Non-Covered Security

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DEFINITION of 'Non-Covered Security'

A proposed SEC designation under which securities offerings that are small and of limited scope would not be covered by Regulation D. The new designation would be created under the Restoring American Financial Stability Act of 2010 proposed by Connecticut Senator Christopher Dodd. The provision is decried by small business advocates who argue that the new designation would make it much more difficult for small firms to obtain early-stage financing from angel investors.

INVESTOPEDIA EXPLAINS 'Non-Covered Security'

Regulation D provides an exemption from complex securities registration requirements. This exemption is frequently used by early-stage firms who raise money from small groups of savvy accredited investors. Under the bill, the SEC would be required to make a determination on whether to designate a class of non-covered securities that would be unable to use Regulation D. The bill outlines that in making such a designation, the SEC should consider the size of the offering, the number of States in which the securities is being offered and the nature of the persons to whom the security is being offered.

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