The QIB Private Resale Safe Harbor

It is a resale safe harbor, not an issuer exemption. An issuer typically sells securities to an initial purchaser in a private placement, and that initial purchaser immediately resells them to QIBs under the safe harbor, a structure common for privately placed bonds.

What Does the Safe Harbor Permit?

• A holder of restricted securities, or a dealer acting on that holder's behalf, may resell them to a QIB, or to a purchaser the seller reasonably believes is a QIB, without registering the resale under the Securities Act.
• The seller must take reasonable steps to make sure the purchaser is aware the seller is relying on this exemption.

Exam Tip: Gotchas

• The safe harbor is not the same thing as the general resale rule that governs restricted and control securities. It carries no holding-period requirement of its own; it is a resale exemption defined by who the buyer is (a QIB), not by how long the seller has held the securities. Do not import a holding-period concept into a QIB resale question.

How Does a Seller Establish a Reasonable Belief the Buyer Is a QIB?

A seller has four non-exclusive ways to establish that reasonable belief. The first three must be dated within 16 months (U.S. purchaser) or 18 months (foreign purchaser) of the sale:

• The prospective purchaser's most recent publicly available financial statements
• Recent filings with the SEC or another regulator or self-regulatory organization
• Information in a recognized securities manual

The fourth way runs on a different clock:

• A certification from the purchaser's chief financial officer (CFO) or another executive officer stating the amount of qualifying securities it owns, as of a date on or since the close of the purchaser's most recent fiscal year

What Conditions Keep Securities Restricted Under the Safe Harbor?

The safe harbor imposes two conditions on the securities themselves:

• The securities sold cannot, when issued, be of the same class as securities listed on a national securities exchange or quoted on a U.S. inter-dealer quotation system. This non-fungibility condition keeps the safe harbor for genuinely private paper rather than a back door around exchange listing.
• The securities cannot be securities of an open-end investment company, unit investment trust, or face-amount certificate company that is or must be registered under the Investment Company Act.

If the issuer is not an SEC reporting company, a holder and a prospective purchaser it designates have the right to request basic issuer information: a brief description of the business, plus recent financial statements.

Exam Tip: Gotchas

• Securities resold under the safe harbor remain restricted securities after the resale. The rule exempts only this one resale from registration; it does not register the securities themselves.

What Should You Check on Exam Day?

• Confirm the buyer-side test is QIB status, not a holding period. The safe harbor has no lookback of its own.
• Check whether the securities are non-fungible with an exchange-listed class of the same issuer; fungible securities lose the exemption.
• Watch for open-end fund, unit investment trust, or face-amount certificate securities; those are excluded only where the company is or must be registered under the Investment Company Act.
• Remember the resold securities stay restricted; only the single resale transaction is exempt from registration.