NASAA Series 63 — All Questions

An issuer is conducting an interstate public offering and has filed a registration statement with the SEC under the Securities Act of 1933. To register the same offering in a state, the issuer would most appropriately use:

• a.No state registration, because a federal filing always preempts state law
• b.Registration by qualification
• c.Registration by notification
• d.Registration by coordination✓

Registration by coordination is designed for offerings registered federally under the Securities Act of 1933; the state filing rides alongside the federal one and becomes effective at the same moment as the federal registration, provided the state's timing and pricing conditions are satisfied. Qualification is the fallback for offerings with no federal filing. Notification is a streamlined route reserved for established issuers. Federal preemption applies only to federal covered securities, which is a separate concept from simply having filed with the SEC.Uniform Securities Act

Which statement about registration by qualification is correct?

• a.It is available to any issuer, requires the most detailed disclosure, and becomes effective when the Administrator so orders✓
• b.It is available only when a federal registration statement is also on file, and it takes effect with the federal one
• c.It becomes effective automatically on the second full business day after filing, unless the Administrator stops it
• d.It is available only to seasoned issuers with five years of continuous operations and a clean record on senior securities

Qualification is the most demanding method, requiring extensive information about the issuer, its officers, its capitalization, and the use of proceeds, and effectiveness comes only when the Administrator orders it. It is the universal method, available to any issuer, and is typical for purely intrastate offerings with no federal filing. Automatic effectiveness on a short clock and the seasoned-issuer conditions describe notification, and effectiveness tied to a federal filing describes coordination.Uniform Securities Act

Registration by notification, sometimes called registration by filing, is generally available to:

• a.Established issuers that meet stated requirements such as a minimum operating history and no default on senior securities✓
• b.Only issuers of securities that are exempt from registration, since an exempt issuer files a short notice in place of full registration
• c.Any issuer that has filed a federal registration statement, with state registration taking effect on the same date as the federal filing
• d.Only first-time issuers making a small offering, because the method skips the detailed disclosure that qualification requires

Notification is the abbreviated method reserved for seasoned issuers that satisfy conditions on operating history, earnings, and the absence of defaults on debt or preferred dividends. A first-time issuer with no track record cannot use it and would turn to coordination or qualification. Exempt securities need no registration at all, so the method would be irrelevant to them, and an issuer that simply has a federal filing on record is using coordination, not notification.Uniform Securities Act

A mutual fund registered under the Investment Company Act of 1940 offers shares to residents of State G. With respect to State G, the fund's shares are:

• a.Required to be registered by coordination in the state, because the fund's registration statement is already on file with the SEC
• b.Completely outside the state Administrator's reach for any purpose, including notice filings, fees, and antifraud enforcement
• c.Required to be registered by qualification in the state, because mutual fund shares are not on the list of exempt securities
• d.A federal covered security, so the state may require only a notice filing, fees, and a consent to service of process, while retaining antifraud authority✓

Investment company shares registered under the Investment Company Act of 1940 are federal covered securities, and federal law bars states from requiring their registration, whether by coordination or by qualification. States may still require notice filings, collect fees, and demand a consent to service of process. Antifraud jurisdiction is never preempted, so the claim that the Administrator has no reach at all overstates the preemption.Uniform Securities Act

A privately held manufacturer sells its unregistered notes to eight insurance companies and two banks. No general advertising is used. This offering is best described as:

• a.Both an exempt security and an exempt transaction, because the notes were sold only to financial institutions with no general advertising
• b.Neither exempt nor permissible without state registration, because ten purchasers is too many for the isolated-transaction exemption
• c.A sale of exempt securities, because the notes are obligations of an issuer whose only purchasers were financial institutions
• d.An exempt transaction, because sales to institutional investors are exempted from the registration requirement✓

This is the classic exempt-security versus exempt-transaction trap. The notes themselves are ordinary corporate securities with no special status, so nothing about the instrument is exempt and the notes cannot be both; what is exempt is the manner of sale, namely a transaction with institutional buyers, which is exempt however many of them there are. The isolated-transaction exemption is not the basis, so the number of purchasers does not defeat it. Change the buyers to retail investors and the very same notes would require registration, which is exactly what distinguishes a transactional exemption from a security-level one.Uniform Securities Act

Which statement about United States Treasury bonds under the Uniform Securities Act is correct?

