Regulation of Broker-Dealers and Securities - Securities Regulation

Under the Uniform Securities Act, all securities sold in a particular state must be registered in that state, unless they meet one of the following exemptions:

  1. Certain Issuers - The securities associated with the following issuers are exempt from state registration:
    • government and municipal issuers
    • issuers regulated under other laws (such as banks, credit unions, insurance companies, railroads and public utilities)
    • nonprofit organizations such as cooperatives and employer benefit plans

  2. Federal Covered Security - See the section below for more details

  3. Exempt Transactions - These are transactions that do not involve the public, including the following:
    • Fiduciary transactions
    • Unsolicited transactions
    • Real estate transactions secured by a mortgage
    • Isolated non-issuer transactions
    • Transactions between issuers and underwriters
    • Transactions with financial or institutional investors
    • Private placements
    • Sales where no commissions or fees are involved
    • Non-issuer transactions in outstanding securities registered under either the Securities Act of 1934 or the Investment Company Act of 1940

Exam Tips and Tricks
A common trick question on the exam involves the "certain issuers" exemption from securities registration. Some of the incorrect options may include securities issued by bank holding companies (only banks themselves are exempt) and airlines (only railroads are exempt).

Registering a Security

  • government and municipal issuers
  • issuers regulated under other laws (such as banks, credit unions, insurance companies, railroads and public utilities)
  • nonprofit organizations such as cooperatives and employer benefit plans

There are three methods that can be used to register a security:

  1. Registration by Filing - used by established companies who are permitted to use the prospectus filed with the SEC under the Securities Act of 1933 as the filing document for the state

  2. Registration by Coordination - similar to registration by filing, but can be used by any company. The state registration is filed at the same time as the SEC filing, along with copies of the issuer's articles of incorporation, bylaws and other documents.

  3. Registration by Qualification - this is the most difficult method to use and requires the most detailed disclosures. Issuers must provide detailed information on the identity, background and earnings of each officer, director, and 10% of shareholders; as well as all contracts within the last two years; legal and accounting opinions; and how the sale proceeds will be used.
State Authority over Federal Covered Securities
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