The aftermarket manual I have shows all 1963 40 HP have standard magneto ignition, whether it has the electric push-button shift or not. The contacts in the run position are open and they short the points together in the off position. Some models back then had a "Hot" idiot light that lit if the motor overheated. If yours has this, the ignition switch also needs a contact from the ignition switch that makes to connect the battery to the hot light circuit when running – or you could forget the idiot light. Of course there is a contact to connect the battery to the starter solenoid while cranking.(Note the solenoid looks like a Ford part but it’s wired different inside to the small terminals – do not sub Ford part.
There are a bunch of reasonably priced ignition switches onthe market, but online, they do not often tell you if the contacts make or break when running. Some have two sets of contacts so can be wired either way. Below is a link to some, but you will probably have to call to see which does what you want. Some are intended for I/O setups with car engines, and some newer outboards need contacts closed, some open.
Here are some switches – one or more of the Sierra switches will likely be right:
Here is the diagram – ignore the generator stuff if you don’t have one:
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