Overview of the Uniform Securities Act

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.

The Antifraud Provision (Section 101)

Section 101 is the single most important provision in the USA. 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 Section 101:

• Modeled on SEC Rule 10b-5 under the Securities Exchange Act of 1934
• Applies to both offers/sales AND purchases (protects buyers and sellers)
• There are NO exemptions from Section 101

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

Section 101 has NO exemptions. Even exempt securities and exempt transactions are subject to antifraud provisions. 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 Section 101.

Memory Aid: SCAM (Securities Exchange Act of 1934)

Section 101 of the USA mirrors the federal antifraud framework. The '34 Act protects investors from scams by establishing:

• S - SEC creation (§4) + Federal Reserve Board (FRB) margin authority + Reg T
• C - Credit regulation (margin rules)
• A - Antifraud (§10(b), Rule 10b-5 - the federal cousin of USA §101)
• M - Anti-Manipulation (§9 - wash trades, matched orders)

Unlawful Representations (Section 405)

Section 405 addresses a specific type of misleading statement. 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 representation under Section 405, even if the security is properly registered. The correct statement is that registration has been made "effective" - not "approved."