Securities Registration Process

Now that you know what qualifies as a security, the next question is: how does it get registered? Securities must be registered at both the federal and state level before they can be offered or sold to the public, unless an exemption applies.

Federal Registration (Securities Act Section 5)

At the federal level, the Securities Act of 1933 requires registration of securities before public offering.

• The issuer files a registration statement (typically Form S-1) with the SEC
• The SEC reviews the filing and declares it effective (this does NOT mean the SEC approves the security or endorses its quality)
• A prospectus must be delivered to purchasers containing all material information about the offering

Key principle: Federal registration is about disclosure, not approval. The SEC ensures investors receive adequate information to make informed decisions, but the SEC does not guarantee the investment is safe or profitable.

Exam Tip: Gotchas

• The SEC does NOT approve securities. It only ensures adequate disclosure. If an exam question says "the SEC approved this security," that answer is wrong.

State Registration Methods (USA Sections 301-305)

In addition to federal registration, states require their own registration under the Uniform Securities Act (USA). There are three methods of state registration:

Registration by Coordination (Most Common for IPOs)

• The issuer files copies of the federal registration statement with the state
• The state registration becomes effective automatically when the SEC registration becomes effective
• This is the most efficient method when the issuer is already registering with the SEC
• Eliminates the need for a separate, duplicative state review process

Registration by Qualification (State-Only)

• The issuer files a complete registration with the state administrator
• Used when there is no federal registration (e.g., intrastate offerings)
• The state administrator sets the effective date
• This is the most thorough (and most burdensome) method
• Only this method allows the state administrator to impose conditions such as escrow of proceeds

Registration by Filing/Notification (Simplified)

• Available to seasoned issuers (companies with an established track record)
• Typically requires: 3+ years of continuous operation, consistent dividend history, or exchange listing
• Simplified process with fewer disclosure requirements
• The registration becomes effective automatically if the administrator doesn't reject it within a specified period

Exam Tip: Gotchas

• Registration by coordination coordinates with federal registration (SEC + state together). Registration by qualification is the state-only method with the most requirements. These are often confused on the exam.
• Registration by coordination becomes effective when the federal (SEC) registration becomes effective, not when the state approves it.
• Registration by qualification is the only method where the state administrator can impose conditions like escrow of proceeds.

Notice Filing (USA Section 305)

Notice filing is NOT a registration method. It applies specifically to federal covered securities.

• States may require a notice filing (a copy of the federal documents plus a fee)
• States cannot impose additional substantive requirements beyond what federal law requires
• This is the mechanism that balances National Securities Markets Improvement Act (NSMIA) preemption with state revenue needs

Think of it this way: Registration means the state reviews and approves the offering. Notice filing just means the state is notified that a federal covered security is being sold there.

Exam Tip: Gotchas

• Notice filing is NOT a registration method. It is a notification process for federal covered securities. The state cannot impose additional requirements beyond what federal law requires.