Federal covered securities are exempt from state registration. The USA defines a federal covered security as follows:

"A security that is, or upon completion of a transaction will be, a covered security under Section 18(b) of the Securities Act of 1933 (15 U.S.C. Section 77r(b)) or rules or regulations adopted pursuant to that provision."

More specifically, a federal covered security, also known as a "covered security", is defined as follows:

  • Securities issued by an open-end mutual fund, closed-end mutual fund, unit investment trust, or face amount certificate company, that is registered under the Investment Company Act of 1940
     
  • Securities offered pursuant to the provisions of Rule 506 of Regulation D under the Securities Act of 1933
     
  • Securities offered by a municipal/governmental issuer, unless the issuer is located in the state in which the securities are being offered
     
  • Securities offered by an issuer exclusively to its existing security holders where no commission or other remuneration is paid directly or indirectly for soliciting the exchange

Federal covered securities include:

  • Securities either listed, or authorized for listing, on the New York Stock Exchange, Nasdaq National Market System, American Stock Exchange, Chicago Board Options Exchange, Tier 1 of the Pacific Exchange, and Tier 1 of the Philadelphia Stock Exchange, or any other national exchange determined by the SEC to have proper listing standards
     
  • Securities issued by an investment company registered under the Investment Company Act of 1940
     
  • Securities "offered or sold pursuant to most exemptions contained in the Securities Act of 1933, intrastate exemptions, non-profit exemptions, and any/all municipal/government securities sold in the state where the issuer is located".

 

Exam Tips and Tricks
Please note that Nasdaq small-cap securities are not federal covered securities. This could easily show up on the exam.

 

Exam Tips and Tricks
Questions about securities registration tend to be very straightforward. Remember that only two questions involving securities registration are scheduled to be on the exam. Here are two likely questions on the topic of exempt securities or transactions:
ABC Corporation has never previously issued securities registered by the SEC. It can register in the State by which method(s)?

Registration by filing Registration by coordination Registration by qualification Registration by administration

  1. I only
  2. II only
  3. II & III
  4. I, III & IV

The correct answer is "c": registration by filing is only available to companies that have previously registered securities with the SEC, and registration by administration is not a valid registration method.

  1. Which of the following securities are not exempt under the Uniform Securities Act?
    1. Limited partnerships
    2. Convertible bonds of a NYSE-listed company
    3. U.S. Treasury bonds
    4. Stock issued by a non-profit organization

The answer is "a", since all the other options listed are specifically exempted.



Introduction

Related Articles
  1. Financial Advisor

    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. Financial Advisor

    Series 63, Series 65 Or Series 66?

    When joining the world of investment professionals, you must take the right exams.
  3. Financial Advisor

    Tips For Passing The Series 6 Exam

    Find out what you can do during the test to make sure you get a passing score.
  4. Investing

    What's the Primary Market?

    The primary markets are where investors can get first crack at a new security issuance.
  5. Financial Advisor

    Series 6 Exam Prep: What Is A Security?

    Before you take the series 6, you need to understand what a security is as defined by the exam.
  6. Retirement

    Is there any way to opt out of paying Social Security?

    Understand more about the purpose of the Social Security system and learn which groups of taxpayers are automatically exempt from the tax.
  7. Insights

    Understand the SEC Rules on Equity Crowdfunding

    The SEC's adoption of equity crowdfunding rules, initiated under the JOBS Act, enables small investors to invest in companies that show early potential.
  8. Investing

    What's a Marketable Security?

    Marketable securities are financial instruments that can be readily bought and sold in a public market. The key feature is the ease with which it can be sold and converted into cash. Usually, ...
  9. Taxes

    Are You Missing Out On These Tax Exemptions?

    To lower your tax bill, make sure that you're taking all the exemptions that apply to you.
  10. Financial Advisor

    Understanding Series 63

    Series 63 is a securities license that entitles the holder to sell securities in a particular state.
Frequently Asked Questions
  1. Can I fund a Traditional IRA, a 403(b) or a Roth IRA using pension money?

    Can pension money be used to fund other retirement accounts?
  2. What are unregistered securities or stocks?

    Before securities, like stocks, bonds and notes, can be offered for sale to the public, they first must be registered with ...
  3. How does a company move from an OTC market to a major exchange?

    The over-the-counter market is not an actual exchange like the NYSE or Nasdaq. Instead, it is a network of companies that ...
  4. Can I roll a traditional IRA into a 529 college account for my grandchild?

    The short answer: Not without paying taxes. But as with much of the tax code, there are various nuisances and exemptions ...
Trading Center