Issuers and Non-Issuer Transactions
With a clear understanding of what a security is and when an offer or sale occurs, the final piece is understanding who is involved in the transaction. The distinction between issuer and non-issuer transactions affects registration requirements, available exemptions, and the level of regulatory scrutiny.
Definition of "Issuer"
- An issuer means any person who issues or proposes to issue any security
- "Person" here uses the broad Uniform Securities Act (USA) definition you learned earlier; it includes individuals, corporations, partnerships, governments, and more
Special Rules for Certain Instruments
Not all securities have a straightforward issuer. The USA provides special rules:
| Instrument | Who is the "Issuer"? |
|---|---|
| Certificates of deposit (for a security) | The person performing the duties of depositor or manager under the trust agreement |
| Voting-trust certificates | The person performing the duties of depositor or manager |
| Collateral-trust certificates | The person performing the duties of depositor or manager |
| Unit investment trusts (fixed, restricted management, or unit type without a board of directors) | The depositor or manager |
| Oil, gas, or mining interests | No issuer; these interests are treated as having no identifiable issuer |
Exam Tip: Gotchas
- Oil, gas, and mining interests have no identifiable issuer under the Uniform Securities Act (USA). This makes them unique among securities. If the exam asks "who is the issuer?" for an oil or gas interest, the answer is that there is none.
Definition of "Non-Issuer"
- A non-issuer transaction means a transaction not directly or indirectly for the benefit of the issuer
- The critical question is always: Who receives the proceeds?
| Who Receives Proceeds? | Transaction Type |
|---|---|
| The issuer receives the proceeds | Issuer transaction |
| Anyone other than the issuer receives the proceeds | Non-issuer transaction |
Issuer Transactions vs. Non-Issuer Transactions
| Feature | Issuer Transaction | Non-Issuer Transaction |
|---|---|---|
| Market | Primary market | Secondary market |
| Who receives proceeds | The issuer | A party other than the issuer |
| Purpose | Company raises capital | Investor sells to another investor |
| Examples | Initial public offering (IPO), follow-on offering, private placement by the issuer | Stock exchange trades, estate sales of securities |
| Registration | Generally must be registered (unless exempt) | May qualify for different exemptions |
| Regulatory scrutiny | Higher; issuer must provide full disclosure | Lower; routine secondary market trading |
Examples That Clarify the Distinction
- A company conducts an IPO and sells 1 million new shares to the public → Issuer transaction (the company receives the proceeds to fund operations)
- After the IPO, an investor sells 100 shares on the New York Stock Exchange (NYSE) to another investor → Non-issuer transaction (the company does not receive the proceeds)
- A company insider sells their personally held shares through a secondary offering → Non-issuer transaction (the proceeds go to the insider, not the company)
- A company issues new shares to raise additional capital (follow-on offering) → Issuer transaction (the company receives the proceeds)
Why This Distinction Matters
The issuer vs. non-issuer classification determines:
- Registration requirements - Issuer transactions generally require securities registration (unless an exemption applies). Non-issuer transactions may have different or lighter registration requirements.
- Available exemptions - Some exemptions under the USA apply only to non-issuer transactions (e.g., isolated non-issuer transactions), while others apply only to issuer transactions.
- Disclosure obligations - Issuers selling new securities must provide extensive disclosure. Investors selling in the secondary market have fewer disclosure requirements.
Exam Tip: Gotchas
- "Secondary offering" is not the same as "secondary market." A secondary offering is when existing shareholders sell their shares; it is a non-issuer transaction. The secondary market is where previously issued securities trade; also non-issuer transactions. The terminology is confusing, but the test is simple: Does the issuer benefit from the proceeds? If yes, it is an issuer transaction. If no, it is a non-issuer transaction.
- Not all issuer transactions require registration. Some qualify for exemptions under the USA, so do not assume "issuer transaction" automatically means "must register."