Overview of the Uniform Securities Act

The USA is a template, not a single national statute. Each state enacts its own version, so the exam tests the model act's text and structure rather than any one state's variations.

What Is the Uniform Securities Act and Why Does It Exist?

• The Uniform Securities Act of 1956 is a model state securities law drafted by the Uniform Law Commission and subsequently amended by NASAA (North American Securities Administrators Association)
• Often called a "blue-sky law": state-level legislation designed to protect investors from fraud
• The term "blue sky" comes from early efforts to stop promoters who would "sell building lots in the blue sky"
• The USA provides a template that individual states adopt (with modifications) to regulate:
  • Securities transactions within their borders
  • Securities professionals (broker-dealers, agents, advisers)
  • Securities offerings (registration of securities)

Exam Tip: Gotchas

The Series 63 tests the USA of 1956 as amended by NASAA, NOT the Uniform Securities Act of 2002. The 2002 Act was drafted to modernize the 1956 version, but only about 20 states have adopted it so far. Since the majority of states still operate under the 1956 Act (with NASAA amendments), NASAA continues to test the 1956 version. NASAA has indicated they'll update the exam once enough states adopt the 2002 Act, but that hasn't happened yet.

How Is the Act Organized?

The USA is organized into four parts. Knowing this structure helps you understand where specific rules come from.

What Does the Antifraud Provision Prohibit?

The USA's antifraud provision is the single most important rule in the Act. It makes it unlawful for any person, in connection with the offer, sale, or purchase of any security, directly or indirectly, to:

1. Employ any device, scheme, or artifice to defraud
2. Make any untrue statement of a material fact or omit a material fact necessary to make statements not misleading
3. Engage in any act, practice, or course of business that operates as a fraud or deceit upon any person

Key characteristics of the antifraud provision:

• Modeled on the federal antifraud rule under the Securities Exchange Act of 1934
• Applies to both offers/sales AND purchases (protects buyers and sellers)
• There are NO exemptions from antifraud liability

Think of it this way: Some securities (like government bonds) get a pass from registration requirements. But no security and no person ever gets a pass from the antifraud rules. Fraud is fraud, regardless of any other exemption.

Exam Tip: Gotchas

The antifraud provision has NO exemptions. Even exempt securities and exempt transactions are subject to antifraud rules. The exam frequently asks whether a particular exemption shields a person from fraud liability; it does not. A government bond may be exempt from registration, but selling it through fraud still violates the antifraud provision.

Why Can't Anyone Call a Registered Security "Approved"?

The USA bars misleading statements about what registration means and about what an exemption means. Both branches matter:

• Neither the fact that an application or registration statement has been filed nor the fact that a person or security is effectively registered is a finding by the Administrator that any document filed is true, complete, and not misleading
• None of those facts, and not the availability of an exemption or exception for a security or a transaction, means the Administrator has:
  • Passed in any way on the merits or qualifications of any person, security, or transaction
  • Recommended or given approval to any person, security, or transaction
• It is unlawful to make any representation inconsistent with these principles to a prospective purchaser, customer, or client

Exam Tip: Gotchas

• Exemption is not approval either. The rule is not registration-only. "The state let this one skip registration, so they must have cleared it" is just as unlawful as calling a registered security "state-approved." The section's own title covers registration or exemption.

The critical distinction:

• Registration becomes "effective": this is the correct term
• Registration is never "approved" by the Administrator

Think of it this way: When you register your car at the DMV, the state does not promise the car is safe or reliable. It just records that the car exists. Securities registration works the same way: the state makes registration "effective" (acknowledges the filing) but never "approves" the security or the person behind it.

Exam Tip: Gotchas

An agent who tells a customer "This security has been approved by the state" is making an unlawful misrepresentation about registration, even if the security is properly registered. The correct statement is that registration has been made "effective," not "approved."

What Should You Check on Exam Day?

• Confirm the question is testing the 1956 Act as amended by NASAA, not the 2002 Act.
• Watch for exemption questions that try to sneak in a fraud pass. There is no exemption from the antifraud provision.
• Watch for "approved," "endorsed," or "recommended" language attached to a registered or exempt security. The only correct word is "effective."
• Remember the antifraud provision covers purchases too, not just offers and sales.