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Flashcards in State Regulations (What is a Security Under the Act) Deck (45):
1

Which of the following are defined as securities under the Uniform Securities Act?

1. Real estate investment trust certificates.
2. Preorganization subscription agreements.
3. Shares of treasury stock.
4. Voting-trust certificates issued by a corporation undergoing a reorganization.

1. Real estate investment trust certificates.
2. Preorganization subscription agreements.
3. Shares of treasury stock.
4. Voting-trust certificates issued by a corporation undergoing a reorganization.

All of the choices listed are defined as securities under state law. We believe the best thing for you to do is remember those few things that are not securities.

2

If a public customer plans to purchase stock in a company that has been listed on a stock exchange for the past year in a regular way secondary transaction, when must the customer receive the prospectus?

A) No later than three days from the settlement date.
B) There are no prospectus delivery requirements for this transaction.
C) Before the order entry.
D) Before the settlement date.

B) There are no prospectus delivery requirements for this transaction.

Because this is a secondary market transaction in a listed stock, there is no requirement that a prospectus be delivered to the customer.

3

Under the Uniform Securities Act, the term "nonissuer" refers to:

A) a person other than the issuer.
B) an agent.
C) an investment adviser.
D) a corporation.

A) a person other than the issuer.

Under the Uniform Securities Act, a nonissuer is any person (as defined under the act) that is not the issuer of the security. This would include an individual investor or a securities dealer selling from inventory.

4

Under the USA, which of the following are securities?

1. Commodity option contract.
2. Treasury stock.
3. Keogh plan.

1. Commodity option contract.
2. Treasury stock.

A commodity option contract and treasury stock are securities under the USA. A commodity option contract is a security, while a commodity futures contract is not. A Keogh plan is a vehicle for an investment, but it is not a security in and of itself.

5

Under the USA, the definition of "issuer" includes a(n):

A) specialist on the floor of an exchange.
B) officer or director of a company traded at the NYSE.
C) market maker for publicly traded securities.
D) person proposing to issue a security.

D) person proposing to issue a security.

An issuer is any person who issues or proposes to issue any security for sale to the public. Stock exchange specialists, company directors, and market makers do not issue securities and therefore are not issuers.

6

Which of the following is NOT included in the definition of a security in the Uniform Securities Act (USA)?

A) A $100,000 whole life insurance policy.
B) A preorganization certificate.
C) Commercial paper issued with an 8-month maturity.
D) A variable annuity.

A) A $100,000 whole life insurance policy.

Life insurance and fixed annuities are not listed as securities under the USA, while their variable counterparts are. It is best to concentrate on learning the few things that are not securities.

7

An interest in which of the following is a security under the Uniform Securities Act?

1. Merchandising marketing scheme.
2. Multilevel distributorship arrangement.
3. Oil and gas drilling program.
4. Cattle feeding program.

1. Merchandising marketing scheme.
2. Multilevel distributorship arrangement.
3. Oil and gas drilling program.
4. Cattle feeding program.

The USA considers interests in merchandising marketing schemes, multilevel distributorship arrangements, oil and gas drilling programs, and farm animals, whether it is a feeding or a breeding program, to be investment contracts and, therefore, securities. The best strategy is to memorize the short list of things that are not securities rather than try to remember all of the things that are.

8

As defined in the Uniform Securities Act, the term "security" would include:

1. debentures.
2. Keogh plans.
3. A preorganization certificate.
4. whole life insurance policies that pay dividends to their policyholders.

1. debentures.
3. A preorganization certificate.

It is always easier to remember the things that are not a security-retirement plans, nonvariable insurance policies, collectibles, commodities, condominiums, and currencies.

9

According to the Uniform Securities Act, each of the following is a security EXCEPT a(n):

A) contract in soybean futures.
B) interest in a condominium project with a rental pool.
C) U.S. Treasury bill.
D) limited partnership in an oil and gas exploration program.

A) contract in soybean futures.

Interests in a condominium complex that has a rental pool feature, U.S. Treasury bills, and limited partnership interests in oil and gas exploration programs are securities under the USA. The USA excludes certain financial instruments from the term "security" such as term and whole insurance policies, commodity futures contracts, and collectibles.

10

Under the USA, which of the following is NOT a security?

A) Commercial paper with a maximum maturity of 270 days.
B) Limited partnership in a cattle-breeding program.
C) Whiskey warehouse receipts.
D) A condominium purchased as a primary residence.

D) A condominium purchased as a primary residence.