• a.They must be registered by coordination in each state before they may be sold to retail customers
• b.They are exempt transactions rather than exempt securities, so the exemption depends on who buys them
• c.They are exempt securities, so the exemption follows the instrument in every transaction✓
• d.They are exempt only for the first sale by the issuer, and later resales through broker-dealers must be registered

Federal government obligations are listed as exempt securities, meaning the exemption attaches to the instrument itself and holds regardless of who buys or how the sale is arranged, including later resales. An exempt transaction, by contrast, depends entirely on the circumstances of the particular sale, which is why calling Treasuries exempt transactions or limiting the exemption to a first sale misdescribes it. Because the security is exempt, no method of state registration is needed.Uniform Securities Act

An individual investor sells 200 shares of an unregistered local company directly to her neighbor in a one-time private arrangement, with no broker involved and no pattern of similar sales. This is best characterized as:

• a.A prohibited transaction, because the shares are not registered in the state and no broker was involved
• b.A sale of an exempt security, because the issuer is a small local company with only a few shareholders
• c.A public offering requiring registration by qualification, because the shares of a local company must be registered in the state
• d.An isolated non-issuer transaction, which is an exempt transaction✓

An isolated non-issuer transaction, meaning a one-off resale by someone other than the issuer, is one of the enumerated exempt transactions, whether or not a broker is involved. The shares themselves are ordinary corporate stock and are not exempt securities, so the exemption is transactional only, and the company's size or location does not change that. The seller is not the issuer and is not making a public offering, so qualification is not required and the sale is not prohibited. The antifraud provisions still apply, so the seller may not misrepresent the company even in an exempt transaction.Uniform Securities Act

A customer telephones her broker-dealer and asks to buy shares of a specific company that is not registered in the state. The firm made no recommendation and no solicitation. The trade is:

• a.Prohibited, because the security is not registered in the state, and the customer's own request does not turn an unregistered security into a permitted sale
• b.Permitted as an unsolicited non-issuer transaction, an exempt transaction the firm may be required to document with a signed customer acknowledgment✓
• c.Permitted only if the customer is an institution
• d.Permitted only after the firm registers the security by qualification, because any sale of an unregistered security to an individual requires state registration

Unsolicited non-issuer transactions are exempt transactions, which is why an unregistered security may still be purchased when the order originates entirely with the customer. Administrators frequently require the firm to obtain a written customer acknowledgment that the order was unsolicited so the exemption can be verified later. The exemption is not limited to institutions, the sale is not prohibited merely because the security is unregistered, and no registration of the security is needed.Uniform Securities Act (1956) §402(b)(3)

Under the private placement exemption in the Uniform Securities Act, an issuer may make offers to no more than a limited number of non-institutional persons in any twelve-month period. Which additional condition applies?

• a.The buyers must purchase for investment rather than for resale, and no commission may be paid for soliciting non-institutional buyers✓
• b.The issuer must file a registration statement by notification
• c.The offering must raise at least one million dollars
• d.The buyers must all be residents of the same state

The state private placement exemption limits the number of non-institutional offerees in a twelve-month period, requires that buyers purchase for investment and not with a view to distribution, and forbids paying commissions for soliciting those non-institutional buyers. Institutional buyers are not counted against the limit. Residency and minimum offering size are not conditions, and filing a registration statement would defeat the purpose of an exemption.Uniform Securities Act

Which of the following is NOT an exempt security under the Uniform Securities Act?

• a.A general obligation bond issued by a school district, a municipal obligation the Act treats as fully subject to state registration in the hands of any ordinary retail purchaser
• b.Bonds issued by a nonprofit religious organization, instruments the statute declines to exempt because charitable issuers are treated exactly like ordinary corporate issuers
• c.A variable annuity contract issued by a licensed insurance company✓
• d.Common stock issued by a commercial bank

The insurance company exemption covers traditional insurance and fixed annuity products, but a variable annuity is a security whose value depends on a separate investment account and it is not exempt on that basis. Municipal obligations, securities issued by banks, and securities of nonprofit religious and charitable organizations all appear on the exempt security list. The identity or nature of the issuer is what drives most of these exemptions.Uniform Securities Act

A church issues bonds to finance construction of a new fellowship hall and sells them to members of the congregation. Under the Uniform Securities Act, these bonds are:

• a.Required to be registered by coordination, because the bonds are being offered to the public in the state
• b.Not securities at all, because a congregation's loan to its own church is a contribution and not an investment
• c.Exempt transactions only, because the sales were limited to church members and not made to the general public
• d.Exempt securities, because they are issued by a nonprofit religious organization✓

Securities issued by nonprofit religious, educational, charitable, and fraternal organizations are enumerated exempt securities, so the exemption travels with the instrument. The buyers' membership status is not what creates the exemption, which is why this is a security-level exemption rather than a transactional one, and why registration is not required. Debt instruments sold to raise money from investors are clearly securities, and the Administrator keeps antifraud authority over the sale.Uniform Securities Act

Which of the following is an exempt transaction under the Uniform Securities Act?

• a.A registered agent recommending a growth stock to a retail client in an ordinary solicited sale
• b.A mutual fund's continuous offering to the general public, since investment company shares are redeemable on demand
• c.A sale of securities by a court-appointed executor settling a decedent's estate✓
• d.An issuer's advertised public offering of common stock

Transactions executed by fiduciaries such as executors, administrators, sheriffs, marshals, receivers, trustees in bankruptcy, guardians, and conservators are enumerated exempt transactions because they arise from a legal duty rather than a sales effort. A recommended retail trade is ordinary solicited business. Advertised public offerings and continuous mutual fund offerings are the opposite of isolated or private transactions, though fund shares may escape state registration as federal covered securities, which is a different exemption entirely.Uniform Securities Act (1956) §402(b)(6)

In an administrative proceeding, a party claims that an offering qualified for an exemption from registration. Which statement is correct?

