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
Notice Filing Requirements
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
- Amendments to the federal registration statement (filed concurrently)
- A report of the value of federal covered securities offered or sold in the state, with applicable fees
Regulation D Offerings
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
- Payment of applicable fees
Exam Tip: Gotchas
- Even though a private-placement offering is a federal covered security (exempt from state registration), the issuer must still make the required state notice filing and consent to service of process. Federal covered status does not eliminate the notice obligation.
Administrator's Stop Order Power Over Federal Covered Securities
The Administrator may issue a stop order suspending the offer and sale of a federal covered security if:
- The order is in the public interest, AND
- There is a failure to comply with the state's notice filing conditions (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
| Type of Federal Covered Security | Can Administrator Issue Stop Order? |
|---|---|
| Exchange-listed securities | No; fully preempted from state stop order authority |
| Reg D offerings | Yes; for failure to comply with notice filing requirements |
| Other federal covered securities | Yes; for failure to comply with state notice filing conditions |
Exam Tip: Gotchas
- NYSE/NASDAQ-listed securities are fully off-limits to state stop order authority. The Administrator cannot block their sale under any circumstances.
- Reg D offerings are different. The Administrator can issue a stop order if the issuer fails to comply with notice filing requirements.
Waiver
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.