Uniform Securities Agent State Law (Series 63) Practice Exam

What is a federal covered security?

1. A security only registered in certain states

2. A security exempt from state registration

3. An international security subject to U.S. regulations

4. A security issued by companies with under $10 million in assets

The correct answer is: A security exempt from state registration

A federal covered security is defined as a security that is exempt from state registration under the provisions of the Securities Act of 1933. This classification includes securities such as those listed on national stock exchanges or those issued by investment companies registered under the Investment Company Act of 1940. In contrast to securities that require registration at the state level, federal covered securities can be offered and sold in the states without the need to comply with local registration requirements. This is intended to create a streamlined process for certain high-profile investments and enhance investor access to them. The other options do not accurately describe the characteristics of federal covered securities. For instance, being registered in only certain states implies a need for state compliance, which contradicts the fundamental nature of federal covered securities. Additionally, international securities may be subject to different regulations and are not specifically designated as federal covered. Finally, there is no direct correlation between the size of a company's assets and whether its securities are categorized as federal covered.