66-2 Flashcards
List the securities that are exempt from registration.
Government/municipal bonds, commercial paper, bankers’ acceptances, bank issues, non-profit and small business issues
Though some securities are exempt from registration, nothing is exempt from the ____________ provisions of the Act.
anti-fraud
Regulation A exemption is allowed if issuers raise no more than $____________ over 12 months.
$5 million
The ____________________ is the disclosure document concerning a Regulation A issue.
offering circular
True or False: 100% of investors must be state residents to qualify for an intrastate exemption.
true
What is the rule that issuers must follow to qualify for an intrastate exemption?
80% of assets located in-state, 80% of revenue produced in-state, and 80% of proceeds raised are used in-state.
The private placement disclosure document is the _____________________.
Offering Memorandum
What rules govern the registration of an issue in any state in which it will be offered?
Blue-Sky Laws
True or False: Blue-Sky Laws apply to broker-dealers and agents operating within a state.
True
Is an option on a commodity futures contract a security?
Yes. The futures contract is not, but the option is a security. Options could be based on an equity, index, or currency.
Would an interest in a real estate condominium development be considered a security?
yes
True or False: Precious metals are not considered securities.
True
Is a voting trust certificate a security?
Yes
Is a Keogh plan considered a security?
No, but Keogh plan participation is considered a security.
Is an investment interest in livestock considered a security?
yes
Is a certificate of interest in a mining lease a security?
yes
Is a fixed annuity a security?
No, but variable contracts (e.g., variable annuities or variable life insurance) are considered securities.
Is an endowment life insurance policy a security?
no
Is a variable life insurance policy a security?
Yes, but a term or universal life insurance policy is not considered a security.
Is a universal life insurance policy considered a security?
no
Is Keogh plan participation considered a security?
Yes, but the Keogh plan itself is not a security.
Is a 401(k) plan considered a security?
no
Is treasury stock considered a security?
Yes. Treasury stock is stock that was issued and subsequently repurchased by the company.
Is a debenture considered a security?
Yes. A debenture is an unsecured corporate bond
Is a preemptive right considered a security?
yes
Is a warrant a security?
yes
Is a preorganization certificate considered a security?
yes
Is an IRA account considered a security?
No
Is a futures contract considered a security?
No, but an option on a futures contract is a security.
Is a multi-level distributorship considered a security?
yes
Is a limited partnership a security?
Yes
Is an interest in oil and gas drilling program considered a security?
yes
Is a whiskey warehouse receipt considered a security?
yes
Is an individual who represents an issuer in the sale of municipal bonds considered an agent?
No, since the individual is involved in the sale of exempt securities.
Is an individual who represents the issuer of a private placement considered an agent?
No, since the individual is involved in an exempt transaction.
Is an individual who represents the issuer in the sale of Treasury bonds considered an agent?
No, since the individual is involved in an exempt transaction.
Is an individual who represents a bank in the sale of the bank’s stock considered an agent?
No, since the individual is involved in an exempt transaction.
Is an individual who represents an issuer in the sale of stock to a bank considered an agent?
No, since the individual is involved in an exempt transaction.
Is an individual who represents an issuer in the sale of the issuer’s stock to its underwriter considered an agent?
No, since the individual is involved in an exempt transaction.
Is Jim an agent if he works in ABC’s retirement dept. and, once a year, places ABC stock in employees’ accounts?
No, Jim is representing the issuer in an exempt transaction.
True or False: Securities issued by provinces and municipalities of Canada are subject to state registration.
False. Securities issued by Canadian provinces or municipalities are exempt from registration.
Are bonds issued by the City of New York exempt from state registration?
yes
True or False: Securities issued by the states and municipalities of Mexico are exempt from registration under the USA.
True. An exemption is provided to securities issued by foreign governments with whom the U.S. has diplomatic relations.
Securities issued by any government with whom the U.S. has _____________ relations are exempt from state registration.
diplomatic
True or False: Securities issued by the U.S. Treasury and U.S. agencies are deemed exempt securities under the USA.
True
________ issued by insurance companies are exempt from state registration.
Bonds
True or False: Securities of a Canadian company, but listed on the NYSE, are exempt from state registration.
True
Are bonds issued by a charitable organization subject to state registration?
No. Securities issued by non-profit organizations are exempt from registration.
What criteria must be met for commercial paper to be exempt from registration?
A 270-day maximum life, minimum denomination of $50,000, rated in one of the top-three categories according to an NRSRO
An executor of an estate sells a block of securities that are not registered. Is this a violation?
No. This is an example of an exempt transaction.
Would securities that are traded on the Toronto Stock Exchange be subject to state registration requirements?
