The Foundation - That Word "Exempt"

One of the major terms that causes confusion for Series 63 candidates is the word, "exempt." Webster's defines exempt as "not subject to or bound by a rule, obligation, etc. applying to others." Applying that idea to securities, if a stock is exempt from registration, it does not have to be registered.

So what is a "non-exempt security"? Following the logic above, a non-exempt security, would be one to which the state's laws would apply, which means that it would have to register, right? Well, yes, most of the time.

If a non-exempt stock is traded in an exempt transaction, it would not be a violation of the USA. Confusing? Yes, but become accustomed to the use of the word in these contexts.

A note from the Official Comments that accompany the USA 2002 may help to clarify:

    • A (n) ... exempt security retains its exemption when initially issued and in subsequent trading.
    • A ... transaction exemption must be established for each transaction.

In other words, if a stock, such as a NYSE listed stock that was approved for listing at its Initial Public Offering (IPO), is exempt from registration under the USA, it is exempt in both the primary (new) market and in subsequent secondary market trading.

If a stock is a non-exempt stock, then it should be registered unless the circumstances that bring it into the state make the transaction exempt. We'll look at this in detail under exempt transactions.

It may also be helpful to consider the word "exclusion" in the context of the USA, as opposed to "exemption".

For example, in defining the term "security", the USA definition stated that it did not include "an interest in a contributory or noncontributory pension or welfare plan subject to the Employee Retirement Income Security Act of 1974."

In other words, a qualified pension plan is excluded from the definition of security. Certain stocks, such as those listed on exchanges are, by contrast, exempt from registration.

We'll have some sample questions to strengthen your handling of these sometimes-confusing terms.

The most frequent exemptions are:

    • U.S. Government and Municipal Securities: These are exempt from everything except the anti-fraud laws. For the most part, we can also add securities issued by foreign governments with which the U.S. maintains diplomatic relations. The exam questions you see might focus on Canadian securities.
    • Banks: The regulatory structure for federal and state banking is, in most cases, considered sufficient to ensure that the public is not being defrauded.
    • Institutions: The USA is principally structured to protect the investing public from fraud, not institutions. The essential idea here is that institutions are (or should be) sophisticated investors that have the expertise available to investigate securities offerings, allowing them to take risks that the normal investor should not.

Exam Tips and Tricks
Keep these in mind. We'll be seeing them many times in this text. Also note that if an exemption is available, it will normally be used. No one wants to spend the time or money registering if it is not required.

With the definitions out of the way, let's now take a look at the origin of the USA.

Exam Tips and Tricks
You will be tested on the USA, not on individual state regulations (Blue Sky Laws), as most states simply mirror the model legislation of the USA. The bullet points below outline the origin of the Uniform Securities Act.

National Conference of Commissioners on Uniform State Laws (NCCUSL)
Related Articles
  1. Professionals

    Career Advice: Stockbroker Vs. Insurance Agent

    Compare and contrast careers as a stockbroker and insurance agent. Understand the skills and attributes required for success in each career.
  2. Professionals

    Hedge Funds and the Law

    Learn how hedge funds have gotten in trouble for illegal insider trading. Read about questionable high-frequency trading (HFT) strategies.
  3. Economics

    Where Would the Dow Be Without Fed Intervention?

    What would the Dow look like without the accommodative monetary policies the Federal Reserve has implemented since the financial crisis?
  4. Investing

    Breaking Down the Federal Reserve's Dual Mandate

    The Fed has been tasked with a dual mandate by Congress to achieve monetary stability. We explain what the dual mandate is and what it means.
  5. Economics

    Should the Fed Be More Worried About Asset Bubbles?

    While the Fed should be concerned that assets bubbles might impact economic stability, monetary policy is not the best tool to mitigate this threat.
  6. Economics

    What's the 1913 Federal Reserve Act?

    The 1913 Federal Reserve Act was a pivotal congressional act that helped establish the Federal Reserve System as it exists today. It is one of the United States financial system’s most influential ...
  7. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  8. Professionals

    Will Interest Rates Rise at the Next Fed Meeting?

    Everyone wants to know what the Federal Reserve will do next, but the Fed doesn't even know what it's next move will be.
  9. Professionals

    Career Advice: Financial Analyst Vs. Investment Banker

    Read an in-depth comparison about working as a Financial Analyst vs. working as an Investment Banker, two highly prestigious business careers.
  10. Professionals

    3 ETFs to Play the Fed's Interest Rate Decision

    These three ETFs offer strong ways to play the Federal Reserve's decision not to raise rates.
  1. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
  2. Series 6

    A securities license entitling the holder to register as a limited ...
  3. Comprehensive Automated Risk Data ...

    The Comprehensive Automated Risk Data System (CARDS) is an initiative ...
  4. Corporate Financing Committee

    A regulatory group that reviews documentation that is submitted ...
  5. Division Of Reserve Bank Operations ...

    An entity under the Federal Reserve System that manages certain ...
  6. Series 79

    A examination to ensure a candidate is qualified to become a ...
  1. Is there a limit on the number of times I can re-take the Series 63 exam?

    There is no limit to the number of times a candidate may retake the Series 63 exam. The North American Securities Administrators ... Read Full Answer >>
  2. How long must I wait after failing the Series 63 exam before I can take it again?

    Waiting periods are in place for candidates who wish to retake the Series 63 exam. Between retakes, the waiting period is ... Read Full Answer >>
  3. My 120-day Series 63 exam window is about to close, but I need more time to study. ...

    Extensions are available on rare occasions. Candidates should apply for an extension with the North American Securities Administrators ... Read Full Answer >>
  4. Do I have to be a U.S. citizen to sit for the Series 63 exam?

    United States citizenship is not required for Series 63 test-takers. Candidates may take the exam inside or outside the U.S. ... Read Full Answer >>
  5. Are waivers granted to the 180-day waiting period to re-take the Series 63 exam?

    Candidates retaking the Series 63 exam must wait for 30 days after failing it on the first or second attempt. After failing ... Read Full Answer >>
  6. If I failed the Series 66, does the waiting period apply if I want to take the Series ...

    The waiting period only applies to retaking the same North American Securities Administrators Association (NASAA) exam. Candidates ... Read Full Answer >>
  7. How often, and how, is a series 63 exam updated?

    Series 63 exams draw questions from a test bank based on state regulations, the Uniform Securities Act and North American ... Read Full Answer >>
  8. Are series 63 exams given outside of the United States?

    Series 63 exams are offered at authorized testing centers around the world. The exam does not require U.S. citizenship. Test ... Read Full Answer >>
  9. Does NASAA or anyone else give out the series 63 exam questions?

    Outside of the proctored exam, no access to Series 63 exam questions is offered. Providing access to questions would invalidate ... Read Full Answer >>
Hot Definitions
  1. Ex Works (EXW)

    An international trade term requiring the seller to make goods ready for pickup at his or her own place of business. All ...
  2. Letter of Intent - LOI

    A document outlining the terms of an agreement before it is finalized. LOIs are usually not legally binding in their entirety. ...
  3. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  4. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  5. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  6. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!