the trust accumulated $5,000,000 for investment, it would be accredited. But the rule disallows this if the trust is formed for the purpose of buying the private placement!

Which of the following statements are TRUE regarding Rule 415, the shelf registration rule? I Rule 415 allows seasoned issuers to file a blanket registration statement which covers a period of 1 year II Rule 415 allows seasoned issuers to file a blanket registration statement which covers a period of 3 years III The issuer must comply with the 20-day cooling off period requirement IV The issuer avoids the 20-day cooling off period requirement A. I and III B. I and IV C. II and III D. II and IV

D. II & IV SEC Rule 415, the "shelf registration rule" allows "seasoned issuers" to file a blanket registration statement with the SEC, covering a period of 3 years, for any securities that the issuer may wish to sell. If the seasoned issuer wishes to sell any securities during this 3 year period, it simply files a notification with the SEC that it is selling under that registration statement.

Which of the following activities are allowed prior to the filing of a registration statement? I Solicitations of indications of interest II Solicitations of orders III Sending a preliminary prospectus IV Publishing a tombstone announcement A. I and II only B. II and III only C. I, II, III, IV D. None of the above

D. None of the above. Prior to the filing of a registration statement for a new issue, nothing can be done. Once the registration statement is filed, a preliminary prospectus can be sent; indications of interest can be accepted; and a "tombstone" announcement can be published. Once the registration is effective, orders can be accepted if customers receive the final prospectus, at or prior to, confirmation of sale.

All of the following statements are true if the SEC sends a deficiency letter to the issuer regarding an issue in registration EXCEPT: A. disclosure in the registration documents is not complete B. the issuer must file an amendment with the SEC to cure the deficiency C. the 20-day cooling off period starts again once the amendment is filed D. the effective date of the issue is unaffected by the deficiency notice

D. The effective date of the issue is unaffected by the deficiency notice. An SEC "deficiency letter" indicates that there is not adequate disclosure in the registration documents to allow investors to make an informed decision. The deficiency must be cured before the SEC will allow the registration to be effective. Once the amendment is filed, the 20-day cooling off period starts counting again from the beginning. If the SEC finds that there is not adequate disclosure after the amendment is filed, it can issue subsequent deficiency letters. Thus, the registration for the issue may never "go effective."

Which statement is TRUE about the acceptance of an "indication of interest" for a registered offering during the 20 day cooling off period? A. The indication cannot be canceled by the customer; the indication cannot be canceled by the brokerage firm B. The indication cannot be canceled by the customer; the indication can be canceled by the brokerage firm C. The indication can be canceled by the customer; the indication cannot be canceled by the brokerage firm D. The indication can be canceled by the customer; the indication can be canceled by the brokerage firm

D. The indication can be cancelled by the customer; the indication can be canceled by the brokerage firm. indications of interest which are accepted prior to the effective date of an issue in registration are not binding. The customer or the firm can cancel the indication at any time without penalty. During the cooling off period, orders cannot be accepted (these are binding) because the final prospectus is not yet available. Under the Securities Act of 1933, an offer or sale can only be made with the final prospectus. The final prospectus is available, and sales commence, as of the effective date.

To offer a private placement, which statement is TRUE? A. A registration statement must be filed with FINRA prior to sale B. A registration statement must be filed with the SEC prior to sale C. A registration statement must be approved by the principal of the firm prior to sale D. The offering is exempt, so no registration is required

D. The offering is exempt, so no registration is required. Private placements are exempt transactions under the Securities Act of 1933. No registration is required. The issuer must file a Form D with the SEC within 15 days of the offering to claim the exemption. The filing of Form D is not a registration. It simply notifies the SEC that the issue has been offered in compliance with the exemption

A brokerage research department has been following the common stock of Acme Corporation and has prepared a favorable research report on the company. The brokerage firm is a member of a syndicate handling an issue of Acme common stock that is currently in registration. A registered representative wishes to send the research report to all of his customers. Which statement is TRUE? A. The report can be sent only if it has been approved by a supervisory analyst B. The report can be sent only if it is accompanied, or preceded by, a preliminary prospectus C. The report can be sent only if it has been approved by the branch office manager D. The report cannot be sent until registration is effective

D. The report cannot be sent until registration is effective. When an issue is "in registration," meaning it is in the 20 day cooling off period, nothing can be sent to a customer that can be considered to be an "offer" of the securities. Under the Securities Act of 1933, no offer can be made unless a final prospectus accompanies the offer. Since no final prospectus is available, the research report cannot be sent to customers since it would constitute an "offer." Furthermore, because the member firm is in the syndicate underwriting the issue, the research report cannot be issued for 10 days following the effective date (this is for an add-on offering; if this were an IPO, a research report could not be issued for 40 days following the effective date).

