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What is a 'Qualified Institutional Buyer - QIB'

A qualified institutional buyer (QIB) is a corporation that is deemed to be an accredited investor as defined in the Securities and Exchange Commission’s (SEC) Rule 501 of Regulation D. A QIB owns and invests a minimum of $100 million in securities on a discretionary basis; the broker-dealer threshold is $10 million.

BREAKING DOWN 'Qualified Institutional Buyer - QIB'

The range of entities deemed qualified institutional buyers (QIBs) include savings and loans associations (which must have a net worth of $25 million) and banks, investment and insurance companies, employee benefit plans and entities completely owned by accredited investors.

A QIB must be an institution, either domestic or foreign; individuals, regardless of their wealth level of financial sophistication, are not permitted to be QIBs.

Under Rule 144A, QIBs are allowed to trade securities on the market. This rule provides a safe harbor exemption against the SEC's registration requirements for securities. Typically, transactions conducted under Rule 144A include offerings by foreign investors looking to avoid U.S. reporting requirements, private placements of debt, and preferred securities of public issuers and common stock offerings from issuers that do not report.

The Basics of QIBs

QIBs are considered to be financially sophisticated, recognized in this manner legally by U.S. law and securities market regulators. Because of this classification, QIBs are considered to require less protection from public issuers than most public investors. The qualifications for this classification are based on the QIBs' total assets under management (AUM). Rule 144A, under the SEC, is the primary regulatory program for QIBs in the United States. For qualified investors in other countries, additional specified legal conditions apply relating to the country where each investor trades.

Securities Act Rule 144 Under the SEC

This rule governs the sales of controlled and restricted securities in the marketplace. This rule protects the interests of issuing companies, because the sales are so close to their interests. Section 5 of the Securities Act of 1933 governs all offers and sales and requires them to be registered with the SEC or to qualify for an exemption from registration requirements.

Rule 144 offers an exemption, allowing the public resale of controlled and restricted securities, if certain conditions are met. This includes the length of time securities are held, the method used to sell them and the number that are sold in any one sale. Even if all requirements have been met, sellers are not permitted to conduct sales of restricted securities to the public until a transfer agent has been secured to remove the legend.

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