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
• The Act exempts certain categories of securities from federal registration (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 limited-offering safe harbors that exempt offerings from registration:

Why is the small private offering capped at $10 million when the other two are unlimited?

• The small private offering is the simplest of the three: no specific disclosure document is required and the universe of eligible investors is the broadest (any investor, accredited or not)
• The dollar cap is the trade-off for that simplicity
• The unlimited paths demand more rigor on the investor side (accredited-investor focus, careful screening, and verification under the accredited-only path), so they earn an unlimited offering size in return
• The pattern: more rigor on disclosure or investor screening = higher dollar limit

Where each one tends to show up:

• Small private offering: small or emerging companies raising modest amounts of capital, often through a small group of local investors
• Unlimited, no general solicitation: the most common private placement. Suits issuers who already have a network of accredited investors and do not want to advertise the deal publicly
• Unlimited, accredited only: issuers who want to publicly market the offering (online platforms, demo days, mass email). The cost of advertising is that every buyer must be verified as accredited, with no exceptions

Other key points:

• 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.

"Accredited investor" and "affiliate" are not the same thing. The two labels get conflated constantly because both sound like "special investors," but they answer different questions:

• Accredited investor is a buyer qualification. Clear the income or net worth thresholds and you are allowed into a private placement. It governs who may purchase an exempt offering.
• Affiliate is a control-person status: an officer, director, or 10%+ shareholder of the issuer. It governs who faces extra rules when selling, no matter how the shares were acquired.
• The two are independent. An accredited investor who buys a private placement is typically an ordinary outside investor, not an affiliate of the issuer. Qualifying to buy a deal says nothing about controlling the company.

Exam Tip: Gotchas

• Restricted securities do not only end up in accredited hands. An employee who receives unregistered shares through a compensation plan holds restricted stock too, even though they are neither accredited nor an affiliate. "Restricted" describes how the shares were issued, not who holds them.

Restricted-Stock Resale Safe Harbor

The restricted-stock resale safe harbor lets holders of restricted securities (typically acquired in a private placement) and control securities (held by company insiders) eventually resell those shares into the public market without filing a full registration.

Restricted and control are two different labels. "Restricted" describes how the shares were acquired: in a private placement, never registered. "Control" describes who holds them: an affiliate (an officer, director, or large shareholder). The same shares can be both at once. Stock an executive acquired in a private placement is restricted (never registered) and control (held by an affiliate). Stock that same executive buys on the open market is control stock but not restricted, because those shares were already registered when they traded publicly.

What is a holding period? It is the minimum amount of time a buyer must own restricted shares before they can resell them publicly. Until the holding period expires, the shares are effectively locked up.

Think of it this way: Restricted securities never went through public registration. If a buyer could turn around and immediately resell them on the open market, the original private placement would be little more than a workaround: the issuer sells shares wholesale to a few investors, those investors flip them to the public, and no one ever files the disclosures the Securities Act of 1933 demands. The holding period closes that loophole by forcing the original buyer to take real investment risk for a stretch of time, which proves the original sale was a true private placement and not a disguised public distribution.

Why 6 months vs. 12 months?

• Reporting companies file regular 10-K, 10-Q, and 8-K reports with the SEC, so the market already has fresh public information about the issuer
• Non-reporting companies do not, so the market needs more time to develop reliable information about the security on its own
• Rule of thumb: the more public disclosure already on file, the shorter the required holding period

What is the volume limit, and who is it on?

• The limit is on the affiliate selling the shares, not on the buyer or the firm. It restricts how many shares an affiliate may sell into the public market over any rolling 3-month period
• For a reporting company, the cap is the greater of 1% of the issuer's outstanding shares OR the average weekly trading volume over the prior 4 weeks
• For a non-reporting company, the cap is just 1% of outstanding shares (non-reporting issuers often lack meaningful public trading data, so the trading-volume alternative is not used)
• An affiliate who needs to sell more than the cap allows must wait for the rolling 3-month window to refresh, or use a registered offering instead

Why does the volume cap exist?

• Affiliates (officers, directors, 10%+ shareholders) sit on large positions and have inside knowledge. Without a cap, two things could go wrong:
  • A sudden flood of insider shares could crash the price and signal insider distress to the broader market
  • The insider would effectively be running an unregistered public distribution, sidestepping the disclosures the Securities Act demands of a registered offering
• The cap forces affiliates to release shares gradually, which protects ordinary investors and keeps the registration regime intact

Form 144 is a notice, not a second ceiling

• The volume formula above is the actual limit on how much an affiliate can sell. The 5,000-share / $50,000 figure is a separate filing trigger, not a cap on the sale
• When an affiliate's sales in a rolling 3-month period cross 5,000 shares OR $50,000, they file Form 144 with the SEC on the day the sell order is placed. It is a disclosure that the sale is happening, not a request for permission
• An affiliate can sell above 5,000 shares or $50,000; they simply file the notice first. What they cannot exceed is the volume cap. The volume formula limits the size of the sale; Form 144 just reports it

What is the manner-of-sale requirement?

• When an affiliate sells equity securities under the safe harbor, the sale must go through a routine broker transaction or be made directly with a market maker
• The point is to route the shares through the normal public market rather than a privately arranged, off-market deal that would sidestep the transparency the resale rules preserve
• The requirement is on affiliates. Non-affiliates who have cleared the full holding period are exempt from it

Other key points:

• 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
• The affiliate volume limit applies to any of the issuer's securities the affiliate sells, not only restricted shares. An affiliate who buys stock on the open market has no holding period on those shares (they were never restricted), but still faces the volume cap and filing requirement when reselling them as control stock

Exam Tip: Gotchas

• 6 months for reporting companies, 12 months for non-reporting. The shorter period applies when the SEC already has up-to-date public filings on the issuer.
• Affiliates always face volume limits, even after the holding period expires. Non-affiliates who wait out the full holding period can sell freely.
• The 5,000-share / $50,000 figure is the Form 144 filing trigger, not the sales ceiling. The ceiling is the volume formula; Form 144 is only the notice an affiliate files once sales cross that threshold. An affiliate can sell more than 5,000 shares as long as they stay within the volume cap.

Qualified-Institutional-Buyer (QIB) 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

Reorganization Securities

• Covers securities issued in mergers, reclassifications, and other corporate reorganizations
• Certain transactions involving an exchange of securities may be exempt from registration

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

• 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

Why two tiers?

• The bigger the raise, the bigger the disclosure ask. Tier 1's $20 million ceiling lets smaller companies skip the cost of an audit, but in exchange they have to register state-by-state
• Tier 2 raises up to $75 million but requires audited financial statements. Because that audit gives investors a higher floor of disclosure, federal law preempts the state registration requirement
• The pattern: more disclosure on the federal side, less burden on the state side

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, unlimited-raise Reg D offerings, investment company securities), states cannot pile on their own registration requirements. States still get to go after fraud, though.

• 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.