Chapter 2: Regulations of Securities and Issuers - E. Summary

Answer 1

In this chapter, you learned about securities and their categories. In general, securities include the following:

Corporate:

Note;
Stock;
Treasury stock;
Bond;
Debenture;
Evidence of indebtedness;
Commodity options contracts;
Certificate of interest or participation in a profit-sharing agreement;
Collateralized Mortgage Obligations (CMO);
Collateral trust certificate;
Preorganization certificate or subscription;
Transferable share;
Investment contract;
Variable contract;
Whisky warehouse receipt;
Voting trust certificate;
Certificate of deposit for a security;
Put, call, straddle, option, or privilege:
On a security, certificate of deposit, or group or index of securities, including an interest therein or based on the value thereof; or
Entered into on a national securities exchange relating to foreign currency.
Investment Company Securities:

Open-end company shares;
Closed-end company shares;
Unit Investment Trusts (UITs); and
Face Amount Certificate companies.
Tax-sheltered Securities:

Fractional undivided interest in oil, gas, or other mineral rights;
Limited partnership agreements;
Real estate cooperatives and condominiums;
Farmland; and
Planting and breeding programs when a third party manages the enterprise.
It is also important to remember what is not included in the definition of securities. The following are not considered securities:

An insurance or endowment policy;
Fixed annuity contract;
Commodities or futures contract;
IRA or Keogh (retirement plans); or
Pension plan subject to the Employee Retirement Income Security Act of 1974.
Securities must be registered in the state unless they qualify for an exemption or notification filing. The notice filing is usually associated with federal covered securities and often simply requires the issuer to notify the state, pay a fee, and/or file consent to service of process.

There are two actual registrations required at the state level: coordination and qualification. With registration by coordination, as the name implies, the state administrator will allow the issuer to coordinate with SEC filing and is usually used in association with IPOs. When the SEC clears the registration, the securities will also be registered in the state through coordination. Registration by qualification is the most difficult type of state registration and is often used for intrastate offerings (one being registered only in one state). With this type of registration, the issuer must provide any documents requested by the administrator. The offering does not become effective until the administrator clears the registration.

Finally, you need to understand what securities or transaction would create an exemption from state registration requirements. Exempt securities include

U.S. government;
Municipality;
Government agencies;
Canadian (local and national) government securities;
Foreign governments with diplomatic relations;
Financial institutions;
Insurance company;
Railroad and common carrier regulated with Interstate Commerce Commission;
Public utility;
Any security listed on Nasdaq (aka federal covered securities);
Nonprofit or charitable organizations;
Promissory notes (270 days) at least $50,000;
Employee savings plans, pension plans, profit sharing, and stock purchase plans; and
Municipal notes and bonds sold outside the state they were originally issued.
Exempt transactions include

Nonissuer transactions;
Fiduciary transactions;
Transactions between issuers and underwriters;
Bona fide pledges;
Any transaction with a bank, insurance company, trust, Investment Company, pension or profit-sharing trust, other broker/dealer, or other institutional buyer; and
Private placement no more than 10 offers in a 12-month period.