No. These secondary market transactions are considered exempt from registration according to the USA.
True or False: Bankers’ Acceptances rated AAA, maturing in 6-months, and issued in $25,000 denominations are exempt.
False. Because the BAs were not issued in at least $50,000 denominations, registration is required.
Is a private placement defined as an exempt transaction or as an exempt security under the USA?
exempt transaction
Under the USA, private placements are exempt if securities are offered to ____ or fewer retail clients over ____ months.
10 or fewer clients over 12 months
True or False: Agents selling unregistered, non-exempt securities to banks and trust companies are violating the USA.
False. Transactions with banks and trust companies are considered exempt transactions.
If a Nasdaq stock trades in the secondary market, does the USA consider it an exempt security or exempt transaction?
exempt security
Are securities traded on the OTCBB or the Pink Sheets exempt?
no
True or False: Bonds issued by a railroad are exempt from state registration.
True. Securities issued by a railroad, common carrier, or public utility are exempt at the state level.
Are securities issued by a software company exempt from state registration?
no
True or False: According to the USA, debt issued by a fraternal organization would NOT be considered exempt.
False. Securities issued by non-profit organizations are exempt from state registration.
What does the USA consider a security issued by an investment company that is registered under the Inv. Co. Act of 1940?
The securities are considered federal covered.
Non-issuer trading of securities subject to reporting requirements of the Act of 1934 are _________ transactions.
exempt
True or False: Occasional, secondary market transactions in an OTCBB stock are considered exempt transactions.
False. Only non-recurring secondary market transactions are considered exempt transactions.
Is an isolated, non-recurring, non-issuer transaction in OTCBB or Pink Sheets stock subject to registration?
No, it is an exempt transaction
Is an unsolicited, non-issuer transaction in an OTC stock exempt from state registration?
yes, because it is unsolicited
True or False: The sale of securities to a pension plan is considered an exempt transaction under the USA.
True
Registration by Filing (Notification) requires issuers to be in business at least _____ months preceding registration.
36 months
An intra-state offering would use which method of state securities registration?
qualification
What method of state securities registration requires issuers to wait to hear from the Administrator before selling?
qualification
To use Filing (Notification) to register stock, the offering price must be at least $______ per share.
$5.00
Registration by Filing (Notification) requires that the underwriting commission be no more than _____%.
10%
Registration by Coordination has a minimum cooling-off period of _____ days.
10 days
Which method of state securities registration would likely be used for an IPO being offered in several states?
coordination
Registration by Coordination requires issuers to meet requirements of the USA as well as what other Act?
The Securities Act of 1933
True or False: A state may require a registration fee from the issuer of a Nasdaq security.
False
True or False: A state may require notice filing by an issuer of an NYSE security.
True. Notice filing is the requirement to provide the state with the same information that was filed with the SEC.
True or False: An Administrator may not require a sales report from the issuer of an OTC security.
False
True or False: Soliciting orders for unregistered, non-exempt securities is prohibited.
True
Accepting orders for unregistered, non-exempt securities is allowed if clients attest that the trade was _____________.
unsolicited
Define an investment contract (according to the Howey Test).
An investment of money, in a common enterprise, with expectation of a profit due to efforts of third-party management.
True or False: Securities issued by registered investment companies are considered federal covered securities.
True
True or False: Securities traded on the NYSE may be required to pay a registration fee to a state Administrator.
False
After receiving an effective date, what information may an issuer change by amending its registration statement?
The number of shares being offered. A new registration is required to change offering price or underwriter compensation.
Regarding federal covered securities, may an Administrator cancel a registration?
No
Regarding federal covered securities, may an Administrator prohibit the sale of the security in his state?
No
Regarding federal covered securities, may an Administrator require the issuer to complete the notice filing?
Yes. Notice filing is the process by which information filed with the SEC is also filed/shared with the Administrator.
As it applies to persons and securities, what does the term “exemption” mean in the USA?
Exemption signifies that a person or security is not subject to registration under the USA.
An individual who represents an issuer in selling registered, non-exempt securities for compensation is an ________.
agent
True or False: Variable annuities are not securities and are, therefore, not subject to registration.
False. Any variable products are considered securities. However, fixed insurance products are not securities.
True or False: IRAs and Keogh plans are considered securities.
False. The participation in these plans (what goes in the plan) is considered a security, but the plan itself is NOT.
True or False: Options on commodities are securities.
True. Options are always considered securities (e.g., options on futures, a currency, an index, or equities).
True or False: Two friends, anticipating a rise in value, purchase property. The property is considered a security.
False
Identify the three forms of state securities registration.
