Regulation of Securities and Issuers practice questions

Answer: D) Antifraud provisions governing offers, sales, and purchases

An exemption removes only the registration requirement and the conditions tied to registration, such as escrow and merit review. The antifraud provisions still apply to every security and every transaction.

• AIncorrect. Escrow of proceeds or promoters' shares is a condition the Administrator may attach to a registration statement. An exempt security does not register, so registration conditions such as escrow do not apply.
• BIncorrect. This is exactly what the exemption removes. An exempt security can be offered and sold without registering it in the state.
• CIncorrect. Merit review happens when the Administrator examines a registration filing, typically registration by qualification. Because an exempt security files no registration, it is not subject to merit review.
• DCorrect. Exemptions apply only to registration. Every securities transaction, including exempt ones, remains subject to antifraud provisions, so misstatements or omissions of material fact are still prohibited.

Answer: A) An exempt transaction

• ACorrect. Bona fide pledgee sales are exempt.
• BIncorrect. It is allowed.
• CIncorrect. The issuer isn't selling.
• DIncorrect. The state exemption applies.

Answer: C) A U.S. Treasury bond

• AIncorrect. These generally must register.
• BIncorrect. These usually must register.
• CCorrect. U.S. government securities are exempt.
• DIncorrect. Variable annuities aren't exempt as insurance.

Answer: A) Copies of each amendment it files to the federal registration statement

Registration by coordination piggybacks on the federal registration. The issuer undertakes to forward amendments to the federal registration statement to the Administrator, so the state file stays consistent with the SEC filing.

• ACorrect. A coordination registrant must undertake to forward amendments to its federal registration statement to the Administrator promptly. That way the state filing tracks the federal filing.
• BIncorrect. The SEC doesn't approve or pass on the merits of securities. A registration statement becoming effective isn't a merit approval.
• CIncorrect. Coordination relies on the federal prospectus. A separate state-drafted disclosure document is a feature of registration by qualification.
• DIncorrect. Each state's registration is independent, and the Act has no requirement that the offering first be registered in all other states.

Answer: B) At the moment the federal registration statement becomes effective

Registration by coordination becomes effective at the same moment the federal (SEC) registration statement becomes effective, as long as the state conditions are met and no stop order is in effect.

• AIncorrect. Filing with the SEC only starts the federal review process. State effectiveness under coordination is tied to federal effectiveness, not to the federal filing date.
• BCorrect. Registration by coordination becomes effective at the same time as the federal registration statement, provided no stop order is in effect, the statement has been on file with the Administrator for the required period, and the price amendment has been filed.
• CIncorrect. The required time on file with the Administrator is a condition for effectiveness, not the trigger. The registration can't take effect before the federal registration does.
• DIncorrect. Coordination doesn't require a hearing or an affirmative order. It takes effect automatically with federal effectiveness. Registration by qualification is the method that takes effect when the Administrator so orders.

Answer: A) They are exempt securities, so they need no state registration or notice filing

The Uniform Securities Act lists securities issued by federally chartered and state-regulated credit unions as exempt securities. Because of who issues them, they need no state registration or notice filing.

• ACorrect. The Act lists securities issued by federal and state-regulated credit unions among its exempt securities. Because the exemption attaches to the security itself, no state registration or notice filing is required, whoever the buyer is.
• BIncorrect. The Act exempts credit union securities outright. The state does not require a notice filing or fee, as it would for some federal covered securities such as investment company shares.
• CIncorrect. Whether an issuer files with the SEC does not decide this. The Act exempts credit union securities, so no registration by qualification is needed.
• DIncorrect. This confuses an exempt transaction with an exempt security. Credit union securities are exempt because of their issuer, including when the credit union sells them directly.

Answer: B) The security the warrant can be used to buy

• AIncorrect. The underlying is also offered.
• BCorrect. The underlying is offered too.
• CIncorrect. It's the underlying security.
• DIncorrect. It's the underlying security.

Answer: C) A collectible bought for personal enjoyment

• AIncorrect. That's a security.
• BIncorrect. That's a security.
• CCorrect. It isn't an investment contract.
• DIncorrect. That's a security.

Answer: B) Exempt transactions

• AIncorrect. They are exempt.
• BCorrect. The later sales to the public are not.
• CIncorrect. They are exempt transactions.
• DIncorrect. They are exempt.

Answer: B) 9 months

• AIncorrect. The limit is 9 months.
• BCorrect. That's 270 days or less.
• CIncorrect. The limit is 9 months.
• DIncorrect. The limit is 9 months.