• a.Exemptions may be revoked only by a court
• b.The Administrator must prove that the exemption does not apply
• c.An exemption once claimed cannot be revoked
• d.The burden of proving an exemption rests on the person claiming it, and the Administrator may by order deny or revoke a specific exemption✓

The act places the burden of proving an exemption or an exception on the person who claims it, so a firm relying on an exemption should document the supporting facts at the time of the sale. The Administrator also has authority to deny or revoke an exemption for a particular security or transaction by order, subject to notice and hearing rights. No court order is needed for the Administrator to act.Uniform Securities Act

A seller relies on a valid exempt transaction and therefore does not register the securities. Which statement is correct?

• a.The antifraud provisions do not apply, because an exempt transaction is outside the act entirely
• b.The antifraud provisions of the act still apply to the offer and the sale✓
• c.The Administrator has no jurisdiction over the sale, only over the registration of securities
• d.The seller may omit material facts, because the exemption removes the duty to disclose to the buyer

An exemption relieves the parties of the registration requirement only; it never suspends the antifraud provisions, which reach any offer or sale of any security. The Administrator therefore retains full jurisdiction to investigate misstatements in an exempt offering. Unfounded projections presented as fact, or omitted material facts, would be actionable regardless of the exemption.Uniform Securities Act

Which statement about a state securities registration statement is correct?

• a.It may be filed only by the issuer itself
• b.It may be filed by the issuer, by any other person on whose behalf the offering is made, or by a registered broker-dealer, and it is generally effective for one year✓
• c.Once declared effective it remains effective indefinitely
• d.It may not be amended after the effective date under any circumstances

The act allows the issuer, a selling shareholder or other person on whose behalf the offering is being made, or a registered broker-dealer to file the registration statement. Effectiveness generally runs for one year from the effective date, so a continuing offering must be renewed. Post-effective amendments are permitted, most commonly to increase the number of shares registered.Uniform Securities Act

A small issuer registers a stock offering by qualification. The Administrator is concerned that the business plan cannot be carried out unless a substantial portion of the offering is sold. The Administrator may:

• a.Guarantee the offering from state funds so that investors are repaid in full if the issuer never reaches the minimum
• b.Prohibit the offering outright without a hearing, because the plan cannot succeed unless most of the offering is sold
• c.Require the underwriter to purchase any unsold shares at the offering price, converting the deal into a firm-commitment underwriting
• d.Require as a condition of registration that the proceeds be impounded in escrow until a specified amount is received✓

The act lets the Administrator condition an effective registration on impounding the proceeds until the issuer receives a specified minimum amount, protecting investors in an undersubscribed deal. Escrow of proceeds is a condition, not an outright prohibition, and a denial would require notice and an opportunity for hearing. No state guarantees offerings, and the Administrator cannot force an underwriter into a firm commitment.Uniform Securities Act

After a securities registration statement becomes effective in a state, the Administrator may require the person who filed it to:

• a.Repurchase shares from any dissatisfied investor within thirty days, as a standing condition of every effective registration
• b.Guarantee a minimum rate of return to purchasers
• c.Register the securities again in every other state where they are offered, as a condition of keeping the registration effective here
• d.File reports, no more often than quarterly, showing the progress of the offering and the sale of the registered securities✓

The act authorizes the Administrator to require periodic reports, but not more frequently than quarterly, to keep the record of the offering current. Repurchase obligations arise only as a remedy for a violation, not as a routine condition. No securities registration ever carries a guaranteed return, and each state's registration requirement stands on its own.Uniform Securities Act

A corporation issues short-term notes to raise working capital. For the notes to fall within the commercial paper exemption, they must generally:

• a.Mature within nine months, be rated in one of the top categories by a nationally recognized rating agency, and be issued in large denominations✓
• b.Be guaranteed by a commercial bank
• c.Be sold only to individual investors
• d.Be convertible into common stock

The commercial paper exemption is limited to high-quality, short-term paper: a maturity of nine months or less, a top-tier rating, and denominations large enough that the instruments are bought by institutions rather than small retail investors. Convertibility would give the note an equity feature and take it outside the exemption. Neither a bank guarantee nor a retail-only distribution is part of the test.Uniform Securities Act

An investor is offered shares of a bank holding company that owns a single commercial bank. Regarding state registration, these shares are:

• a.Federal covered securities in every case, because banks and their holding companies are all supervised by federal banking regulators
• b.Exempt transactions in every case, because a sale of bank-related shares is treated as an isolated non-issuer transaction under the act
• c.Not automatically exempt, because the exemption covers securities issued by a bank itself, not by a separate holding company✓
• d.Exempt securities, because the act extends the bank exemption to a holding company whose only business is owning and controlling a single commercial bank