Notification (filing), coordination, qualification
How would a well-established corporation register a subsequent offering to be sold in multiple states?
Notification (filing)
True or False: Paperwork related to coordination is filed with the Administrator at the same time as the SEC filing.
False. Registration will become effective simultaneously with SEC registration, but need not be filed at the same time.
What is the minimum cooling-off period for registration by notification?
5 days
Do the anti-fraud provisions of the USA apply to exempt securities?
yes, nothing is exempt from fraud
True or False: A trade of unregistered, non-exempt securities between two BDs would be a violation of the USA.
False. This is an exempt transaction.
If registering an IPO, an issuer would most likely use what form of state registration?
coordination
What form of state registration is not available in all states?
Notification (filing)
The only form of state registration that has its effective date set by the Administrator is _______________.
qualification
The solicitation of buyers for unregistered, non-exempt securities is _____________.
prohibited
True or False: Securities issued by municipalities of Mexico are exempt under the USA.
True. An exemption applies to securities issued by foreign governments with whom the U.S. has diplomatic relations.
True or False: Securities issued by municipalities of Canada are exempt under the USA.
True
Transactions between the issuer and its underwriter are considered ________ transactions.
exempt
May a state prevent the sale of a federal covered security in its state?
no
Regarding the underwriting of an issue, what is the purpose of holding a due diligence meeting?
To ensure the accuracy and completeness of all information being distributed to the public
Under Reg. D, a private placement may be sold to how many non accredited investors?
no more than 35
Accredited investors have net worth of at least $_________ or pre-tax income in each of the last two years of $________.
Accredited investors have net worth of at least $1,000,000 or pre-tax income in each of the last two years of $200,000.
A new issue being offered in one state only is _________ from federal registration under SEC Rule ______.
exempt; rule 147
What percentage of investors must be residents of the state for a security to be eligible for a 147 exemption?
100%
What is the general definition of an issuer?
Any person who issues or proposes to issue a security, such as government entities and corporations.
An _______of an ________ is an individual who represents an issuer in effecting transactions with the general public.
agent of an issuer
What’s an issuer transaction?
A transaction in which the issuer receives the proceeds.
True or False: A transaction by an executor is exempt.
True. Any transaction by an executor, administrator, trustee in bankruptcy, or conservator is considered exempt.
Who must prove that an exemption exists?
the party claiming the exemption
True or False: Under the Uniform Securities Act, municipal bonds are federal covered securities.
False. Municipal bonds are exempt securities. Federal covered securities include listed stocks and mutual funds shares.
False. Municipal bonds are exempt securities. Federal covered securities include listed stocks and mutual funds shares.
securities
According to the Securities Act of 1933, when is an investment pool considered a federal covered security?
When it registers as an investment company under the Investment Company Act of 1940
What four elements are required for an investment contract to be considered a security?
1) An investment of money, 2) A common enterprise, 3) Efforts made by a third party, 4) An expectation of profits
True or False: Under the Uniform Securities Act, debentures issued by a Canadian bank are exempt from registration.
True
A car dealer gives 100 shares of stock to all new car buyers. Is this considered a sale of securities?
Yes. Since the gift is contingent upon a purchase, it is considered a sale of the security.
Describe what it means for a security to be registered.
The security may be legally offered or sold in the state.
True or False: A certificate of interest in a mining title is a security under the USA.
True. Certificates of interest in mining or drilling titles are securities under the Uniform Securities Act.
True or False: Exchange-listed futures contracts are securities.
False. Futures and forward contracts are not securities.
True or False: Securities listed on the NYSE are exempt from state registration.
True
Under the USA, is a federal covered security trading in the secondary market an exempt security or an exempt transaction?
exempt security
Under the USA, is stock issued by an electric company an exempt security or an exempt transaction?
Securities issued by public utilities are considered exempt securities.
NSMIA indicates that securities listed on the NYSE, NASDAQ and Toronto Exchange are _________________ securities.
federal covered
Is an individual who represents an issuer in the sale of registered stock considered an agent?
Yes. An individual who represents an issuer of securities being offered publicly must register as an agent.
True or False: Charitable organizations may issue securities.
True, they may issue bonds
List some securities that are considered federal covered and exempt from registration.
Those listed on national exchanges (e.g. NYSE, NASDAQ) and investment company securities (e.g., mutual fund shares)
True or False: Federal covered securities issuers may be required to pay a filing fee to an Administrator.
True. Certain types of federal covered securities issuers may be required to pay a filing fee.
Name some of the federal covered securities.
Securities listed on an exchange, issued by an investment company, and sold as a private placement (Reg. D Rule 506)
