The Series 63 tests one primary law: the Uniform Securities Act of 1956 (USA). Before diving into specific rules, you need to understand what this law is, how it's organized, and its most important provision.
Origin and Purpose
- 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.
Structure of the Act
The USA is organized into four parts. Knowing this structure helps you understand where specific rules come from.
| Part | Subject | What It Covers |
|---|---|---|
| Part I | Fraudulent and Other Prohibited Practices | Antifraud rules, market manipulation |
| Part II | Registration of Persons | Broker-dealers, agents, investment advisers |
| Part III | Registration of Securities | How securities are registered in a state |
| Part IV | General Provisions | Definitions, administration, scope, penalties |
The Antifraud Provision
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:
- Employ any device, scheme, or artifice to defraud
- Make any untrue statement of a material fact or omit a material fact necessary to make statements not misleading
- 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.
Unlawful Representations About Registration
The USA bars one specific type of misleading statement about the meaning of registration. Here's what you need to know:
- The fact that a person or security is registered does NOT mean the Administrator has:
- Found any filing to be true, complete, or not misleading
- Passed on the merits or qualifications of any person
- Given approval to any person, security, or transaction
- It is unlawful to tell a customer anything inconsistent with these principles
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."