The exemption is drafted around securities issued or guaranteed by a bank, savings institution, or trust company; a holding company is a separate corporate issuer and does not inherit its subsidiary's status. Such shares may still qualify as federal covered securities if they are listed on a national exchange, but that depends on listing, not on the banking business. Nothing about the sale makes it an exempt transaction by default.Uniform Securities Act

Organizers of a proposed corporation solicit subscriptions from a handful of prospective shareholders before the company exists. For this preorganization certificate exemption to apply:

• a.A registration statement must be filed by qualification
• b.At least twenty-five subscribers are required
• c.The subscribers must each invest at least $10,000
• d.The number of subscribers must be limited, no commission may be paid for soliciting them, and no payment may be made by any subscriber✓

The preorganization certificate or subscription exemption is conditioned on a small, capped number of subscribers, the absence of any commission for soliciting them, and the fact that no subscriber actually pays money at that stage. A minimum investment is not part of the test, and requiring a large number of subscribers would contradict the exemption's private character. Because it is an exemption, no registration statement is filed.Uniform Securities Act

Registration by coordination becomes effective simultaneously with the federal registration if certain conditions are met, including that:

• a.The Administrator has completed a merit review and found the offering fair, just, and equitable, as every state registration requires
• b.The offering is made entirely to residents of the state, because coordination is available only to issuers that sell within one state
• c.The issuer has filed under the Securities Exchange Act of 1934 and has been a reporting company for at least five years
• d.No stop order is in effect, no proceeding is pending, and the statement has been on file the required period with the required pricing information✓

Registration by coordination becomes effective automatically at the moment the federal registration statement becomes effective if no stop order is in effect, no proceeding is pending, the state statement has been on file at least ten days, and the maximum and minimum offering prices and maximum underwriting discounts have been on file for two full business days. No merit approval is needed for this to occur, coordination is for offerings federally registered under the 1933 Act (not limited to one state), and there is no operating-history or 1934 Act reporting requirement.Uniform Securities Act (1956) §303(c)

Which of the following is a 'federal covered security' whose registration a state may NOT require?

• a.An intrastate offering by a local bakery
• b.Common stock listed on the New York Stock Exchange✓
• c.A limited partnership interest sold only in one state
• d.Unregistered stock of a private start-up

Securities listed (or senior to securities listed) on the NYSE, Nasdaq, and other qualifying markets are federal covered under NSMIA; states may require only a notice filing and fees, not registration (NSMIA §18; USA §401 'federal covered security').

Securities sold under SEC Rule 506 of Regulation D are:

• a.Exempt securities, so the state may require no filing, fee or consent to service
• b.Federal covered securities, but the state may still require registration by coordination if the offering reaches more than ten residents
• c.Required to be registered by qualification unless sold only to accredited investors
• d.Federal covered securities; a state may require a notice filing and fee but not registration✓

Securities sold in compliance with SEC rules issued under the Section 4(a)(2) private-offering exemption, which include Rule 506, are federal covered securities. A state may require a notice filing (a copy of Form D), a consent to service of process and a fee, but not registration at any investor count, and it retains its antifraud authority. They are not exempt from every state filing and are not exempt from the antifraud provisions.Securities Act §18(b)(4)(F), (c)(1), 15 U.S.C. §77r

A general obligation bond issued by a county to build a courthouse is:

• a.An exempt transaction rather than an exempt security, so the sale needs its own exemption
• b.An exempt security, because obligations of a state or its political subdivisions are exempt✓
• c.A security that must be registered by notification, because only bonds issued by the state itself, not its counties, are exempt
• d.A federal covered security regulated only by notice filing

Securities issued by a state or any of its political subdivisions, a county included, are exempt securities, and the exemption attaches to the instrument itself. It is not merely an exempt transaction, the exemption is not limited to the state itself, and a municipal bond is not a federal covered security that is subject to a notice filing in the issuer's own state: federal law treats these bonds as exempt securities rather than covered securities there.Uniform Securities Act (1956) §402(a)(1); 15 U.S.C. §77r(b)(4)(E)

Under the Uniform Securities Act, securities issued by a foreign national government are exempt securities when:

• a.The issuer belongs to the United Nations
• b.The bonds are U.S. dollar-denominated and investment-grade rated
• c.The United States maintains diplomatic relations with that foreign government✓
• d.The foreign government's own securities regulator has approved the offering for sale in that country

The exemption covers securities issued or guaranteed by a foreign government with which the United States currently maintains diplomatic relations, provided the issuer or guarantor recognizes the security as a valid obligation. UN membership, the currency of the bonds, a credit rating, or approval by a foreign regulator does not decide the exemption.Uniform Securities Act (1956) §402(a)(2)

Which of the following is an exempt security under the Uniform Securities Act?

