Uniform Securities Agent State Law (Series 63) Practice Exam

What type of securities are considered 'federal covered' under NSMIA?

1. All foreign securities available in the U.S. market

2. Securities issued by state governments

3. Mutual funds that meet federal registration requirements

4. Corporate bonds with local demand

The correct answer is: Mutual funds that meet federal registration requirements

Federal covered securities, as defined under the National Securities Markets Improvement Act (NSMIA), are primarily those that are federally registered or those that meet certain federal criteria. This includes mutual funds that adhere to federal registration requirements, specifically those registered under the Investment Company Act of 1940. These securities are exempt from state registration requirements, simplifying the process for issuers and underlining the federal government's role in regulating certain market participants and product types. Because mutual funds fall into this category by virtue of their compliance with stringent federal regulations, they are classified as federal covered securities. Other options do not qualify as federal covered securities in the same way. For example, while foreign securities may be available in the U.S. market, they do not automatically fall under the definition without meeting specific federal requirements. Securities issued by state governments can be subject to state regulations, and corporate bonds may not meet the criteria set forth for federal coverage. The focus on mutual funds aligns with the intent of NSMIA to streamline securities regulation by emphasizing federal oversight for specific categories of securities.