Securities - Exempt Transactions

The Uniform Securities Act specifies a number of transactions by which non-exempt securities may be legally traded without registration. The following is not a comprehensive list but touches on those most likely to be on the Series 63 exam.

Isolated Non-Issuer Transactions
The states define what "isolated" means on a local basis but it is specifically non-recurring. For example: An individual brought stock certificates for PDQ stock to Idaho when he moved from Tennessee. The stock is not registered in Idaho, but he may sell it to his neighbor and the transaction is exempt because the individual is not the issuer and the transaction is "isolated".

Non-Issuer Transactions in Outstanding Securities
This is often called the "manual exemption". If the security being traded is from an issuer that is currently up-to-date on all financial reporting with the SEC, is not experiencing financial difficulties, and is not a "blind pool", or "shell corporation", the transaction is exempt from registration. The securities involved in the transaction must have been in the hands of the public for at least 90 days.
 

Look Out!
"Shell Corporations" are businesses without active operations or significant assets. These companies are often formed before commencing operations to obtain financing. Sometimes, they may be used as a front in tax evasion.

"Blind Pools" occur when securities are sold to investors with no specific indication as to what the monies raised will be used for.

If you would like to learn more about blind pools, click here for an investor alert from the NASAA:

Unsolicited Transactions
These transactions may be effected by, or through, a broker-dealer but are only exempt if they are truly unsolicited. The broker-dealer may be required by the Administrator to provide proof - a statement by the customer, for example - demonstrating the nature of the transaction.

Fiduciary Transactions
These include sales by executors, Administrators, trustees, receivers, etc. For example, if an executor of an estate liquidates securities of a deceased person in accordance with the person's will, it is an exempt transaction.

Transactions with Financial Institutions
This includes sales to banks, savings institutions, and insurance companies. This exemption goes back to the ideas discussed earlier. The Uniform Securities Act does not place as much emphasis on the protection of institutions as it does for individual investors.

Private Placement Transactions
Private placements, as the name implies, are not "public" offerings and are not examined as closely by the SEC as a public offering.A private placement may be made to an unlimited number of accredited investors. However, If a private placement offering is to be exempt from registration under the Uniform Securities Act, there are additional requirements.relating to offers to non accredited investors. Any offer to non accredited investors must follow these guidlines:

  • No more than 10 offers may be made in a twelve-month period.
  • No commissions may be paid, directly or indirectly.
  • The purchase is for the purpose of investment and not resale.

Institutional and acrredited  investors are exempt purchasers for the purpose of these rules.
 

Look Out!
In all cases where an exemption for a security or a transaction is claimed, the burden of proof is on the person requesting the exemption.
The Administrator may, as the USA states, "...by order deny or revoke an exemption ..." and specifies the transaction exemptions for institutions and private placements. In other words, the Administrator has the power to require that the party claiming an exemption demonstrate proof.

 

Other Exempt Transactions


Related Articles
  1. Professionals

    Succeeding At The Series 63 Exam

    Your career as a securities agent begins with this test. We'll show you how to score high.
  2. Taxes

    8 States With Estate Taxes

    Understand the difference between the federal estate tax and state-specific estate taxes. Learn about some of the worst states with estate taxes.
  3. Your Practice

    How Brokers Are Compensated for Selling Bonds

    Find out how brokers are paid for selling bonds and how the transaction costs are passed on to the investor through a markup or commission.
  4. Taxes

    What IRS Form 8949 Is For

    Selling a painting or that lake property? Disposing of your fossil fuel stocks? You need to know about this IRS form.
  5. Options & Futures

    The 4 Ways To Buy And Sell Securities

    Know the four main avenues of buying and selling investment instruments.
  6. Investing Basics

    A Brief Guide To Institutional Investing

    Institutional investors are organizations that manage assets on others' behalf. They include pension funds, investment companies, insurance firms, endowments and private foundations.
  7. Options & Futures

    Series 63, Series 65 Or Series 66?

    When joining the world of investment professionals, you must take the right exams.
  8. Forex Fundamentals

    Bitcoin Transactions Vs. Credit Card Transactions

    We provide an overview of the differences between bitcoin and credit card transactions, and the advantages of using one over the other.
  9. Taxes

    Is It True That You Can Sell Your Home And Not Pay Capital Gains Tax?

    Based on the Taxpayer Relief Act of 1997, if you are single, the first $250,000 you make on your home sale is not subject to capital gains tax.
  10. Term

    Understanding Rule 144A

    Rule 144A is an SEC rule that changes the two-year holding period requirement on privately placed securities.
RELATED TERMS
  1. Exempt Transaction

    A type of securities transaction where a business does not need ...
  2. Exemption

    A deduction allowed by law to reduce the amount of income that ...
  3. Exempt Income

    Certain types or amounts of income not subject to federal income ...
  4. SEC Form T-4

    An application for exemption from certain sections of the Trust ...
  5. Placement

    The sale of securities to a small number of private investors ...
  6. Private Placement

    The sale of securities to a relatively small number of select ...
RELATED FAQS
  1. ABC Broker-dealer has no office in state and transacts fewer than five trades during ...

    The correct answer is b. Under these circumstances, the broker-dealer is not required to register with the state and the ... Read Answer >>
  2. What is required to become an accredited investor in a private placement?

    Learn how the SEC defines accredited investors, and understand exceptions to the requirements for an accredited investor ... Read Answer >>
  3. According to the USA, it is unlawful for a person to offer to sell a security in ...

    a. the security is registered with Federal Reserve. b. it is a federal covered security, is exempted from registration, or ... Read Answer >>
  4. Who is exempt from paying Social Security taxes?

    Learn about the groups of people who qualify for exemption from Social Security taxes, and explore the process of applying ... Read Answer >>
  5. What factors might make a private placement a risky investment?

    Learn about purchasing securities through a private placement investment, and understand the risk factors associated with ... Read Answer >>
  6. If ABC corporation, which is listed on the New York Stock Exchange ...

    The correct answer is d). This transaction would qualify under two different exemptions – the first because it is an exchange ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center