• a.Commercial paper issued for current transactions that matures in twelve months
• b.Stock of a start-up that has applied for, but not yet received, a national exchange listing
• c.A shopping-center partnership interest that is sold by a bank
• d.Securities of a public utility or common carrier regulated as to rates by a governmental authority✓

Securities of a railroad, common carrier or public utility regulated as to rates and charges by a governmental authority are exempt securities. Commercial paper is exempt only with a maturity of nine months or less, a security merely applied for listing is not exempt until it is listed or approved for listing, and the bank exemption covers securities issued or guaranteed by a bank, not securities a bank merely sells.Uniform Securities Act (1956) §402(a)(7)

Common stock issued by an insurance company organized under the laws of a U.S. state and authorized to do business there is:

• a.A security exempt only if it is also listed on a national securities exchange
• b.An exempt transaction, so each sale qualifies separately
• c.An exempt security under the Uniform Securities Act✓
• d.Required to be registered by notification, because only the company's policies are exempt

Securities issued by, representing an interest in, or guaranteed by an insurance company organized under state law and authorized to do business in the state are exempt securities; variable annuities whose payments depend on a segregated fund are the exception. The exemption does not depend on an exchange listing, it attaches to the security rather than to a particular sale, and it covers the company's securities, not just its policies.Uniform Securities Act (1956) §402(a)(5)

A non-issuer transaction in an outstanding security is exempt when the security and current issuer information appear in a recognized securities manual such as Standard & Poor's or Moody's. This is commonly called the:

• a.Isolated issuer exemption
• b.Commercial paper exemption
• c.Manual (secondary-trading) exemption✓
• d.Private placement exemption, assuming the applicant has satisfied the net worth, surety bonding, and qualification-examination conditions the Administrator may impose

Many states exempt non-issuer transactions in securities listed in a recognized securities manual with current published financial information—the 'manual exemption' (USA §402(b) non-issuer transactions; NASAA).

An issuer distributes additional shares to its existing shareholders through a rights offering, paying no commission for soliciting the exercise. This is most likely:

• a.A transaction requiring registration, because an offer to existing holders is still an offer to the public
• b.An exempt transaction (a transaction with existing security holders)✓
• c.An exempt security, because stock issued to current shareholders is exempt from registration in every state
• d.Exempt only if the issuer files a notice and the Administrator does not disallow it within thirty days, even when no commission is paid

An offer to existing security holders, including holders of rights, warrants or convertible securities, is an exempt transaction when no commission (other than a standby commission) is paid for soliciting them. The shares remain non-exempt securities, so the exemption is for the transaction rather than for the security. No notice or waiting period is required when no commission is paid, and the offer is not treated as a public offering needing registration.Uniform Securities Act (1956) §402(b)(11)

A bank sells stock it holds as collateral after the borrower defaults, in a bona fide effort to liquidate the pledged collateral. This sale is:

• a.A non-exempt distribution, because a lender selling collateral is treated as an underwriter of the securities
• b.An exempt transaction (a bona fide pledgee liquidating collateral)✓
• c.An exempt security, because securities held by a bank as collateral take on the bank's exemption
• d.An issuer transaction that is exempt only if the borrower consents in writing to the sale

A transaction executed by a bona fide pledgee, without any purpose of evading the Act, is an exempt transaction. The pledgee is not an underwriter, the collateral does not become an exempt security because a bank holds it, and the sale is not an issuer transaction requiring the borrower's consent.Uniform Securities Act (1956) §402(b)(7)

An unregistered corporate bond is sold only to insurance companies, banks, and registered investment companies. The sale is:

• a.Exempt only if the bond was first registered under the Securities Act of 1933
• b.An exempt transaction, because sales to institutional and financial buyers are exempt regardless of their number✓
• c.Prohibited, since the institutional-buyer exemption covers only exempt securities
• d.Exempt only if no more than ten institutions buy within twelve consecutive months

A sale to banks, insurance companies, investment companies and other institutional buyers is an exempt transaction regardless of the number of buyers, so the unregistered bond can be sold to them. The ten-offeree limit belongs to the separate private-placement exemption for non-institutional offerees, federal registration is not a condition, and the exemption does not depend on the bond being an exempt security.Uniform Securities Act (1956) §402(b)(8)

Under the Uniform Securities Act's private-placement exemption, the limit applies to the number of:

• a.States in which the offering is made, provided the firm files the required consent to service of process and the Administrator does not enter an order to the contrary
• b.Shares that may be sold
• c.Non-institutional persons to whom offers are directed in a 12-month period (offerees), excluding institutions✓
• d.Purchasers who actually buy

The exemption caps offers to non-institutional persons (commonly ten) in any 12 consecutive months; offers to institutions are not counted, and the cap is on offerees, not purchasers (USA §402(b)(9) limited-offering exemption).

