Federal Covered Securities - Notice Filing

Stop orders apply to securities that must be registered at the state level. But what about securities that are exempt from state registration because they are regulated at the federal level? This section covers the Administrator's limited but important authority over federal covered securities.

What Are Federal Covered Securities?

Federal covered securities are securities that are exempt from state registration under the Securities Act of 1933's federal-preemption provision (added by NSMIA, the National Securities Markets Improvement Act of 1996).

The key rule:

• States cannot require these securities to be registered at the state level
• However, states can require notice filings and fees for most categories
• Exchange-listed covered securities are the exception: federal law bars a state from requiring any filing or any fee on them, and they can never be stop-ordered either

What Must Be Filed, and by Whom?

For investment company covered securities (mutual funds and UITs registered under the Investment Company Act of 1940), the Administrator may by rule or order require the filing of:

• Documents that are part of the federal registration statement filed with the SEC, plus a consent to service of process and applicable fees, due before the initial offer of the security in the state
• Amendments to the federal registration statement (filed concurrently with the Administrator, after the initial offer)
• A report of the value of those federal covered securities offered or sold in the state, with applicable fees

These three items are the investment company rule, not a universal one. For other categories of federal covered securities, the Administrator may separately require the same documents filed with the SEC, plus the fee. Exchange-listed securities are the only category with no filing rule at all.

What Does a Regulation D Offering Require?

For Reg D private placement covered securities, the Administrator may require:

• Filing of a notice (the federal Form D)
• A consent to service of process signed by the issuer
• Filing no later than 15 days after the first sale of the security in the state
• Payment of applicable fees

Exam Tip: Gotchas

• Even though a private-placement offering is a federal covered security (exempt from state registration), the Administrator may still impose a state notice filing and consent-to-service requirement, and the 15-day clock runs from the first in-state sale, not from the offering's start. Federal covered status does not automatically eliminate the notice obligation.

When Can the Administrator Stop-Order a Federal Covered Security?

The Administrator may issue a stop order suspending the offer and sale of a federal covered security if:

1. The order is in the public interest, AND
2. There is a failure to comply with any condition established under the notice-filing rules (e.g., failure to file notice, failure to pay fee)

Critical exception: The Administrator may not issue a stop order against securities listed (or with equivalent quality and listing status) on a covered national exchange.

Exchange-listed covered securities include:

• NYSE-listed securities
• NASDAQ-listed securities
• Other national exchange-listed securities

Exam Tip: Gotchas

• NYSE/NASDAQ-listed securities are off-limits to the §307 stop order. The Administrator cannot suspend their offer and sale for a notice-filing failure. This is not a total immunity: state antifraud authority survives. There are no exemptions from §101, so if the sale involves fraud the Administrator can still issue a §408 cease and desist order or ask a court to enjoin it.
• Reg D offerings are different. The Administrator can issue a stop order if the issuer fails to comply with notice filing requirements.

Can the Administrator Waive These Requirements?

The Administrator may by rule or order waive any or all of the notice filing provisions. This gives the Administrator flexibility to reduce the burden of notice filing requirements when appropriate.

What Should You Check on Exam Day?

• Federal covered status blocks state registration, not state notice filing and fees, except for exchange-listed securities, which are exempt from both.
• Reg D notice filings are due within 15 days of the first in-state sale.
• The Administrator can stop-order a federal covered security only when the offer or sale is in the public interest to suspend AND the issuer failed to meet a notice-filing condition, and never against an exchange-listed security.
• A notice-filing stop order does not erase state antifraud authority; a fraudulent sale can still draw a cease and desist order or an injunction.