Uniform Securities Agent State Law (Series 63) Practice Exam

In the context of securities, what does the term "non-exempt" signify?

1. A security that is illegal to sell

2. A security that requires registration

3. A security that is guaranteed by the government

4. A security eligible for tax benefits

The correct answer is: A security that requires registration

The term "non-exempt" in the context of securities signifies that a security is subject to registration requirements under the applicable securities laws. Non-exempt securities do not qualify for an exemption that would relieve them from the need to register with regulatory authorities like the Securities and Exchange Commission (SEC) or state regulators. Typically, securities that are considered non-exempt include those issued by private companies that do not meet specific criteria for exemptions, such as Regulation D offerings, or public offerings that do not meet certain conditions. Registration is crucial as it ensures that investors receive significant information about the security being offered, helping them make informed decisions. Therefore, this process provides transparency and adds a layer of investor protection. Registration entails filing a prospectus or other documentation that details the essential features of the security, the issuer's financial health, and the associated risks. This regulatory oversight aims to protect investors from fraud and provides a fair examination of the investment opportunity. Thus, when a security is non-exempt, investors need to be aware that it requires registration to be legally sold or offered.