Chapter 2 - State Registration of Securities

Question 1

Security (4-part Howey test)

Answer 1

1. Investment of money
2. In a common enterprise
3. With the expectation of profits
4. Derived from the work of others

Question 2

Exempt transactions (based on limited # of purchasers/non-public)

Answer 2

1. Non-Issuer tx
   - secondary market trades which are isolated, non-recurring, or unsolicited
   - trades in securities subject to ‘34 act
   - trades in securities listed on Toronto exchange
2. Private placements (no more than 10 non-institutional investors)
3. Also institutional, fiduciary, and mortgage-backed transactions

Question 3

Securities INCLUDE

Answer 3

• stocks, MFs, notes, bonds, debentures, rights, warrants, options
• variable contracts, investment contracts
• limited partnerships
• also, viatical investments, preorganization certificates or certificate of participation in profit sharing agreement or in an oil, gas, or mining lease

Question 4

Securities DO NOT INCLUDE

Answer 4

• life insurance
• endowment policies
• fixed annuities
• four C’s: Commodities, Collectibles, Currencies, Condominiums as a place of business or residence

Question 5

Registration by filing (aka notification)

Answer 5

• available for follow-on, interstate offerings only
• must be registered under ‘33 Act
• issuer must be in business 36+ mos. w/ 500+ stockholders and 4+ market makers
• total commissions may not exceed 10%
• offering price must be at least $5/share
• effective at the same time as federal registration

Question 6

Registration by coordination

Answer 6

• for smaller issuers conducting interstate offerings (IPOs)
• state registration is coordinated w/ federal registration under ‘33 Act
• issuer must submit consent to service of process and copy of latest prospectus
• effective at same time as federal registration

Question 7

Registration by qualification

Answer 7

• for issuers conducting intrastate offerings
• requirements determined by individual state
• no federal registration required
• extensive disclosures required
• effective when determined by admin
• effective for at least one year from effective date

Question 8

Exempt securities (based on safety)

Answer 8

• issued by US govt, municipal govt, or foreign govt recognized by US
• issued by banks, savings institutions, trust companies, or insurance companies (not variable annuities)
• short-term corporate debt (9-mo max, rated in top 3 category by NRSRO)
• also, issued by common carriers, public utilities, or non-profits

Question 9

Federal-covered securities

Answer 9

• listed on NYSE, Nasdaq, or regional exchanges
• mutual funds
• Reg D
• securities sold to qualified purchasers (own at least $5 million of SECURITIES)

Question 10

Notice filing (NOT registration)

Answer 10

• for mutual funds and private placements
• must file copies of offering docs, consent to service of process, and filing fee
• admin cannot deny registration or prevent sale of securities