Chapter 3 Practice Question Answers

1. 1. Answer: A. Bank CDs offered to customers are not considered securities transactions that state regulators oversee. They would be regulated by the appropriate banking regulators. However, the sale of shares of ownership in a bank that will trade in the open market is considered an issuance of securities that is subject to regulation. Likewise, a corporation raising money through the sale of bonds and a small business (regardless of the size) raising money by selling ownership to the public are both considered a transaction in which securities are issued and are subject to regulation.
2. 2. Answer: D. Commodities futures and insurance contracts that do not have a variable component (where a portion of the value is invested in the markets) are not considered securities. Publicly traded stocks, bonds, and options are all considered securities.
3. 3. Answer: D. Registration statements contain all the relevant information regarding a security being issued, including the type of security (stock, bond, etc.), the quantity, the amount that will be raised, and the appropriate contact info.
4. 4. Answer: B. When a security issuer has no previous information on file about a specific security, it must start from scratch and provide a large amount of info to a state’s administrator. Registration by coordination allows a streamlined process for when securities are being issued in more than one state, while a notice filing simply lets an administrator know that a security that is not required to otherwise register is transacting in their state.
5. 5. Answer: C. The list of required officers is for those owning 10% or more, not more than 1%. Financial statements, balance sheets, regulatory and legal history, and a sample security must all be provided.
6. 6. Answer: D. While many foreign entities may be exempt from registration, a domestic company that only invests in foreign companies must still register. Securities of an insuran