Flashcards

Question 1

ET:Nonissuer transactions by pledgees

Answer 1

Executed by a person who received the security as collateral for a loan
EX: Joe makes a purchase on margin and puts up 50% of the collateral in his Money Market fund. Joe is unable to fulfill his commitment and his Broker/Dealer liquidates the MM to cover the loan.

Question 2

ET:Unsolicited Brokerage Transactions

Answer 2

Client initiated
EX: Bob calls his broker and asks him to place an order for 100 shares of Microsoft. His broker places the order for Bob.

Question 3

ET:Isolated Nonissuer transactions

Answer 3

No securities professional involved
EX: My neighbor offers me 20 shares of Ford for $20 a share. I write him a check the next day and he brings me the certificates.

Question 4

ET:Limited Offering Transactions

Answer 4

Offer for sale to no more than 10 non-institutional investors in 12 months.
EX: Bill’s Broker/Dealer offers shares of Twitter to 10 individual investors but only gets 6 individuals to purchase the shares.

Question 5

ET:Preorganization Certificates

Answer 5

Limited to 10 subscribers with no payment is made for the subscription
EX: A new corporation XYZ is in the process of initiating their corporate charter. XYZ obtains 10 subscribers for their company to receive their charter.

Question 6

ET:Underwriter Transaction

Answer 6

Transactions between the issuer and investment bankers
EX: The issuer and investment banker enter into a firm commitment agreement to distribute shares of ABC’s IPO to the public.

Question 7

ET:Bankruptcy, guardian, conserator

Answer 7

Executor, administrator, trustee, marshal, sheriff, etc for insolvency.
The executor of an estate liquidates an account to distribute to the deceased’s beneficiaries.

Question 8

ET:Institutional transactions

Answer 8

Transactions between financial institutions

EX: An employee benefit plan with assets of $1 million purchases shares of a mutual fund.

Question 9

ET:Existing Security holders

Answer 9

A sale of a security the investor already holds and no commission is charged
The client already holds 100 shares of ABC company and purchases an additional 50 shares from her Agent paying no commission for the sale.

Question 10

ES:US and Canadian Government and Municipalities

Answer 10

Issued by the government or the states/provinces in them
i.e. Manitoba or Ontario Municipal bond
Provinces of Canada
i.e. US Government Bonds
i.e. Malvern Municipal Bond

Question 11

ES:Foreign Government Securities

Answer 11

Issued by foreign governments the US has relations with—does not include states/provinces
For example the Mexico City Municipal bond would NOT be exempt but the Mexican government bond would be exempt

Question 12

ES:Depository Institutions

Answer 12

Banks, savings institution, trust company, or S+L if authorized to do business in the state
A savings & loan has to be authorized to due business in this/a state (not just any state)

Question 13

ES:Insurance Company

Answer 13

Securities issued by insurance companies, not their separate accounts
i.e. State Farm Bond or Stock

Question 14

ES:Public Utilities

Answer 14

Public utility company, public utility holding company, or equipment trust certificates issued by a railroad, etc

Question 15

ES:Federal Covered Securities

Answer 15

Includes common stock listed on a stock exchange and anything senior to it (aka bonds)
i.e. Ford listed on the NYSE or Microsoft listed on NASDAQ
1940 Investment Companies
FAC’s
UIT’s
Open and Closed end funds

Question 16

ES:Securities issued by non-profits

Answer 16

Religious, educational, fraternal, charitable, etc
The administrator can revoke or deny the exemption of non-profit organizations, specifically for religious, education, benevolent, charitable, fraternal, social, athletic, or reformatory purposes.

Question 17

ES:Securities issued by cooperatives

Answer 17

Issued by non-profit membership cooperatives to members of that cooperative
ONLY offered to members of that cooperative issuing the security

Question 18

ES:Securities of employee benefit plans

Answer 18

Investment contract issued by employee stock purchase, saving, pension, or profit sharing plan

Question 19

ES:Certain MM Instruments

Answer 19

Commercial paper and Banker’s Acceptances are the most common examples used
Other MM instruments include promissory notes (another name for commercial paper), Negotiable CD’s, T-Bills, etc.
Remember it must be a high quality debt instrument with a duration of a year or less!

Question 20

When can you sell a NON-exempt, unregistered security?

Answer 20

TWO WAYS!
Either through an exempt transaction
Or it must be properly registered with the states

Question 21

What does it mean for a security to be exempt or a transaction to be exempt?

Answer 21

EXEMPT means that the security being sold is exempt from registering with the state
NEVER exempt from fraud!

Question 22

Qualification

Answer 22

If it is not eligible for another method, qualification is used for registering
If only sold in one state, this method should be used—an intrastate offering
Consent to service of process
All other information required by the administrator
In this method of registration the Administrator has all the power in the effectiveness of the security
The security will be effective under qualification whenever the Administrator so orders!
If increasing the number of shares to be sold a new registration statement is not needed if:
Public Offering Price (POP) is same as original
Underwriting spread is same as original

Question 23

Coordination

Answer 23

The SEC and state coordinate registration
Used for interstate/multi-state offerings
Amendments to the prospectus filed with the SEC must also be filed with Administrator promptly
The security’s effective date will be the day it is effective with the SEC as long as…
No stop orders have been issued
The registration has been on file for 10-20 day (aka the cooling off period)
Statement of max and min proposed offering prices and max underwriting spread has been on file for 2 business days
Commonly used for securities sold over the counter (OTC market)
When coordinating, they must also provide the consent to process and copies of the latest prospectus, articles of incorporation, underwriting agreement, other information the administrator requests.

Question 24

Notice Filing

Answer 24

Used for federally covered securities
Security will be offered in all 50 states
Allows the Administrator to collect fees
Must include consent to service of process as well as:
report on the value, documents filed as amendments, and documents filed along with their registration statements

Question 25

What is a security?

Answer 25

An investment of money
In a common enterprise
That is managed by others
With the expectation of profit
Also known as the Howey Decision

Question 26

What is NOT a security?

Answer 26

Currency
Collectibles
Commodities or commodities futures contracts
Condos used as a primary residence
Interest in a retirement plan
Insurance or endowment policy or annuity contract under which an insurance company promises to pay a fixed sum of money either in a lump sum or periodically.
i.e. fixed annuity