A personal residence, whether a condominium or other single family home, is real estate, not a security.

11

Which of the following is NOT defined as a security under the USA?

A) A fixed annuity contract.
B) Common stock issued by a bank.
C) Bonds issued by the Canadian national government.
D) Treasury bonds issued by the U.S. government.

A) A fixed annuity contract.

A fixed annuity contract is an insurance contract, not a security.

12

Which of the following is an example of a nonissuer transaction?

A) Preemptive rights offering.
B) Secondary offering by an institutional seller.
C) Private placement by an issuer.
D) Primary issue of corporate stock.

B) Secondary offering by an institutional seller.

Investors or shareholders routinely receive the proceeds from a secondary transaction. About the only time a secondary offering is an issuer transaction is if the issuer were reselling treasury stock since the proceeds go to the issuer.

13

In the Howey decision, the U.S. Supreme Court held that a security must represent:

A) an investment of money in a common enterprise with the expectation of profit or tax deductible losses from the managerial efforts of others.
B) an investment of money in a common enterprise with the expectation of profit from the managerial efforts of others.
C) an interest in a publicly traded corporation whose managers are engaged in a regulated business enterprise.
D) an investment of money in a common enterprise with the expectation of profit from the efforts of the investor.

B) an investment of money in a common enterprise with the expectation of profit from the managerial efforts of others.

The Howey decision defined a security as (1) an investment of money (2) in a common enterprise (3) where there is an expectation of a profit (4) through the efforts of a third party and not the investor.

14

Which of the following is defined as a security under the Uniform Securities Act?

A) A guaranteed, lump-sum payment to a beneficiary.
B) Fixed, guaranteed payments made for life or for a specified period.
C) Commodity futures contracts.
D) An investment contract.

D) An investment contract.

As a result of the Howey decision, investment contracts are defined as (and often serve as a synonym for) a security under the Uniform Securities Act. A guaranteed, lump-sum payment to a beneficiary is an endowment policy excluded from the definition of a security. Fixed, guaranteed payments made for life or for a specified period are fixed annuity contracts not defined as securities. Commodity futures contracts and the commodities themselves are not securities.

15

In the Howey decision, the U.S. Supreme Court held that a security must represent:

A) personal interest in a business.
B) an investment of money in a common enterprise with the expectation of profit from the efforts of the investor.
C) an investment of money in a common enterprise with the expectation of profit from the managerial efforts of others.
D) debt in a publicly traded corporation whose managers are engaged in commercial activity.

C) an investment of money in a common enterprise with the expectation of profit from the managerial efforts of others.

In the Howey decision, the U.S. Supreme Court held that a security must represent an investment of money in a common enterprise with the expectation of profit from the managerial efforts of others.

16

Joan owns and operates a jewelry store, and she has contracted to purchase 5,000 Swiss watches, paying the watch manufacturer in Swiss francs 3 months from the date of contract. To protect (hedge) her currency risk, she purchases call options on Swiss francs. Which of the following statements best describes her transaction in the Swiss franc calls in light of the USA?

A) She has not engaged in a securities transaction because she purchased the options to hedge a business risk.
B) She has engaged in a prohibited transaction because American investors are generally prohibited from trading in foreign currencies under the USA.
C) She has engaged in a securities transaction because options on foreign currencies are considered to be securities under the USA.
D) She has not engaged in a securities transaction because options on foreign currencies are not considered to be securities under the USA.

C) She has engaged in a securities transaction because options on foreign currencies are considered to be securities under the USA.

Options, regardless of the underlying asset, are considered securities under the USA. Therefore, Joan engaged in a securities transaction by purchasing call options on the Swiss franc. While there is no prohibition against American investors trading in foreign currency options or futures under the USA, acquiring the currency itself, rather than the option, would not have involved a securities transaction; currency is not a security.

17

Which of the following financial instruments are considered securities under the USA?

1. Collateral trust certificates.
2. Investment contracts, including interests in oil and gas drilling partnerships.
3. Options listed on the Chicago Board of Options Exchange.
4. Foreign currency options contracts traded on the Philadelphia Stock Exchange.

1. Collateral trust certificates.
2. Investment contracts, including interests in oil and gas drilling partnerships.
3. Options listed on the Chicago Board of Options Exchange.
4. Foreign currency options contracts traded on the Philadelphia Stock Exchange.

Collateral trust certificates, investment contracts, options, and option contracts, regardless of the underlying asset, are identified as securities in the Uniform Securities Act and are subject to its provisions. Currencies are not securities, but options on currencies are.

