Flashcards
ET:Nonissuer transactions by pledgees
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.
ET:Unsolicited Brokerage Transactions
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.
ET:Isolated Nonissuer transactions
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.
ET:Limited Offering Transactions
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.
ET:Preorganization Certificates
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.
ET:Underwriter Transaction
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.
ET:Bankruptcy, guardian, conserator
Executor, administrator, trustee, marshal, sheriff, etc for insolvency.
The executor of an estate liquidates an account to distribute to the deceased’s beneficiaries.
ET:Institutional transactions
Transactions between financial institutions
EX: An employee benefit plan with assets of $1 million purchases shares of a mutual fund.
ET:Existing Security holders
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.
ES:US and Canadian Government and Municipalities
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
ES:Foreign Government Securities
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
ES:Depository Institutions
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)
ES:Insurance Company
Securities issued by insurance companies, not their separate accounts
i.e. State Farm Bond or Stock
ES:Public Utilities
Public utility company, public utility holding company, or equipment trust certificates issued by a railroad, etc
ES:Federal Covered Securities
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
ES:Securities issued by non-profits
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.
ES:Securities issued by cooperatives
Issued by non-profit membership cooperatives to members of that cooperative
ONLY offered to members of that cooperative issuing the security
ES:Securities of employee benefit plans
Investment contract issued by employee stock purchase, saving, pension, or profit sharing plan
ES:Certain MM Instruments
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!
When can you sell a NON-exempt, unregistered security?
TWO WAYS!
Either through an exempt transaction
Or it must be properly registered with the states
What does it mean for a security to be exempt or a transaction to be exempt?
EXEMPT means that the security being sold is exempt from registering with the state
NEVER exempt from fraud!
Qualification
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
Coordination
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.
Notice Filing
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
What is a security?
An investment of money In a common enterprise That is managed by others With the expectation of profit Also known as the Howey Decision
What is NOT a security?
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
