Unit 3: Regulation of Securities and Issuers

Endowment contracts are/aren’t securities

aren’t

Fixed life insurance/annuities are/aren’t securities

aren’t

Commodities (like gold and silver) are/aren’t securities

aren’t

Currencies are/aren’t securities

aren’t

Supreme Court defines what a security is, “Was there…?” and if ALL 4 are present, it is:

investment of money, in a common enterprise, with the expectation of profits, dervied from the efforts of others

Limited partnership interest is/isn’t considered a security

is

Equipment leasing certificates are/aren’t a security

are

Only … of the offering, not the … of an effective registration statement can be changed by the issuer

size of the offering can be changed, not the public offer price of an effective registration statement

A security’s SEC Registration Statement must include the issuer’s

1. Address

2. Description of business

3. List of insiders

4. Identities of underwriters

5. Legal counsel

6. Amount and planned use of offering proceeds

7. Any legal proceedings against the issuer

8. Recent certified financial statements

Must be registered at the state level for lawful sale unless:

the security or transaction is exempt

Methods of registering a security at the state level (3):

Coordination with the state and the SEC registration filing, for filing in multiple states. Qualification is filing with an individual state, for single state offerings. Notice filing, is not technically registration, is providing copies of the SEC-filed documents with the Admin

Notice filing is still … for all … securities

notice filing is still required for all federally covered securities

For coordination and qualification filing of a security at a state level, the issuer must provide

quarterly updates of the offering’s progress with the Admin

Selling in one state, sell via …

Selling in multiple states, sell via …

one state qualification, multiple states coordination

Are foreign national govt securities exempt from registration at the state level?

yes

Are foreign municipal govt securities exempt from registration at the state level? Are they any exceptions?

all foreign municipal securities are not exempt from registratoin at the state level, except for Canadian municipal securities

Are Canadian muni securities exempt from registration at the state level?

yes

Are securities listed on a Canadian exchange exempt from registration at the state level?

yes but only if they are also listed on a US exchange

Are securities issued by banks, savings institutions, trust companies, and credit unions exempt from registration at the state level?

yes

Are insurance company stock and bonds (not variable policies) exempt from registration at the state level?

yes

Are public utility securities exempt from registration at the state level?

yes

When is commerical paper exempt from registration at the state level?

commercial paper with a maturity of 9 months or less, has a denomination of at least $50,000, OR is rated in one of the top three categories by a major rating agency is exempt from state-level registration

Are employee benefit plans exempt from registration at the state level?

yes

Are not for profit securities exempt from registration at the state level?

yes

Are federally covered securities exempt from registration at the state level?

yes

All federally covered securities, except …, must file notice with each state they are selling in within … of …

except mutual funds, must file notice with each state they are selling in within 15 days of the first offer in the state

Are nationally listed securities exempt from state level registration?

yes because they are federally covered securities

Are investment company securities, like mutual funds, ETFs, and closed end funds exempt from state level registration?

yes because they are federally covered securities

Are out of state muni securities exempt from state level registration?

yes because they are federally covered securities

Are Reg D securities exempt from state level registration?

yes

All state level exemptions for federally covered securities are …, meaning they can revoke the exemption so they have to be registered in that state before they are sold

federally covered securites’ exemption is revocable by the Admin

Isolated non-issuer transactions are when … and are/aren’t exempt transactions at the state level

the issuing company is not issuing the security or receiving the profit, like one investor selling to another and are exempt transactions

Unsolicited transactions are/aren’t exempt transactions at the state level

are

Underwriter transactions are/aren’t exempt transactions at the state level

are

Transactions made by … fiduciaries (like trustees, guardians, executors, but … not representing a minor) are/aren’t exempt transactions at the state level

court-appointed, not custodians representing a minor, are exempt

Transactions made under the USA's Private Placement Provision is exempt from full state registration if they are…

offered to 10 or less noninstitutional investors with no commissions in that state within 12 months / OR an unlimited number of institutional investors with commissions

Transactions made under the USA's Private Placement Provision to only institutional investors are/aren’t exempt from state registration, allow …, and … sales

are exempt, allow commissions, and unlimited sates

Transactions made under the USA's Private Placement Provision to only non-institutional investors are/aren’t exempt from state registration if offered to…, without …, within …

to non-instituional investors are exempt if offered to 10 or less, with no commissions, within 12 months

Institutional transactions, meaning and offer or sale to a bank, savings institution, trust company, or other institutional investor is/isn’t an exempt transaction.

Institutional transactions, meaning and offer or sale to a bank, savings institution, trust company, or other institutional investor is/isn’t an exempt transaction.

Limited offering transactions (state private placements, like parallel to Reg D on state level) are/aren’t state level exemptions

are

Transactions with existing security holders (ex. rights or follow on offerings to its own shareholders) __ exempt

are

The sale of a pre-organization certificates are exempt if…

no commissions paid, 10 or fewer subscribers, AND no payment made by a subscriber

A non-issuer transaction by a pledgee is when

a party (non-issuer) pledges their securities as collateral for a loan, then defaults, then the lender sells the securities in an exempt transaction

Fixed annuities, endowment policies, and equity-indexed annuities are/are not securities so they don’t require … to sell and can be sold by licensed …

are not, don’t rerequire securities licenses to sell and can be sold by licensed insurance agents

Commodities… don’t require registration because they’re regulated separately and not under securities or IA regulation.

commodities futures contracts

Unlisted stock must be (registered? where?)… because is/is not federally covered, unless the…

registered in every state where it will be sold because is not federally covered and, unless the transaction itself is exempt.

Precious metals … securities (ex. gold bars and coins)

are not

Commodities contracts are/are not securities unless …

are not securities unless the underlying asset is a security

Commodity futures contracts are securities only when…

the underlying asset is a security, ex. a gold ETF

Listed options contracts are/aren’t securities

listed options contracts are securities

Life insurance and annuity products are/are not securities unless…

are not securities unless they are variable

Factoring is/ is not considered a security

is not a security

Factoring is

issuing a promissory note backed by the issuer’s balance sheet receivables to generate current cash flow

Factoring becomes a securities transaction if

the company issues promissory notes or instruments backed by those receivables

Guarantee is defined as a third party's assurance to pay principal, interest, or dividends if the issuer defaults, and agents are allowed to/prohibited from guaranteeing investment performance

agent cannot guarantee

A security offered under the USA's private placement provision is exempt from full state registration if … noninstitutional investors…

offered to 10 or less noninstitutional investors in that state within 12 months