The Administrator may enter a stop order denying, suspending, or revoking the effectiveness of a securities registration statement when:

• a.A risky or speculative offering is proposed, since the Administrator must stop any security that could lose investors money
• b.The statement is incomplete or misleading, or the offering would work a fraud, after notice and an opportunity for a hearing✓
• c.A competing issuer or any investor files a written protest, and the Administrator then must suspend the registration pending the outcome
• d.The issuer's stock price has fallen well below the offering price, since investors then hold securities worth less than they paid

The Administrator may issue a stop order if it is in the public interest and the registration statement is incomplete or misleading in a material respect, the offering would work or tend to work a fraud, or other statutory grounds are met, and only after notice, an opportunity for a hearing and written findings. Speculative risk alone, a competitor or investor protest, and a later price decline are not grounds for a stop order.Uniform Securities Act (1956) §306(a), (c)

A securities registration statement in a state is generally effective for:

• a.The entire life of the securities, with no renewal requirement
• b.One year from its effective date, and may be renewed for a continuing offering✓
• c.Thirty days, after which a new statement must be filed
• d.Three years from its effective date, the same term as a federal shelf registration

A state registration statement is effective for one year from its effective date, or longer while the security is still being offered or distributed in a non-exempt transaction. It does not last for the life of the security, it is not a thirty-day registration, and the three-year shelf term is a federal concept.Uniform Securities Act (1956) §305(i)

A purely intrastate offering that is not registered with the SEC would be registered in the state by:

• a.Coordination
• b.Notice filing
• c.Notification
• d.Qualification✓

Qualification is the method for offerings with no federal registration, including intrastate deals; coordination requires a concurrent federal (Securities Act of 1933) filing (USA §304).

For an offering sold in the state under Rule 506 (a federal covered security), the Administrator may require the issuer to file:

• a.Nothing, because Rule 506 offerings are preempted from every state requirement
• b.A surety bond of up to $10,000 posted by the issuer
• c.A notice filing (a copy of the SEC Form D) with a consent to service of process and a fee✓
• d.A full registration statement by qualification, because preemption covers only offerings sold by SEC-registered broker-dealers

For a Rule 506 offering the state may require a notice filing (a copy of Form D), a consent to service of process, and a fee, but not registration. Preemption is not total, so the state is not limited to nothing at all; it does not turn on the type of broker-dealer; and the surety-bond power applies to registered broker-dealers, not to issuers of covered securities.Securities Act §18(b)(4)(F), 15 U.S.C. §77r(b)(4)(F)

The key difference between an 'exempt security' and an 'exempt transaction' is that:

• a.Only exempt securities remain subject to the antifraud provisions, while an exempt transaction is excused from every provision of the Act once the Administrator is notified
• b.An exempt security's exemption depends on the circumstances of the particular sale, while an exempt transaction's exemption attaches to the instrument in any later sale
• c.An exempt security loses its exemption the first time it is resold, while an exempt transaction keeps its exemption for every later resale by any holder
• d.An exempt security's exemption attaches to the instrument in any sale, while an exempt transaction's exemption depends on the circumstances of the particular sale✓

An exempt security is exempt in any sale because the exemption attaches to the instrument, while an exempt transaction is exempt only because of the circumstances of that sale. The two are not reversed, an exempt security does not lose its status on resale, and neither exemption reaches the antifraud provisions, so both remain subject to them.Uniform Securities Act (1956) §402(a), (b)

An investment contract issued in connection with an employees' pension or profit-sharing plan is:

• a.An exempt security under the Uniform Securities Act✓
• b.Always a prohibited security
• c.A federal covered security requiring a notice filing
• d.Required to be registered by coordination

The Act exempts investment contracts issued in connection with an employees' stock purchase, savings, pension, or profit-sharing plan (USA §402(a)(11)).

Which of the following is most likely an 'isolated non-issuer transaction' exempt under the Uniform Securities Act?

• a.An issuer's one-time sale of newly issued shares to a single buyer, because a sale that occurs only once is isolated
• b.A controlling shareholder's sales of large blocks every month for a year, because each sale is made by a non-issuer
• c.An individual's one-time private sale of stock she owns to a single buyer, not part of a repeated pattern and not through a dealer✓
• d.A broker-dealer's ongoing secondary-market trading for many customers, because every individual trade is a non-issuer transaction

An isolated non-issuer transaction is a one-off resale by a holder who is not the issuer. An issuer's own sale is an issuer transaction, however rarely it occurs; repeated sales of large blocks or a dealer's continuous trading are not isolated, even though the seller is a non-issuer.Uniform Securities Act (1956) §402(b)(1)

A court-appointed conservator sells securities from the estate of an incapacitated person to pay for the person's care. This sale is:

• a.A prohibited transaction unless the conservator first registers as an agent of the estate and obtains the Administrator's consent
• b.An exempt transaction, because sales by fiduciaries such as conservators, executors, receivers, and trustees in bankruptcy are exempt✓
• c.An exempt transaction only if the conservator is also a registered agent, since the fiduciary exemption is limited to licensed persons
• d.An exempt non-issuer distribution, available only if a recognized securities manual lists the issuer's officers, directors, and a recent balance sheet

