Series 7 practice questionhardAlternative Investments — Private Placements
Private placement securities purchased under Regulation D are considered "restricted securities" because:
- AThey cannot be freely resold in the public market without registration or an exemption✓ Correct answer
- BThey can only be purchased by residents of the state where the issuer is located
- CThey must be held in a margin account
- DThey are restricted to investments of $10,000 or less
Explanation
Why A — They cannot be freely resold in the public market without registration or an exemption
Reg D securities are restricted securities, meaning they cannot be freely resold to the public without SEC registration or an available exemption (such as Rule 144). Under Rule 144, restricted securities generally must be held for at least 6 months (for reporting companies) or 12 months (for non-reporting companies) before they can be resold. This illiquidity is a significant risk factor for investors.
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