All of the following are permitted to purchase a 144A issue EXCEPT a(n): A. Bank B. Trust company C. Insurance company D. Accredited investor

D. accredited investor Only QIBs - Qualified Institutional Buyers - can purchase Rule 144A issues. The basic definition of a QIB is an institution with at least $100 million of assets available for investment - so these are "big boys."

All of the following are QIBS under Rule 144A EXCEPT: A. a pension fund with at least $100 million of assets to invest B. employee benefit fund with at least $100 million of assets to invest C. institution with at least $100 million to invest D. individual with at least $100 million to invest

D. an individual with at least $100 million to invest A qualified institutional buyer must be an institutional investor (not an individual) with at least $100 million of discretionary funds available for investment. QIBs can be investment companies, insurance companies, banks, trust funds, employee benefit plans and employee retirement funds.

Electronic delivery of a prospectus is NOT permitted for: A. common stock issues B. preferred stock issues C. corporate debt issues D. investment company issues

D. investment company issues The "access equals delivery" rule that permits electronic delivery of a prospectus (instead of paper) to those customers that have internet access is permitted for all securities offerings with the exception of investment company issues. For example, the purchaser of a mutual fund must still get a paper prospectus.

Under SEC Rule 145, all of the following corporate distributions by an issuer are exempt from the requirement to file a registration statement EXCEPT: A. stock dividend B. fractional stock split C. whole stock split D. stock spin off

D. stock spin off SEC Rule 145 requires issuers to file registration statements with the SEC when publicly traded securities are created due to such actions as a: Merger; Divestiture; Spin off. Registration statement is NOT required to be filed if a corporation splits its stock or distributes a stock dividend, since such a distribution affects only the par value of the outstanding shares - it does not create a new class of security.

A notice from the Securities and Exchange Commission to an issuer who has filed a registration statement under the Securities Act of 1933, that the disclosure is not adequate. The registration statement must be amended, and the 20 day cooling off period starts recounting from the date of the amendment filing.

Deficiency letter

An offer of securities that is made only in only one state, that is an exempt transaction under the Securities Act of 1933, since the Federal government does not have jurisdiction unless the transaction crosses state lines. However, the offering must still be registered in that state, under the state "Blue Sky" laws. In addition, the terms of the offering must be filed with FINRA and must comply with FINRA rules.

Intrastate offering

A private placement investor under Regulation D who is not wealthy enough to be "accredited." A maximum of 35 non-accredited investors are permitted in a private placement for the transaction to be exempt under the Securities Act of 1933.

Non-accredited investor

The disclosure document used in connection with a Regulation D private placement offering. Because this transaction is exempt, no prospectus is required under the Securities Act of 1933.

Offering Memorandum aka Private Placement Memorandum

An exempt transaction under Regulation D that can be sold without a prospectus to an unlimited number of accredited (wealthy) investors, but only to a maximum of thirty-five (35) non-accredited investors.

Private Placement

An exempt transaction under the Securities Act of 1933 that allows a private placement of securities to the public without the filing of a registration statement with the SEC. The transaction can be sold to an unlimited number of accredited (wealthy) investors, but only to a maximum of 35 non-accredited investors.

Regulation D

Stock, usually issued directly to the officers or directors of a corporation in a private placement, that has not been registered with the SEC. These shares are privately placed under Regulation D, and thus are exempt from registration. Resales in the public markets must comply with the provisions of SEC Rule 144.

Restricted Stock

An SEC rule that permits the holders of private placement "restricted" shares to resell these securities in the public markets without filing a registration statement, if the issuer has "gone public." It requires public notice of the sale; places limitations on the timing of the sales; and limits the amount that can be sold. Holders of "control" stock (shares purchased by officers of the issuer in the open market) also come under most of the rules limitations.

Rule 144

Rule that permits large private placement offerings to be made to Qualified Institutional Buyers (QIBs) who may trade these securities among themselves without having to register the securities.

Rule 144 A

The SEC rule that spells out the requirements for an issuer to obtain an exemption from registration for a new issue because the offering will be made only in 1 state (an intrastate exemption). 100% of the issue must be sold solely to state residents to obtain the exemption.

Rule 147

___________________ permitting the sale every 3 months of 5,000 shares or less, worth $50,000 or less, without having to file a Form 144. The transfer agent is authorized by the SEC to transfer the shares without a copy of the Form 144

de minimus exemption