18

Which of the following are defined as securities under the Uniform Securities Act?

1. An investment in a managed pool of rental condominiums.
2. Unsecured debentures sold in a private placement only to accredited investors.
3. Bills, notes, and bonds issued by the U.S. Treasury.
4. A Roth IRA.

1. An investment in a managed pool of rental condominiums.
2. Unsecured debentures sold in a private placement only to accredited investors.
3. Bills, notes, and bonds issued by the U.S. Treasury.

An investment into an individual condominium used as a residence is not a security. However, an interest in the rental income from a group of condos, where the rent is pooled, is a security under the USA. While the sale of the debentures in this case is an exempt transaction, the debentures are securities. Treasury bills, notes, and bonds are securities, although they are exempt from registration under the USA. A Roth IRA is not a security. Securities may be put in an IRA, but the IRA is not a security.

19

Which of the following would be considered a security under the provisions of the USA?

A) An endowment contract issued by a life insurance company licensed to do business in the state.
B) A fixed annuity contract issued by a life insurance company not authorized to do business in the state.
C) Gold bullion.
D) A certificate of interest in a real estate limited partnership offering.

D) A certificate of interest in a real estate limited partnership offering.

It is always best to remember what is not a security than try to remember all of the things that are. All insurance contracts, other than variable ones, are not securities. Commodities, including precious metals, are not securities.

20

Under the Uniform Securities Act, which of the following is NOT defined as a security?

A) Limited partnership unit.
B) Preorganization certificate.
C) Fixed annuity.
D) Listed stock option.

C) Fixed annuity.

A fixed annuity is an insurance contract and is not considered a security under the USA. Options on stock, (listed or not), interests in limited partnerships, and preorganization certificates are all defined as securities under the USA.

21

As defined in the Uniform Securities Act, which of the following is NOT a security?

A) Common stock of ABC National Bank that is a member of the Federal Reserve System
B) Annuity providing a fixed monthly payout
C) Options on a federal covered security
D) Interest in a merchandising marketing program

B) Annuity providing a fixed monthly payout

Variable annuities are securities while fixed annuities are not. Options contracts, interests in merchandising marketing programs, and common stock are securities under the USA.

22

Under the USA, the term "security" refers to all of the following EXCEPT:

A) put, call, straddle, or option.
B) bonds.
C) commodity futures contract.
D) certificate of deposit for a security.

C) commodity futures contract.

Commodities and futures contracts on commodities are not securities. Just remember the short list of items that are not securities.

23

Which of the following financial instruments is NOT considered a security?

A) Collateralized mortgage obligation (CMO).
B) Tradable collateralized credit card trust certificate.
C) Home mortgage.
D) Ginnie Mae certificate.

C) Home mortgage.

A home mortgage is a pledge by the mortgagor, or homebuyer, and no security is issued. Ginnie Maes, CMOs, and collateralized credit card trust certificates are collateral-backed securities issued and sold to third-party investors who own an interest in the collateral pool; they trade in markets like any other security.

24

Which of the following is NOT a security under the USA?

A) Options on common stock.
B) Options on foreign currencies.
C) Investment contracts.
D) Gold.

D) Gold.

Precious metals, such as gold, are commodities and are not securities subject to the provisions of the Uniform Securities Act. Options on common stock and foreign currencies are securities subject to the USA. Investment contracts are specifically listed as a security in the USA and subject to its provisions. In an investment contract, a person invests money in a common enterprise with the expectation of profits from the managerial efforts of others. A good example of an investment contract is a share of a mutual fund because it represents an investment of money into a pooled enterprise with the expectation of profits through the efforts of a third party, (the fund's manager).

25

Which of the following is NOT a security?

A) Corporate equity.
B) Corporate debt.
C) Participating whole life insurance that pays annual dividends.
D) Variable annuity.

C) Participating whole life insurance that pays annual dividends.

Whole life insurance policies, even those that pay dividends, are not securities; variable life and variable annuities are. Corporate equity is stock, and corporate debt is bonds and debentures.

26

Which of the following would NOT be included in the definition of a security under the Uniform Securities Act?

A) Debentures issued by the XYZ Retirement Planning Company.
B) Whole life insurance policies issued by the Dividend Mutual Life Insurance Association of America.
C) Common stock in the Shining Silver Mining Company.
D) Preferred stock in the Colonel Corn Processing Corporation.

B) Whole life insurance policies issued by the Dividend Mutual Life Insurance Association of America.

