Chapter 2 Part 6 Flashcards
Certain securities are exempt fronm registration based on the issuer of the security. Securities issued or guaranteed by the following exempt issuers are not required to be registered at the state level
• United States any municipality, or any agency of the United Slates or any state • Canada any state, province, or local Canadian municipality • Foreign national governments with which the United States maintains diplomatic relations • banks, savings institutions, or trust companies • Federal or any credit union, industrial loan associations, or similar associations organized and supervised under the laws of the state • Insurance companies • Railroads, common carriers, public utility holding companies that are regulated under the Public Utility Holding Company Act of 1935 • Not-for profit organizations such as religious, educational, fraternal, charitable, social, athletic, or trade and professional associations
Certain securities are exempt from registration based on the type of security it is. Exempt securities include:
• Any promissory note, draft, bill of exchange, or banker’s acceptance: Maturing in no more than nine months, Issued in denominations of $50,000 or more, and Rated in one of the three highest rating categories by a Nationally Recognized Statistical Rating Organization (NRSRO) • Any investment contract issued in connection with an employee stock purchase, savings, pension, profit-sharing, or similar benefit plan if the Administrator is notified in writing at least 30 days before the inception of the plan • Federal covered securities
Federal covered securities, as defined under the Uniform Securities Act, are
not required to be registered at the state level. In short, NSMIA created this class of securities that retains federally imposed exemptions. The federal rules preempt states from regulating public offerings, proxy solicitations, and periodic disclosures by issuers of federal covered securities. However, the Administrator may require certain federal covered securities to be subject to notice filing.
Notice filing is a process that is required of certain federal covered securities. It includes filing the
Consent to Setvicc of Process, paying a filing fee and, depending on the state, the Administrator may require copies of material filed with the SEC.
Federal Covered Securities
Exchange-Listed Securities, Securities Sold to Qualified Purchasers, Investment Company Securities, Securities Issued Pursuant to Regulation D (Rule 506)
Exchange-Listed Securities
Securities that are, or on completion of the offering, will be listed on any exchange approved by the Administrator, are classified as federal covered securities. Approved exchanges include, but arc not limited to, the New York Stock Exchange, Nasdaq, the American Stock Exchange, and the Chicago Stock Exchange. This exemption, once known as the blue-chip exemption, also includes rights and warrants to purchase the subject security.
Securities Sold ID Qualified Purchasers
A qualified purchaser, defined under the Investment Company Act of 1940, includes sophisticated investors. Securities offered or sold to qualified purchasers are considered federal covered securities and arc exempt from registration at the state level.
Investment Company Securities
Securities issued by an investment company registered under the Investment Company Act of 1940 are considered federal covered securities. Therefore, they are exempt from registration at the state level. These securities continue to be required to be registered with the SEC under the ‘33 Act.
Securities Issued Pursuant ID Regulation D (Rule 506)
These are classified as federal covered securities as long as the company does not use general solicitation or advertising to market the securities. The private offer exemption under Regulation D allows issuers to sell its securities to an unlimited number of accredited investors and to no more than 35 nonaccredited investors.
Securities listed on a national securities exchange, Securities equal to or higher in seniority to a listed security, Securities offered or sold to qualified purchasers
NO State Registration Required, NO Notice Filing Required
Investment Company Securities, Securities issued pursuant to Rule 506 (private placements exceeding $5 million)
NO State Registration Required, YES Notice Filing Required
An exempt transaction is a method through which a security may be offered or sold that will not
require the security lo be registered under the USA. Unlike securities issued by an exempt issuer, or the type of security itself being exempt, security exemptions through exempt transactions are required to register on a case-by-case basis.
Exempt transactions: Any isolated
(infrequent) nonissuer transactions
exempt transactions: Any nonissuer transaction by a
registered agent of a broker-dealer, provided that the issuer is actually engaged in business
Exempt transactions: Any nonissuer transaction in a security of a
company that is subject to the registration and reporting requirements of the Securities Exchange Act of 1934 for al least 180 days
