Series 63 - Chapter 2 - State Registration of securities

2.1 - Securities

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(4) part "Howey" test to define a security

1. Investment of money

2. In common enterprise

3. With the expectation of profits

4. Solely from the efforts of others

(3) types of Life Insurance that are not securities because there’s a GTD rate of return

• Term life policies

• Whole life

• Universal life

Difference between mutual funds and REITS?

REITS invest in real estate

Viatical Settlements

AKA life settlements, when a policy holder (ill and in need of cash) sells the right to their death benefit for cash up front. Considered a security

Suitability for Viatical settlements (2)

1. Min net worth of $150k AND annual income $100k OR minimum net worth $250k

2. Accredited investors (Regulation D)

Reg D accredited investor requirements (2)

1. Annual income of $200k

OR

2. $1m net worth (excluding primary residence)

When are condominiums a security?

if its not your primary residence and purchased as an investment

because?

the condo association is responsible for managing the property

Is a retirement account a security?

no. The investments held within are, though.

Are Investment Contracts considered securities?

yes

Investment Contract examples (2)

1. Stock purchase agreement

2. Oil and Natural gas DPPs

Whiskey Warehouse Receipts

a security that represents a share in a barrel of whiskey that's being aged for future sale

Are Multilevel distribution arrangements / merchandising marketing programs securities, and what are they?

yes, they're deals to market products to the public and involve recruiting salespeople

Collateral Trust Certificates

bond secured by collateral financial assets

Voting Trust Certificates

allow shareholders to give their votes in a corporate election to another party

Section 401(h) of the USA defines what?

the issuer

Issuer - "the person that acts as the manager pursuant to the provisions of the instrument under which the security is issued". What does this mean?

the CEO of a corporation is the manager, and responsible for registering the securities

What types of securities are not considered to have an issuer?

oil, gas, or mining leases

(3) pieces of general information that State Administrators require from registrants

1. Exact amount of securities offered

2. Any adverse ruling from a state regulatory authority, court, or SEC

3. Other states in which a registration has/will be filed

T or F: the registrant needs to provide the exact amount of shares that will be offered to residents of another state

F

How often may the state admin require reports to keep registration info current?

quarterly

Would a new registration statement need to be filed to increase the number of shares being sold after registration?

no, just an amendment

When would a new registration statement need to be filed? (2)

1. Changing POP

2. changing underwriter's compensation

After an issuer receives an effective date for an offering, what information may the issuer change by amending its registration statement?

A. The public offering price (POP)

B. The number of shares being offered

C. The underwriting spread

D. Nothing can be changed after the effective date

B

how often must securities re-register?

every year, one year after registration date

who is registration by notification / filing intended for

large, exchange-listed issuers, and previously registered with the SEC. Some states do not allow this

why is notice by filing rarely used now?

NSMIA allowing exchange listed issuers to not have to register at the state level

who is registration by coordination intended for, and what does it allow them to do?

IPOs registering for the first time, allows them to use the same registration statement for the state and the SEC

when is registration by qualification used?

when an issuer is only registering with the state

often for intrastate offerings

What rule makes intrastate offerings exempt from federal registration?

rule 147

10 exempt securities under the USA

1. US gov / municipal

2. Canadian gov

3. Foreign gov recognized by US

4. banks, savings, loans

5. Insurance debt (not annuities)

6. Common carriers (railroad)

7. Promissory notes (9 months, $50k, 3 highest bond ratings)

8. Non profits

9. public utilities

10. Federal Covered

4 types of federal covered securities

Exchange listed

securities sold to qualified purchasers

securities from investment companies

private placements - Reg D

which of those 2 are exempt from BOTH state and federal registration?

Qualified purchasers

private placements

and the 2 that are exempt from state, but not from federal?

exchange listed

investment companies

which of the 2 are subject to notice filing?

Investment companies

private placements

Qualified purchasers

own $5m+ in securities

(5) exempt transactions

1. non issuer

2. private placements

3. institutional

4. fiduciary

5. mortgage backed

NI PI FM

key words to identify non-issuer transactions

1. isolated, non-recurring, unsolicited

2. act of 1934

3. Toronto stock exchange

private placement exemptions are limited to how many non-institutional investors?

10

types of institutional transactions (4)

1. banks

2. BDs

3. Insurance

4. Trusts

5. Investment company

6. issuer and underwriter

Fiduciary transactions could involve (4) types of fiduciaries

1. trustee

2. administrator

3. executor

4. sheriff

what type of exemption does regulation A provide?

federal exemption

Tier 1 of reg A

$20m in 12 months, $6m from current shareholders

Tier 2 of reg A

$75m in 12 months, $22.5m from current shareholders

what rule lists requirements for accredited investors?

Reg D rule 506

Due Diligence

before offering and selling a private placement under Reg D, they must review the issuer's business and finances

Accredited Investor requirements

Institutional

officer of issuer

or

$200k per year ($300k for married), last 2 years and should be 3

$1m net worth (no primary residence)

you know that for rule 147A (intrastate), they need to have their office in the state, AND majority of employees live in state, or what other 3?

1. 80% consolidated assets in state

2. 80% gross consolidated revenue in state

3. 80% net proceeds used in state

rule 147 makes the issue exempt from…

federal registration

Regarding federal covered securities, the state admin has the ability to:

 

1. Revoke SEC approval

2. Mandate that offering documents be sent to investors

3. Require the registration of a fixed annuity

4. Require a notice filing

 

D

In the US, the definition of a security is established byL

 

1. The USA

2. Act of 1933

3. Executive order from the president

4. A Supreme Court Decision

D, 4

Which issuer is required to submit a notice filing with the state admin?

 

1. Investment company

2. Exchange listed issuer

3. Municipal issuer

4. Canadian Gov

A

Reg D rule 506 says that what 2 types of securities need to provide notice filing to state admins?

1. Investment company

2. private placements