Nonvariable contracts issued by insurance companies are not securities.

27

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

A) A fixed annuity.
B) A debenture.
C) A corporate bond.
D) A transferable share.

A) A fixed annuity.

Fixed annuities are not securities, although variable annuities are. Under the Uniform Securities Act, any legal instrument that indicates debt of or ownership in a business is considered a security. Because a debenture is an unsecured bond and, therefore, represents debt in a business like a corporate bond, a debenture is a security. Transferable shares of a corporation's stock represent ownership in the firm and are also considered securities.

28

Which of the following is NOT a security?

A) Commercial paper with a 6-month maturity.
B) A variable annuity.
C) A $1,000,000 whole life insurance policy.
D) An interest in a real estate condominium sold with a rental pool.

C) A $1,000,000 whole life insurance policy.

Under the Uniform Securities Act, whole life insurance policies are not securities. Condominiums used as a personal residence are not securities, but when a rental pool arrangement exists, third-party management seeking profit for the investor exists, which meets the Howey definition of an investment contract.

29

Which of the following is NOT classed as a security under the Uniform Securities Act?

A) Heating oil futures
B) Options on stocks.
C) Bonds issued by a foreign country.
D) Stocks.

A) Heating oil futures

Commodity futures on items such as gold, silver, wheat, heating oil, and pork bellies are not securities. Options on stocks, and stocks and bonds are securities.​

30

Under the Uniform Securities Act, an issuer is any person who issues or proposes to issue a security for sale to the public. According to the USA, which of the following is NOT an issuer?

1. The city of Chicago, which is involved in a distribution of tax-exempt highway improvement bonds.
2. AAA Partnership issues certificates of interest or participation in its oil, gas, and mining titles.
3. The AAA Manufacturing Company, which proposes to offer shares to the public but has not completed the offering.
4. The United States government, which proposes to offer Treasury bonds.

2. AAA Partnership issues certificates of interest or participation in its oil, gas, and mining titles.

Under the Uniform Securities Act, an issuer is any person who issues or proposes to issue a security. However, with respect to certificates of interest or participation in oil, gas, or mining titles or leases, there is not considered to be any issuer even though those certificates are included in the definition of "security". Examples of issuers are a municipality such as the city of Chicago, which issues tax-exempt highway improvement bonds; the AAA Manufacturing Company, which proposes to offer shares to the public even though it has not completed the offering; and the United States government, when it proposes to offer Treasury bonds.

31

Which of the following are issuers of securities?

1. ABC Manufacturing Corporation borrows in the capital markets by selling bonds every few months.
2. Dot.Com, Inc., in an initial public offering, sells all its securities to the public within a few minutes after the shares go public.
3. XYZ Corp., in an initial public offering, fails to sell any shares to the public because it is not an attractive investment.
4. YYY Corp., with 1 million shares outstanding, sells additional shares to the public in a primary offering.

1. ABC Manufacturing Corporation borrows in the capital markets by selling bonds every few months.
2. Dot.Com, Inc., in an initial public offering, sells all its securities to the public within a few minutes after the shares go public.
3. XYZ Corp., in an initial public offering, fails to sell any shares to the public because it is not an attractive investment.
4.YYY Corp., with 1 million shares outstanding, sells additional shares to the public in a primary offering.

ABC Manufacturing Corp. is an issuer raising debt capital whereas Dot.Com Inc is an issuer raising equity capital. YYY Corp. is an issuer raising equity capital by selling additional new shares in a public primary offering. XYZ Corp. is an issuer despite its failure to sell any shares. The USA defines an issuer as a person that issues or proposes to issue a security. It is not necessary that an issuer actually issue the shares it proposes to issue.

32

A securities transaction where there is no benefit to the issuer is called a(n):

A) nonprofit transaction.
B) issuer transaction.
C) nonissuer transaction.
D) primary transaction.

C) nonissuer transaction.

In a nonissuer transaction, the proceeds do not benefit or go to the issuer directly. In a primary transaction, the proceeds of an underwriting go to the issuing corporation directly.

33

Which of the following would be considered a nonissuer transaction as defined in the Uniform Securities Act?

1. Gates Williams, the largest shareholder in Maxihard Corporation, sells 100,000 shares in a registered secondary transaction.
2. Buffy Warren, the largest shareholder in Barkshire Mathaway, purchases an additional 50,000 shares on the NYSE.
3. In its capacity as a market maker, XYZ Securities sells 200 shares of Gemco common stock to the corporate treasurer of Gemco, buying for the company's investment account.
4. Gemco, traded on the Nasdaq Stock Market, sells 5,000 shares of its stock to XYZ Securities, a registered market maker in Gemco stock. The stock was donated to Gemco by a former officer of the firm.