A transaction by an executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian or conservator is an exempt transaction. The exemption does not require the conservator to register or be licensed, it is not the manual-based non-issuer distribution exemption with its own conditions, and the sale is not prohibited or an issuer transaction.Uniform Securities Act (1956) §402(b)(6)

As a condition of registering a speculative offering by qualification, the Administrator may require that:

• a.The offering be insured against investor loss through a state guaranty fund as a precondition to registration by qualification
• b.The underwriter enter a firm commitment to purchase every unsold share at the offering price when the offering period ends
• c.The proceeds be impounded (escrowed) until a specified minimum is raised, and may prescribe the form of subscription✓
• d.The issuer guarantee a minimum return and repurchase shares at the offering price at the request of any investor

For registration by qualification or coordination the Administrator may require that securities issued to promoters or for non-cash consideration be escrowed, that proceeds be impounded until the issuer receives a specified amount, and that the securities be sold on a specified form of subscription or sale contract. It may not require state insurance, an underwriter buy-back or a return guarantee.Uniform Securities Act (1956) §305(g), (h)

Under the 1956 Uniform Securities Act, which of the following is NOT an exempt security?

• a.A general obligation bond issued by a school district located in the state
• b.Bonds issued by a nonprofit religious organization to finance a new building
• c.A variable annuity contract issued by a licensed insurance company✓
• d.Common stock issued by a state-chartered commercial bank

Under the 1956 Act, securities issued by an insurance company are exempt, but the exception in the model text removes an annuity or similar contract whose promised payments depend on the investment results of a segregated fund. A variable annuity is exactly that, so it is not exempt. Obligations of a state's political subdivisions such as a school district, securities of banks, and securities of nonprofit religious and charitable organizations all appear on the exempt security list, so none of them is the answer.Uniform Securities Act (1956) §402(a)(5)

Under the Uniform Securities Act of 1956, a corporation issues short-term notes to raise working capital. For the notes to fall within the commercial paper exemption, they must generally:

• a.Mature within nine months, be rated in one of the three highest categories by a nationally recognized rating agency, and be issued in denominations of at least $50,000✓
• b.Mature within twelve months, be rated in one of the three highest categories by a nationally recognized rating agency, and be issued in denominations of at least $50,000
• c.Mature within nine months, be rated in one of the three highest categories, and be issued in denominations of at least $1,000
• d.Mature within nine months, be issued in denominations of at least $50,000, and be registered by notice filing with the Administrator

Under Section 402(a)(10) of the 1956 Act, the exemption covers a note, draft, bill of exchange or bankers' acceptance that is payable within nine months of issuance, is issued in denominations of at least $50,000, and carries a rating in one of the three highest categories from a nationally recognized statistical rating organization. A twelve-month maturity is too long, a $1,000 denomination is far below the minimum, and the exemption depends on a rating rather than on registering a notice with the Administrator. The large denominations are what keep the paper in the institutional market.Uniform Securities Act (1956) §402(a)(10)

A non-issuer transaction through a registered agent of a registered broker-dealer, in a security outstanding in the public's hands at least 90 days, is exempt when the issuer's business, officer and audited financial information appears in a nationally recognized securities manual or an EDGAR filing. This is commonly called the:

• a.Isolated-transaction exemption for a one-time sale by an investor who is not a dealer
• b.Unsolicited-order exemption for trades the customer initiated without any recommendation
• c.Manual (secondary-trading) exemption✓
• d.Limited-offering exemption for offers to ten or fewer non-institutional persons

This is the manual exemption for secondary trading: a non-issuer transaction by a registered agent of a registered broker-dealer in a security outstanding at least 90 days, where the issuer is actually operating, the price is reasonably related to market, and current issuer information appears in a recognized securities manual or in an EDGAR filing. The isolated-transaction exemption covers a single sale by someone who is not a dealer, the unsolicited-order exemption turns on who initiated the trade, and the limited-offering exemption caps offers to non-institutional persons in a twelve-month period.Uniform Securities Act (1956, as amended by NASAA) 402(b)(2)

Under the 1956 Uniform Securities Act's limited-offering (private-placement) exemption, the numerical limit applies to the number of:

• a.Purchasers who actually buy in the state, as the 2002 Act counts them
• b.Non-accredited investors who purchase, as under federal Regulation D
• c.Non-institutional persons to whom offers are directed in a 12-month period (offerees), excluding institutions✓
• d.Dollars raised from residents of the state, with a cap on the aggregate amount of the offering in any twelve months

Under the 1956 Act the exemption covers offers directed to not more than ten persons in the state, other than institutions, in any twelve consecutive months, so the count is of offerees and institutional offerees are left out. The count is not of purchasers who actually buy: counting purchasers (not more than 25) is how the 2002 Act's limited-offering exemption works, and the 1956 Act's other conditions are no commission for soliciting and purchase for investment. The exemption does not count non-accredited investors as the federal Regulation D rule does, and it sets no dollar ceiling.Uniform Securities Act (1956) 402(b)(9); cf. 2002 Act 202(14)

A registered agent sells shares of a start-up company to a retail client in this state. The shares are not registered, no exemption has been claimed for the security, and the transaction fits no listed exempt transaction. Is the sale lawful?

