Blue Sky Laws
Blue sky laws are state-level securities regulations designed to protect investors from fraud, requiring registration of securities offerings and brokers within each state.
Exam Tip
Blue sky = STATE law. Covered securities = exempt from state registration. NASAA administers Series 63/65/66.
What are Blue Sky Laws?
Blue sky laws are state securities regulations that protect investors from fraudulent securities offerings. The term originated from a judge's description of speculative schemes that had "no more substance than so many feet of blue sky."
Purpose of Blue Sky Laws
| Purpose | Description |
|---|---|
| Investor Protection | Prevent fraud and misrepresentation |
| Registration | Require securities and salespeople to register |
| Disclosure | Ensure adequate information for investors |
| Enforcement | State-level enforcement powers |
Key Components
| Component | Requirement |
|---|---|
| Securities Registration | Most securities must be registered with the state |
| Broker-Dealer Registration | Firms must register in each state of operation |
| Agent Registration | Individual reps must register in each state |
| Investment Adviser Registration | IAs must register with state (if under $100M AUM) |
Federal vs. State Regulation
| Level | Regulator | Key Laws |
|---|---|---|
| Federal | SEC | Securities Act 1933, Exchange Act 1934 |
| State | State Securities Admin | Blue sky laws (vary by state) |
| Coordination | NASAA | Uniform Securities Act (model law) |
Uniform Securities Act
The Uniform Securities Act (USA) is a model law that many states have adopted to create consistency. However, states can modify it, so requirements vary.
Exemptions from Registration
| Federal Exemption | Also Exempt from State? |
|---|---|
| Covered Securities | Yes (federal law preempts) |
| Private Placements (Reg D) | Often yes, but notice filing required |
| Government Securities | Yes |
| Bank Securities | Yes |
Covered Securities (Preempted from State Registration)
- NYSE, NASDAQ listed securities
- Investment company securities (mutual funds)
- Securities sold to qualified purchasers
State Registration Methods
| Method | Description |
|---|---|
| Qualification | Full state review (most burdensome) |
| Coordination | Filed simultaneously with SEC |
| Notice Filing | Just notify state of federal registration |
NASAA
The North American Securities Administrators Association (NASAA) is the organization of state and provincial securities regulators. It administers the Series 63, 65, and 66 exams.
Exam Alert
Blue sky laws are STATE regulations. Federal "covered securities" are exempt from state registration but may require notice filing. Know the difference between federal and state jurisdiction!
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Related Terms
SEC (Securities and Exchange Commission)
GeneralThe SEC is the U.S. federal agency responsible for enforcing securities laws, regulating securities markets, and protecting investors from fraud and market manipulation.
FINRA
GeneralFINRA (Financial Industry Regulatory Authority) is a self-regulatory organization that oversees broker-dealers and their registered representatives, administering qualification exams and enforcing securities rules.
NASAA (North American Securities Administrators Association)
SecuritiesNASAA is the organization representing state and provincial securities regulators in the US, Canada, and Mexico, responsible for investor protection and coordinating state securities laws.
Broker-Dealer
GeneralA broker-dealer is a financial firm that buys and sells securities for its customers (broker) and for its own account (dealer), regulated by FINRA and the SEC.