Non-Issuer Transaction

What Is a Non-Issuer Transaction?

A non-issuer transaction is a transaction involving a security that is not directly or indirectly executed for the benefit of the issuing company. Most deals that occur on the secondary market, such as stock exchanges, involve non-issuer transactions; with the exception of initial public offerings (IPOs); secondary offerings; or share buybacks that will involve the issuer.

Key Takeaways

  • A non-issuer transaction involves the purchase or sale of securities that does not involve the issuer of those securities.
  • An isolated non-issuer transaction involves an ad-hoc exchange of securities between two private parties, often on an over-the-counter (OTC) basis, exempting it from registration.
  • Non-issuer transactions involving outstanding securities refer largely to trades executed among counterparties on secondary markets that do not involve the issuer.

Understanding Non-Issuer Transactions

Isolated non-issuer transactions are exempt from the registration requirements of the Securities and Exchange Commission (SEC). For instance, if Joe sells 100 shares of XYZ stock to his brother, this transaction would be exempt from registration requirements.

However, once Joe sells those 100 shares to his brother, he officially becomes what's known as a non-issuer broker-dealer. Non-issuers can be described as a person or company that doesn't issue securities or have plans to do so and a broker-dealer is a person or firm that buys and sells securities for its own account or on behalf of its customers.

Regulations are much lighter on non-issuer broker-dealers, although these figures are also very limited in what they can do while legally maintaining this status.

Auditors and Non-Issuer Broker-Dealers 

Auditors of a non-issuer broker-dealer must be registered with the Public Company Accounting Oversight Board (PCAOB​)​​​​​​ as of the date of the auditor’s report. Auditors are encouraged to begin the registration process with the PCAOB as soon as practicable. Non-public broker-dealers are also advised to contact the Commission’s Division of Trading and Markets to discuss individual circumstances if necessary.

Auditors of non-issuer broker-dealers must continue to comply with Exchange Act Rule 17a-5(f)(3), which states that the auditor “shall be independent in accordance with the provisions of §210.2-01(b) and (c) of this chapter.” However, auditors of non-issuer broker-dealers are not subject to the partner rotation requirements or compensation requirements of §210.201(c).

Types of Exempted Non-Issuer Transactions

  • Isolated Non-Issuer Transactions: 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.

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  1. SEC. "17 CFR Parts 240 and 249," Page 95. Accessed Nov. 17, 2020.