Exempt Security

Which is an example of an exempt security under the USA?

1. A.A promissory note from an individualAn individual's note has no institutional supervision behind it. The exemption for bank paper rests on the issuer already being subject to banking regulation, and a private borrower brings none of that oversight with them.
2. B.A security issued by a bankCorrect - bank issues are exempt securities.
3. C.A limited partnership interestA limited partnership interest is a security representing a share in an enterprise's profits, and no category exempts it by type. It requires registration unless the particular offering qualifies as an exempt transaction.
4. D.Stock of a small private startupSmall size feels like it should matter, which is the hook here. Exempt status does not track how big the company is; a startup's stock is exactly the kind of issue registration was built to reach, even though a specific limited offering might qualify as an exempt transaction.

Why: Securities issued by a bank or savings institution are exempt securities.

Preston Ivey is a salaried employee of the City of Larkspur. As part of his duties he offers the city's general obligation bonds directly to Larkspur residents. He receives no commission and no compensation tied to the amount sold. Under the Uniform Securities Act, Preston:

1. A.Must register as a broker-dealer, because he effects transactions for the account of the cityAn individual representing an issuer is evaluated as an agent. Broker-dealer status is a separate category.
2. B.Must register as an agent unless he sells to fewer than ten Larkspur residentsThe ten-person ceiling belongs to the private placement exemption and has nothing to do with the agent exclusion.
3. C.Must register as an agent, because he is offering and selling securities to the publicOffering securities is the general trigger, but this exclusion is written precisely for issuer employees selling exempt securities.
4. D.Is not an agent and need not register, because he represents an issuer in transactions in exempt securitiesCorrect. Representing an issuer in transactions in exempt securities such as municipal bonds falls outside the agent definition.

Why: The Act excludes from the definition of agent an individual who represents an issuer in effecting transactions in certain exempt securities, and municipal general obligation bonds are exempt securities. Because Preston represents the issuing municipality, sells an exempt security, and receives no transaction-based compensation, he is not an agent and need not register. He also is not a broker-dealer, since an individual representing an issuer is analyzed under the agent definition.

An agent solicits a customer to buy a non-exempt security that is not registered in the state. This is:

1. A.Required by the USAThe Act forbids precisely this conduct. The answer takes a prohibition and restates it as a mandate, which is the reverse of what the provision does.
2. B.Always allowedThis ignores both halves of the analysis. The security carries no exemption of its own, and the sale was solicited rather than customer-initiated, so neither the security track nor the transaction track offers any relief.
3. C.Fine if the client is wealthyWealth does figure into some exemption tests, which gives this a foothold. A customer's means never register a security, though, and the stem describes an ordinary solicited sale rather than the kind of limited offering where investor status could matter.
4. D.ProhibitedCorrect - it must be registered or exempt.

Why: Selling an unregistered, non-exempt security in a non-exempt transaction is prohibited.

A State F compliance officer sorts four items into two boxes: exempt securities and exempt transactions. The items are (1) a bond issued by the United States Treasury, (2) a sale of unregistered stock by an issuer to a commercial bank, (3) a preorganisation subscription meeting all statutory conditions, and (4) a bond issued by a hospital organised exclusively for charitable purposes. Under the Uniform Securities Act, the EXEMPT TRANSACTIONS are:

1. A.Items 3 and 4.Incorrect. The charitable hospital bond is an exempt security, not an exempt transaction.
2. B.Items 1 and 4.Incorrect. Those two are exempt securities, defined by the instrument and its issuer.
3. C.Items 1 and 2.Incorrect. The Treasury bond is an exempt security, not an exempt transaction.
4. D.Items 2 and 3.Correct. A sale to an institutional buyer and a qualifying preorganisation subscription are exempt transactions.

Why: Items 1 and 4 describe the character of the instrument and its issuer, so they are exempt securities. Items 2 and 3 describe the circumstances of a particular trade, namely a sale to an institutional buyer and a qualifying preorganisation subscription, so they are exempt transactions.