1. Gates Williams, the largest shareholder in Maxihard Corporation, sells 100,000 shares in a registered secondary transaction.
2. Buffy Warren, the largest shareholder in Barkshire Mathaway, purchases an additional 50,000 shares on the NYSE.
3. In its capacity as a market maker, XYZ Securities sells 200 shares of Gemco common stock to the corporate treasurer of Gemco, buying for the company's investment account.

A nonissuer transaction is one in which the issuer does not receive the proceeds of the sale. When a stockholder sells his shares, he is the one who receives the money, not the issuer. Purchases are never considered issuer transactions because the money is going out, not coming in. When an issuer sells shares, whether in a primary or secondary transaction (as is the case with the donated shares), if it receives the proceeds, it is an issuer transaction.

34

Which of the following would be a nonissuer transaction?

1. XYZ Corporation sells 100,000 shares of previously issued common stock out of its treasury.
2. GEMCO Mutual Fund sells 100,000 shares of XYZ Corporation common stock out of its portfolio.
3. Curt sells 1,000 shares of Giggle common stock to Chuck in an isolated transaction.
4. Dave reinvests his dividend into additional shares of GEMCO Mutual Fund.

2. GEMCO Mutual Fund sells 100,000 shares of XYZ Corporation common stock out of its portfolio.
3. Curt sells 1,000 shares of Giggle common stock to Chuck in an isolated transaction.

In a nonissuer transaction, the proceeds of the sale go to someone other than the issuer. When a mutual fund liquidates a holding in its portfolio, the fund receives the proceeds, not the issuer. One individual selling his stock to another is the classic example of an isolated nonissuer transaction. A corporation selling stock out of its treasury receives the money from the sale, and dividend reinvestment purchases shares directly from the mutual fund.

35

A primary issue is:

A) a new offering of an issuer sold to investors.
B) the first transaction between two parties in the over-the-counter market.
C) a sale between investors of securities traded on the New York Stock Exchange.
D) a secondary market transaction in a security recently offered to the public.

A) a new offering of an issuer sold to investors.

A primary issue is a new offering of securities by an issuer sold to investors. Transactions between two investors in the over-the-counter market refer to secondary transactions (the market between investors). A sale between investors of securities traded on the New York Stock Exchange is another example of a secondary transaction.

36

The USA defines all of the following as securities EXCEPT:

A) unlisted options.
B) whiskey warehouse receipts.
C) term life insurance.
D) common stock.

C) term life insurance.

Term life insurance is an insurance contract, not a security. Remember the short list of those items which are not securities.

37

Which of the following is NOT an issuer under the USA?

A) A corporation that proposes to issue securities but has not done so as of yet.
B) A new company that offers shares to the public in an IPO.
C) A company whose shares trade on the New York Stock Exchange.
D) A broker/dealer trading securities as an agent for the account of others.

D) A broker/dealer trading securities as an agent for the account of others.

A broker/dealer that trades securities as an agent for its clients is not acting in the capacity of an issuer. If the broker/dealer were offering its own shares to the public through underwriting, it would then be an issuer. A corporation that proposes to issue securities but has not as yet done so, is for purposes of the act, an issuer. A company offering its shares to the public in an IPO is an issuer. A company whose shares trade on the NYSE is an issuer whose shares are now trading in the secondary market.

38

Which of the following best describes a nonissuer transaction?

A) One that provides capital to a corporation that is offering stocks or bonds to the public.
B) One that involves investors in the primary market.
C) One that is generally prohibited under the USA.
D) One that occurs between investors in the secondary market.

D) One that occurs between investors in the secondary market.

In a nonissuer transaction, none of the proceeds go to the issuer, and the most common nonissuer transaction occurs between investors in the secondary market. An issuer transaction provides capital to issuers.

39

Which of the following are securities under the Uniform Securities Act?

1. A variable annuity.
2. A subscription right to purchase common stock.
3. A condominium purchased solely as a place of residence.
4. Certificate of interest or participation in an oil, gas, or mining partnership.

1. A variable annuity.
2. A subscription right to purchase common stock.
4. Certificate of interest or participation in an oil, gas, or mining partnership.