• a.No, because the security is not registered, exempt or federal covered and the transaction is not exempt, so the sale violates Section 301.✓
• b.Yes, because the agent holds a valid registration, and an agent's registration allows the sale of any security the firm's customers request.
• c.No, but only because the agent failed to give the client a prospectus, since the security itself needs no registration with the state.
• d.Yes, provided the client signs an acknowledgment that the shares are unregistered and that the client accepts the risk of a total loss.

Section 301 makes it unlawful to offer or sell a security in the state unless it is registered, exempt, a federal covered security, or sold in an exempt transaction. The agent's own registration covers the person, not the product. A client's signed acknowledgment cannot create an exemption that the statute does not give, and prospectus delivery is a separate matter from registration.Uniform Securities Act §301

An issuer files a registration statement by coordination on June 1. The federal registration statement becomes effective on June 8, the state filing has been on file for eight days, and the price information has been on file for two full business days. When does the state registration become effective?

• a.On June 8 at the same moment as the federal registration, because registration by coordination always takes effect concurrently with the SEC.
• b.On June 8, because the two business days of price information on file replace the ten-day filing period when the federal statement is effective.
• c.Not on June 8, because the ten-day filing requirement is unmet, so it takes effect only once all the conditions are satisfied.✓
• d.Only when the Administrator signs a written order granting effectiveness, because coordination registrations never become effective automatically.

Under Section 303(c), a coordination registration becomes effective automatically with the federal registration only if no stop order is in effect, the statement has been on file at least ten days, and the price information has been on file for two full business days. Here the ten-day condition is unmet, so effectiveness waits until the conditions are satisfied. The Administrator's order is the route for registration by qualification, not coordination.Uniform Securities Act §303(c)

A small manufacturer wants to sell stock to investors in this state. It has filed nothing with the SEC and does not meet the notification requirements. Which method of registration is available, and when does it take effect?

• a.Registration by coordination, which becomes effective automatically ten days after the manufacturer files with the state.
• b.Registration by qualification, which becomes effective automatically once the filing has been on record with the state for ten days.
• c.Registration by notification, which becomes effective at noon on the thirtieth day after the manufacturer files the statement.
• d.Registration by qualification, which takes effect only when the Administrator issues an order declaring it effective.✓

An issuer with no federal registration statement cannot use coordination, and one that fails the Section 302 eligibility conditions cannot use notification. That leaves qualification, which Section 304(c) says becomes effective only when the Administrator orders it. Automatic effectiveness after a waiting period belongs to coordination and notification, not qualification.Uniform Securities Act §304(c)

Corporation V has registered with the SEC for a public offering and wishes to register by notification in this state. It has operated in the United States for 30 consecutive calendar months before filing its federal statement. May it use notification?

• a.No, because it must have been actively engaged in business operations in the United States for at least 36 consecutive calendar months.✓
• b.Yes, because operating for 30 months is enough when the corporation has already filed a federal registration statement for the offering.
• c.No, because the corporation must have operated for at least 60 consecutive calendar months before the federal registration statement was filed.
• d.Yes, because the 36-month period applies only to companies organized outside the United States, which must also name an agent for service.

Section 302(a)(1) allows registration by notification only if, among other conditions, the issuer has actively engaged in business in the United States for at least 36 consecutive calendar months before filing the federal statement. Thirty months falls short. The foreign-issuer provision concerns appointing a United States agent for service of process, not the length of operation.Uniform Securities Act §302(a)(1)

An issuer with a federal registration statement on file plans an underwritten offering in which the underwriters will receive discounts and commissions equal to 12% of the aggregate public offering price. Can the issuer register the offering in this state by notification?

• a.No, because underwriters' commissions and discounts may not exceed 10% of the aggregate public offering price for notification.✓
• b.No, because underwriters' compensation must not exceed 5% of the aggregate public offering price for a notification filing.
• c.Yes, because notification places no cap on underwriter compensation once the issuer has registered the offering with the SEC.
• d.Yes, because the cap on compensation applies only to the broker-dealers in this state, not to the underwriters of the offering.

One condition for registration by notification under Section 302(a)(1) is that aggregate underwriting commissions and discounts not exceed 10% of the aggregate price to the public. At 12% the offering falls outside notification, and the issuer would have to use coordination or qualification instead. The cap covers the underwriters' total compensation, whoever sells in the state.Uniform Securities Act §302(a)(1)(H)