Welcome to Exempt Transactions (1933 Act): the path that lets issuers raise capital without registering, and the safe harbors that let holders resell unregistered securities without triggering the registration mandate of the Securities Act of 1933.
Exam Weight: Part of 27% (Function 2). This is one of the most-tested topics in Function 2, with private-placement and resale mechanics threaded through every banker question on capital raising.
What You'll Learn
In this unit, you'll cover:
- The Exempt-Transaction Framework: The statutory private-placement exemption, the accredited-only $5M exemption, and how Regulation D sits as a safe harbor under the private-placement statute
- Regulation D Framework: The definitions rule, the general-conditions rule (integration, information delivery, manner of offering, resale limits), and the Form D notice filing
- Accredited Investor Definition: Individual paths (net worth, income, professional licenses) and entity paths (institutional, $5M assets, family offices)
- The Small-Offering Reg D Tier: $10M cap, no federal preemption, mostly used for small intrastate offerings
- The Workhorse Private Placement Exemption: The private Reg D safe harbor (no general solicitation, up to 35 non-accredited) versus the verified-AI Reg D safe harbor (general solicitation permitted, accredited-only with verification)
- The Restricted/Control Share Resale Safe Harbor: Holding periods, current public information, volume limits, manner of sale, and Form 144 filing
- The QIB Private Resale Safe Harbor: Qualified Institutional Buyer ($100M) thresholds and the institutional-private-market plumbing
- The Offshore Offering Safe Harbor (Regulation S): Categories 1, 2, 3 under the issuer safe harbor and the distribution compliance period
- FINRA Member Private Offerings: 85% use-of-proceeds rule, disclosure document, and Corporate Financing Department filing
- Private Placement Process and Documents: PPM, term sheet, subscription agreement, engagement letter, and the document workflow
- Resales by Control Persons: How affiliates get liquid via the restricted-share resale safe harbor, registered resales, or the QIB resale safe harbor
Why This Matters
Function 2 is the underwriting and new-financing function (27% of the scored exam). Within Function 2, exempt transactions cover the entire private-placement market: the capital raise mechanics that do NOT require an S-1 filing, the resale plumbing that lets institutions trade unregistered securities, and the offshore safe harbor that funds international tranches of high-yield debt.
The exam tests two ideas relentlessly:
- Issuer-side: Which exemption lets an issuer sell unregistered securities (the statutory private-placement exemption, Regulation D, Regulation S)?
- Resale-side: Which safe harbor lets a holder resell unregistered securities (the restricted-share resale safe harbor, the QIB private resale safe harbor, the offshore resale safe harbor)?
Every private-placement banker question is some variation of "which exemption applies" plus "what conditions must be satisfied."
Let's start with the statutory framework: how the registration mandate of the Securities Act of 1933 creates the exempt-transaction concept in the first place.