NASAA Series 63Regulation of Securities and IssuersHard
A shareholder pledges shares of stock as collateral for a personal loan from a bank. The bank later sells the pledged shares after the borrower defaults on the loan. Under the Uniform Securities Act, this sale by the bank is:
- AExempt only if the bank first registers as a broker-dealer
- BNot exempt, because banks cannot sell pledged securities without registration
- CNot exempt, because it is a sale by a control person of the issuer
- DExempt as a transaction incident to a bona fide pledge or loan
Show answer & explanationAnswer & explanation
Correct answer: D. Exempt as a transaction incident to a bona fide pledge or loan
The Uniform Securities Act exempts transactions incident to a bona fide pledge or loan, including the pledgee's subsequent sale of the collateral upon default, from registration requirements as exempt transactions.
Why the other options are wrong
- A. Incorrect; the bank does not need to register as a broker-dealer to liquidate collateral.
- B. Incorrect; the pledge exemption specifically allows this without registration.
- C. Incorrect; control person status is not the determining factor here.
Pledge/Loan Transaction Exemption
Transactions incident to a bona fide pledge or loan, including sale of pledged securities upon default, are exempt transactions under the USA.
- Covers original pledge and subsequent default sale
- Applies regardless of whether shares are restricted or control shares
- Does not remove antifraud protections
Memory trick: Collateral changing hands on a loan default needs no new registration.