Chapter 2 - Exempt Securities and Transactions

Question 1

Exempt securities and Exempt transactions are only exempt from:

Answer 1

Registration requirements and the filing of advertising and sales literature (generally new issues).

Question 2

_________________ are issued by well-known, very credit worthy issuers such as governments, financial institutions, and some blue-chip companies.

Answer 2

Exempt Securities

Question 3

Are U.S. Government securities considered an exempt security?

Answer 3

Yes, includes treasury bonds, notes and bills as well as US Govt. agency issues

Question 4

Are Municipal Securities considered an exempt security?

Answer 4

Yes, including state or local government, transit authority, etc. This would also include general obligations and revenue bonds.

Question 5

Securities issued or guaranteed by the country of ________ or its provinces are considered exempt securities.

Answer 5

Canada

Question 6

True or False: Securities listed on a Canadian exchange or issued by Canadian Companies, including Canadian Insurance companies are exempt.

Answer 6

False. They are not included in an exemption.

Question 7

True or False: Securities issued by US Banks, savings institutions, or trust companies are considered exempt.

Answer 7

True

Question 8

True or False: Securities issued by holding companies which may own banks would be exempt securities.

Answer 8

False. They are not exempt from registration.

Question 9

True or False: Any security listed on a registered stock exchange such as the NYSE or NASDAQ is considered an exempt security.

Answer 9

True

Question 10

Under the USA, companies with common stock listed on an exchange or NASDAQ can issue other securities that are senior or substantially equal in rank to common stock. They are:

Answer 10

Secured Bonds (convertible and non-convertible), Unsecured Bonds (convertible and non-convertible) and Preferred Stock (convertible and non-convertible).

Question 11

Under the USA, registration would be required of securities for interest in limited partnerships and intrastate offerings of corporate securities where ______ or more investors will participate.

Answer 11

10

Question 12

True or False: Promissory notes, commercial paper, or bills of exchange issued in denominations of $50,000 or greater are considered exempt securities.

Answer 12

True

Question 13

_______________ do not include issuers or underwriters involved in a public offering and are exempt from the registration and advertising filing requirements. They typically involve private placements, intrastate offerings, regulation A offerings, transactions with financial institutions and unsolicited orders.

Answer 13

Exempt Transactions

Question 14

____________refer to securities transactions that occur infrequently and do not involve the issuer of the securities. These transactions are typically between private parties in a secondary market and are not part of a public offering.

Answer 14

Isolated non-issuer transactions

Question 15

True or False: A blank check, blind pool, or shell company is considered a exempt transaction.

Answer 15

False. Blank check, blind pool, or shell companies are not considered exempt transactions because their primary business plan often involves engaging in mergers or business combinations. This can pose significant risks to investors, as these companies typically have no specific business plan or purpose at the time of their formation. The lack of transparency and potential for misuse make them ineligible for certain exemptions under securities laws.

Question 16

Bona Fide pledges of securities are considered exempt transactions.

Answer 16

True

Question 17

True or False: non issuer transactions effected by or through a registered BD pursuant to an unsolicited order or offer to buy is not considered an exempt transaction.

Answer 17

False: Non-issuer transactions effected by or through a registered broker-dealer (BD) pursuant to an unsolicited order or offer to buy are considered exempt transactions because they involve minimal risk of fraud and manipulation. These transactions are initiated by the investor, not the issuer or broker-dealer, which reduces the likelihood of deceptive practices.
This exemption helps streamline the process for investors who independently decide to buy securities, ensuring they can do so without the additional burden of registration requirements.

Question 18

True or False: Transaction with financial institutions including sales to banks, savings institutions, trust companies, registered investment companies, and pension or profit-sharing trusts or other financial institutions or institutional buyers, or to BDs, whether the purchaser is acting for itself or in some other fiduciary capacity is an exempt transaction.

Answer 18

True

Question 19

Private Placements sold to not more than ____ persons other than institutional investors during a ____ month period are considered exempt transactions.

Answer 19

10; 12

Question 20

What conditions must be met to make a pre-organization subscription exempt from registration:

Answer 20

To make a pre-organization subscription exempt from registration, the following conditions must be met:

1.No commission or other remuneration is paid or given directly or indirectly for soliciting any prospective subscriber.
2. The number of subscribers does not exceed ten.
3. No payment is made by any subscriber.

These conditions help ensure that the subscription process is fair and transparent, and they are designed to protect investors in the early stages of a company’s formation.

Question 21

True or False: Rights, warrants, and convertible securities transactions are exempt with security holders or employees of Issuers, if no commission or other remuneration is paid.

Answer 21

True

Question 22

An administrator may by order revoke or deny certain exemptions which are the following:

Answer 22

Exempt transactions, exchange listed securities, securities of non-profit organizations, and investment contracts issued by employee benefit plans

Question 23

The administrator may by order summarily deny or revoke any of the specified exemptions but shall indicate within ____ days of the written request, a hearing be granted.

Answer 23

15

Question 24

No order to deny or revoke an exemption may be made _____________.

Answer 24

Retroactively

Question 25

Securities issued by other foreign governments—provided the U.S. maintains diplomatic relations with the foreign country and the securities being issued are recognized as a valid obligation of the issuer are considered exempt securities?

Answer 25

True

Question 26

True or False: Securities issued by not-for-profit organizations such as religious, educational, fraternal, charitable, social, athletic, trade, and professional associations are not considered exempt?

Answer 26

False. They are considered exempt securities.

Question 27

True or False: Securities sold to qualified purchasers, as defined under the Investment Company Act of 1940, are persons who own at least $5 million in investments are exempt?

Answer 27

True

Question 28

Rule _______ of Regulation D allows companies to raise unlimited funds, sell to unlimited accredited investors and up to 35 non-accredited investors, with no general solicitation or advertising.

Answer 28

What is Rule 506(b) of Regulation D.

Question 29

Rule _________ of Regualtion D Permits broad solicitation and advertising, but all investors must be accredited, and companies must verify their accredited status.

Answer 29

What is Rule 506© of Regulation D.

Question 30

True or False: Soliciting the sale of unregistered, exempt securities is permitted because the securities are exempt. However, soliciting the sale of unregistered, non-exempt securities is not prohibited.

Answer 30

False, soliciting the sale of unregistered, non-exempt securities IS prohibited.

Question 31

Any transaction between an issuer and an underwriter is considered an exempt transaction?

Answer 31

True

Question 32

True or False: Private placement transaction, provided it’s directed to no more than 10 retail (non-institutional) investors are considered exempt transaction?

Answer 32

True

Question 33

Any transaction by a fiduciary such as an executor, administrator, sheriff, marshal, trustee in bankruptcy, guardian, or conservator is not an exempt transaction.

Answer 33

False. Transactions by fiduciaries such as executors, administrators, sheriffs, marshals, trustees in bankruptcy, guardians, or conservators are considered exempt transactions. This exemption exists because these fiduciaries are acting in a legal capacity to manage or settle estates, not to engage in securities trading for profit. This helps streamline the process and reduce regulatory burdens in these specific, often court-supervised, situations.