Securities include stocks, bonds, notes, certificates of interest in any profit-sharing agreement or participation plan (oil, gas, mining, lease, or real estate partnerships), preorganization certificates or subscription agreements, certificates of deposit for a security, evidence of indebtedness, warrants, rights, or options, variable annuities, commodity options, and multi-level distributorships. Excluded from the definition are insurance contracts, endowments with fixed benefits, fixed annuities, Keogh or IRA plans, written confirmations of a trade, futures contracts, real estate held as a personal residence, currencies, precious metals, and collectibles.

40

If a broker/dealer purchases 100,000 shares of common stock from an individual investor, this is a:

A) nonissuer transaction.
B) prohibited transaction.
C) local transaction.
D) private placement.

A) nonissuer transaction.

In a nonissuer transaction, the proceeds of the trade do not benefit or go to the issuer.

41

Which of the following are nonissuer transactions?

1. An investment manager purchases 100,000 shares of XYZ on the NYSE.
2. An investment adviser sells a block of YYY Corp. shares to an overseas investor in a private transaction.
3. The president of Dot.com, Inc., sells his personal shares of Dot.com on the NYSE.
4. Dot.com purchases its own shares on the open market in order to place them in treasury.

1. An investment manager purchases 100,000 shares of XYZ on the NYSE.
2. An investment adviser sells a block of YYY Corp. shares to an overseas investor in a private transaction.
3. The president of Dot.com, Inc., sells his personal shares of Dot.com on the NYSE.
4. Dot.com purchases its own shares on the open market in order to place them in treasury.

A nonissuer transaction is a transaction in which the proceeds do not directly or indirectly go to the issuer as in a secondary transaction. When the investment manager purchases XYZ shares on the NYSE, the proceeds of the sale do not go to XYZ Corp., but to the investors who sold the stock. When an investment adviser sells YYY Corp. shares to an overseas private investment group, YYY Corp. does not benefit directly or indirectly because the proceeds go to the investment adviser, not to YYY Corp. When Dot.com purchases its own shares on the open market, the proceeds go to outside investors, not to Dot.com as the purchaser. However, if Dot.com resold its shares, the transaction would be an issuer transaction.

42

Under the Uniform Securities Act, a nonissuer transaction is:

A) the purchase and sale of shares of common stock on the AMEX.
B) a Regulation D private placement sale of limited partnership interests.
C) an initial public offering of common or preferred stock.
D) the issuance of mutual fund shares.

A) the purchase and sale of shares of common stock on the AMEX.

In a nonissuer transaction, the proceeds do not flow to the issuer; rather, the proceeds are credited to selling shareholders. A secondary market trade, such as a transaction executed on the floor of an exchange, is a nonissuer transaction. An IPO, the purchase of mutual fund shares, and the purchase of limited partnership interests all benefit the issuer and are called issuer transactions.

43

Which of the following would not be an issuer?

A) a governmental agency borrowing money for short-term needs.
B) a corporation selling certificates of interest in a mining lease.
C) an investment company.
D) a partnership selling partnership interests.

B) a corporation selling certificates of interest in a mining lease.

Although the corporation issuing its own stocks and/or bonds would be an issuer, under the Uniform Securities Act, selling certificates of interest in mining leases or similar items does not make one an issuer. Even though the choice does not indicate how the governmental agency is borrowing, we can assume they are issuing a short-term note.

44

All of the following are nonissuer transactions EXCEPT

A) Monster Insurance Company sold 10,000 shares of IBM to KLM Investment Bankers, Inc., through INSTINET
B) Joe Smith sold 100 shares of Apple Computer to his neighbor, Kevin Jones, in a private transaction
C) Intel sold 10 million shares of its preferred stock in a private placement transaction to a syndicate of five pension funds
D) broker/dealer A sold 5,000 shares of Dell Computer from inventory to broker/dealer B

C) Intel sold 10 million shares of its preferred stock in a private placement transaction to a syndicate of five pension funds

When an issuer sells its own securities, it is an issuer transaction. When someone other than the issuer sells securities, it is a nonissuer transaction.

45

It would not be a prohibited practice under the Uniform Securities Act for an agent to tell a client that:

A) the fact that she passed her licensing exams is ample proof of her qualifications.
B) my commissions are structured so I make money only if the client makes money.
C) registered nonexempt securities may properly be sold in the state.
D) registration of securities implies tacit approval of the Administrator.

C) registered nonexempt securities may properly be sold in the state.

Nonexempt securities are those that must register. The Administrator never approves of any security, passing a licensing exam does not give one the right to assert one's qualifications, and performance-based compensation is never permitted for agents.

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