This sub-section discusses exemptions and exclusions from registration under the securities laws and regulations. These exemptions and exclusions allow certain securities and issuers to avoid the registration process, which can be time-consuming and costly.
Which of the following securities is most likely to be exempt from registration under federal securities laws?
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A) Municipal bonds are generally exempt from registration under federal securities laws. B) Common stocks are typically required to be registered under federal securities laws. C) Corporate bonds are typically required to be registered under federal securities laws. D) Mutual funds are typically required to be registered under federal securities laws.
Which of the following rules provides a safe harbor for the public resale of restricted and control securities?
A) Rule 144 provides a safe harbor for the public resale of restricted and control securities. B) Rule 144A provides a safe harbor for the private resale of restricted securities to qualified institutional buyers. C) Rule 147 excludes registration for intrastate offerings of securities. D) Rule 701 exempts registration for securities issued under employee benefit plans.
In the early 1900s, a company issued securities to raise capital for a new business venture. The company did not register the securities with the appropriate regulatory authorities, claiming that the offering was exempt from registration. However, the regulators determined that the offering did not qualify for an exemption, and the company was forced to refund the investors' money and pay a fine for violating securities laws.
Which of the following investors is most likely to be considered an accredited investor?
A) An individual with a net worth of $500,000 does not meet the accredited investor criteria, which requires a net worth of at least $1 million. B) An individual with an annual income of $150,000 meets the accredited investor criteria, which requires a yearly income of at least $200,000 or $300,000 for a couple. C) A pension fund with assets of $1 million does not meet the accredited investor criteria, which requires institutional investors to have at least $5 million in assets. D) A mutual fund with assets of $50 million is not an individual investor and cannot be considered an accredited investor.
A start-up company wants to raise capital to expand its operations. The company decides to issue securities through a private placement under Regulation D, which allows it to avoid the registration process. The company carefully follows the requirements of Regulation D, including limiting the offering to accredited investors and providing the necessary disclosures.
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Example Series 65 Example Practice Question
To remember the difference between security issuance exceptions and exclusions: EXception/EXemption: The 'EX' prefix can help you remember that 'EXception' and 'EXemption' are related. Think of the phrase "EXceptionally E-Xempted" to remember that exceptions provide exemptions to certain rules under specific conditions. ExCLusions/CLean-out: The 'CL' in both 'exCLusion' and 'CLean-out' can remind you that exclusions completely 'clean out' certain types of securities or transactions from the purview of a particular law. They're not considered under that law. To remember the difference between 144 and 144A: Rule 144 has specific holding period requirements. You can remember this by saying, "One (1) has to wait For (4) more than Four (4) months" (1-4-4, get it?), although the holding period is usually six months for reporting issuers. 144A: Rule 144A deals with selling securities to Qualified Institutional Buyers (QIBs), typically accredited investors. So, remember the "A" in 144A stands for "Accredited."
- Specific exemption: A specific exemption refers to a security or transaction that is exempt from state-level registration requirements under the Uniform Securities Act (USA). - Exclusions from state-level security registration: These are certain types of securities or transactions that are not subject to state-level registration requirements.
- Specific exemption: An example of a specific exemption is a private placement, where a company raises capital by selling securities to a limited number of accredited investors. - Exclusions from state-level security registration: An example of an exclusion is a security issued by the U.S. government, which is not subject to state-level registration requirements.