Exempt Securities
Certain securities are exempt from state registration requirements due to their nature or the issuer's characteristics. Understanding these exemptions is critical for the Series 65 exam.
Critical Principle
Exempt from registration does NOT mean exempt from antifraud provisions.
All securities—whether exempt or not—remain subject to:
- State antifraud provisions
- Federal antifraud provisions
- General fraud laws
Government Securities
Federal Government Securities
| Security Type | Details |
|---|---|
| Treasury Securities | T-bills, T-notes, T-bonds, TIPS |
| Agency Securities | GNMA, FNMA, FHLMC |
| STRIPS | Separately traded registered interest and principal |
| Government-Guaranteed | Securities with U.S. government backing |
All federal government securities are exempt from state registration.
State and Municipal Securities
| Security Type | Details |
|---|---|
| General Obligation Bonds | Backed by taxing power |
| Revenue Bonds | Backed by project income |
| State Agency Securities | State authority obligations |
| Municipal Notes | TANs, RANs, BANs |
Municipal securities are exempt from both federal and state registration.
Foreign Government Securities
| Requirement | Details |
|---|---|
| Diplomatic Relations | U.S. must have diplomatic relations with issuing government |
| Exempt Status | Exempt from state registration |
| Examples | Canadian provincial bonds, sovereign debt |
Financial Institution Securities
Bank-Issued Securities
| Issuer | Exempt Status |
|---|---|
| National Banks | Exempt (federally chartered) |
| State-Chartered Banks | Exempt if organized under state law |
| Savings Institutions | Generally exempt |
| Trust Companies | Exempt if state-supervised |
Insurance Company Securities
| Characteristic | Details |
|---|---|
| Separate Regulation | Subject to state insurance regulation |
| Exempt from USA | Not securities under most circumstances |
| Variable Products | May be securities AND insurance |
Other Exempt Securities
Nonprofit Organizations
| Type | Requirements |
|---|---|
| Religious Organizations | Organized for religious purposes |
| Educational Institutions | Schools, colleges, universities |
| Charitable Organizations | 501(c)(3) organizations |
| Fraternal Organizations | Benefit members only |
Commercial Paper
| Requirement | Details |
|---|---|
| Maturity | 9 months or less (270 days) |
| Minimum Denomination | $50,000 |
| Investment Grade | Must be rated in top 3 categories |
| Not Advertised | Not offered to general public |
Other Categories
| Category | Details |
|---|---|
| Public Utilities | Regulated by utility commissions |
| Railroad Securities | Subject to federal regulation |
| Employee Benefit Plans | ERISA-qualified plans |
| Cooperative Securities | Agricultural cooperatives |
Federal Covered Securities
Under NSMIA, certain securities are "federal covered" and exempt from state registration:
Categories of Federal Covered Securities
| Category | Examples |
|---|---|
| Exchange-Listed | Securities listed on NYSE, NASDAQ, NYSE American |
| Registered Investment Companies | Mutual funds, ETFs, closed-end funds |
| Qualified Purchaser Sales | Sales only to qualified purchasers |
| Rule 506 Offerings | Regulation D private placements |
| Regulation A Tier 2 | Offerings up to $75 million |
State Authority
| Authority Retained | Authority Preempted |
|---|---|
| Antifraud enforcement | Registration requirements |
| Notice filing/fees | Merit review |
| Investigation | Substantive review of offering |
On the Exam: Even though federal covered securities are exempt from state registration, states can still require notice filing, collect fees, and enforce antifraud provisions.
Exempt Securities Summary Table
| Security Type | Federal Registration | State Registration |
|---|---|---|
| U.S. Government | Exempt | Exempt |
| Municipal Bonds | Exempt | Exempt |
| Bank Securities | Exempt | Exempt |
| Insurance Products | Usually exempt | Usually exempt |
| Exchange-Listed | Required | Notice filing only |
| Mutual Funds | Required | Notice filing only |
| Commercial Paper | Exempt | Exempt |
Key Takeaways
- Exempt from registration ≠ exempt from antifraud provisions
- Federal government and municipal securities are exempt from all registration
- Bank-issued and insurance company securities are generally exempt
- Commercial paper must meet specific requirements (≤270 days, $50,000+, investment grade)
- Federal covered securities require only notice filing at state level
- States retain antifraud authority over all securities
Securities issued by the U.S. Treasury are:
Commercial paper qualifies for exemption when it:
A security listed on the New York Stock Exchange is considered:
16.4 Exempt Transactions
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