Regulatory Filing Requirements and Exemptions
Now that you know what offering documents look like, let's zoom out and cover the full regulatory framework: when registration is required, when it is not, and how state laws interact with federal rules.
Securities Act of 1933 - Registration
- The Securities Act of 1933 generally requires all new securities offered to the public to be registered with the SEC
- The registration process is disclosure-based: it ensures investors receive material information so they can make informed decisions
- The SEC reviews the registration statement for completeness but does not pass judgment on the quality or merit of the investment
- Section 3 provides exemptions for certain categories of securities (such as government and municipal bonds, bank securities, and nonprofit securities)
Exam Tip: Gotchas
- The SEC never "approves" a security or tells investors it is a good investment. The SEC only reviews whether the required disclosures have been made. If an exam question says the SEC "approved" or "endorsed" a security, that is always the wrong answer.
Key Exemptions from Registration
Not all securities offerings need to go through full SEC registration. Here are the major exemptions tested on the SIE:
Regulation D - Private Placements
Regulation D provides three rules that exempt offerings from registration:
| Rule | Maximum Amount | Who Can Buy | General Solicitation? | Key Detail |
|---|---|---|---|---|
| Rule 504 | $10 million (in a 12-month period) | Any investor | Varies by state | Simplest exemption; no specific disclosure requirements |
| Rule 506(b) | Unlimited | Unlimited accredited investors + up to 35 non-accredited (must be sophisticated) | No | Most commonly used exemption; no general advertising allowed |
| Rule 506(c) | Unlimited | Accredited investors only | Yes (with verification) | Permits general solicitation but issuer must verify accredited status |
- All Reg D offerings require filing Form D with the SEC within 15 days of the first sale
- Securities sold under Reg D are restricted securities: they cannot be freely resold
Think of it this way: Private placements skip the full registration process, so buyers accept a trade-off: they get access to the offering, but they cannot turn around and sell those shares on the open market right away. The restrictions exist because the public never received the disclosures that registration would have provided.
Rule 144 - Resale of Restricted and Control Securities
Rule 144 provides a safe harbor for reselling restricted and control securities:
| Condition | Reporting Company | Non-Reporting Company |
|---|---|---|
| Holding period | At least 6 months | At least 12 months |
| Volume limit (affiliates) | Greater of 1% of outstanding shares OR average weekly trading volume over prior 4 weeks | 1% of outstanding shares |
| Form 144 filing | Required if sale exceeds 5,000 shares or $50,000 | Same |
| Current public information | Must be available | Must be available |
- Non-affiliates who have held restricted securities for the full holding period are not subject to volume limits, manner-of-sale requirements, or Form 144 filing requirements
- Affiliates (control persons such as officers, directors, and major shareholders) must always comply with volume limits and filing requirements, regardless of holding period
Exam Tip: Gotchas
- Holding periods: 6 months (reporting) vs. 12 months (non-reporting). These numbers come up frequently on the exam.
- Affiliates always face volume limits, even after the holding period expires. Non-affiliates who wait out the full holding period can sell freely.
Rule 144A - Institutional Resale
- Allows resale of restricted securities to Qualified Institutional Buyers (QIBs)
- A QIB must own and invest at least $100 million in securities
- Provides liquidity for institutional investors trading restricted securities
- No holding period or volume limits when selling to QIBs
Rule 145 - Corporate Reorganizations
- Covers securities issued in mergers, reclassifications, and other corporate reorganizations
- Certain transactions involving an exchange of securities may be exempt from registration
Rule 147 / 147A - Intrastate Offerings
- Exempts securities offered and sold only within a single state
- Must meet residency requirements for the issuer and all purchasers
- Designed for local businesses raising capital from local investors
Regulation A / A+ - Small Company Offerings
| Tier | Maximum Offering | Audited Financials? | State Registration? | Key Detail |
|---|---|---|---|---|
| Tier 1 | Up to $20 million (12-month period) | No | Yes - must register with states | Simpler, but state-level review required |
| Tier 2 | Up to $75 million (12-month period) | Yes | No - preempted by federal law | More complex, but no state registration |
- Uses a simplified registration process (not the full S-1 registration)
- Sometimes called a "mini-IPO" because it allows smaller companies to raise capital from the general public
- Tier 2 purchasers must be accredited investors or subject to investment limits
Blue-Sky Laws (State Securities Regulation)
- Blue-sky laws are state securities laws that operate in addition to federal securities laws
- Named because they aim to protect investors from buying securities backed by nothing but "blue sky" (empty promises)
- States may require separate registration of securities, broker-dealers, and investment advisers
- NASAA (North American Securities Administrators Association) coordinates regulation among state securities administrators
Federal Preemption Under NSMIA
The National Securities Markets Improvement Act of 1996 (NSMIA) limits state power over certain "covered securities."
Think of it this way: Without NSMIA, a company listed on the NYSE would need to register in all 50 states separately on top of SEC registration. NSMIA says: if the SEC already oversees it (exchange-listed stocks, Rule 506 offerings, investment company securities), states cannot pile on their own registration requirements. States still get to go after fraud, though.
| Covered Securities (States Cannot Require Registration) | Non-Covered (States CAN Require Registration) |
|---|---|
| NYSE/Nasdaq-listed securities | OTC securities not listed on a national exchange |
| Securities issued by registered investment companies | Rule 504 offerings |
| Regulation D Rule 506 offerings | Regulation A Tier 1 offerings |
- Even when state registration is preempted, states retain anti-fraud authority: they can still investigate and prosecute fraud in any offering
Exam Tip: Gotchas
- "Exempt from registration" does NOT mean "exempt from regulation." Even when a security is exempt from SEC registration (e.g., a Regulation D offering), it is still subject to the anti-fraud provisions of federal and state securities laws. The exam frequently tests this distinction.