Regulatory Bodies

State securities laws designed to protect investors from fraudulent securities sales and schemes. Originated in Kansas (1911) to prevent promoters from "selling the blue sky" with worthless offerings. Regulate the registration of securities, broker-dealers, agents, investment advisers, and investment adviser representatives within state borders, require securities offerings to register unless exempt or federal-covered, and grant state administrators broad anti-fraud authority that survives even after federal preemption.

Example: Under blue sky laws, a company planning an intrastate stock offering solely within Texas must regist...

Securities exempt from state registration requirements under the National Securities Markets Improvement Act (NSMIA) of 1996, including securities listed on national exchanges (NYSE, NASDAQ, etc.), securities of registered investment companies (mutual funds, ETFs), and securities sold under Regulation D Rule 506 offerings. States retain authority to require notice filing and filing fees for most categories (no filing or fee may be required for exchange-listed securities) but cannot impose merit review or substantive registration requirements. States maintain full anti-fraud enforcement authority over federal covered securities.

Example: Apple Inc. stock, listed on NASDAQ, is a federal covered security. If an issuer wants to offer Apple...

A self-regulatory organization (SRO) that regulates broker-dealers and their registered representatives through examination, enforcement, and rule-making authority. Operates under SEC oversight. Does not regulate investment advisers or registered investment advisers (RIAs). Administers qualification exams including Series 6, 7, 63, and 65.

Example: A stockbroker at a national brokerage firm must register with FINRA, pass the Series 7 exam, and com...

The association of state securities regulators that develops model rules, has amended model legislation such as the Uniform Securities Act, and develops qualification exams (Series 63, 65, 66) that FINRA administers. States generally regulate investment advisers with less than $100 million AUM (subject to exceptions and a $100 million to $110 million buffer) and coordinate enforcement through NASAA.

Example: NASAA creates the Series 65 exam, which investment adviser representatives generally must pass (or p...

Simplified state filing procedure under NSMIA for federal covered securities (primarily mutual funds, closed-end funds, and UITs) and federal covered advisers. Requires filing copies of SEC registration documents, consent to service of process, and payment of fees, but is not full registration. States retain anti-fraud authority but cannot impose merit review or deny the offering on its merits. Federal covered advisers must notice file in a state unless they have no place of business there and their only clients there are institutional clients (or, during the preceding 12 months, no more than five other clients).

Example: Vanguard Total Stock Market Index Fund is a mutual fund registered with the SEC under the Investment...

An offering of unregistered securities to a limited group of investors that is exempt from SEC registration requirements, primarily conducted under Regulation D. Most commonly structured as Rule 506(b) offerings (no general solicitation, up to 35 non-accredited investors who are sophisticated alone or with a purchaser representative, plus unlimited accredited investors) or Rule 506(c) offerings (general solicitation permitted, only verified accredited investors). Securities sold are restricted and subject to resale limitations.

Example: A technology startup raises $25 million through a private placement under Rule 506(b) by selling equ...

The most complete state securities registration method under the Uniform Securities Act, required when a security is not registered with the SEC, although any security may register this way. The state Administrator sets the effective date (the only method that becomes effective solely when the Administrator so orders) and can deny registration on the statutory stop-order grounds that apply to every method, such as unreasonable offering compensation, fraud, or misleading statements. Requires detailed disclosure including issuer information, use of proceeds, sales literature, and specimen certificates. Commonly used for intrastate offerings, small company offerings, and securities not subject to federal registration.

Example: A small technology startup in Colorado raising $3 million exclusively from Colorado residents throug...

SEC regulation providing exemptions from securities registration requirements for private placement offerings. Primary rules include Rule 506(b) allowing unlimited accredited investors plus up to 35 sophisticated investors without general solicitation, and Rule 506(c) allowing unlimited accredited investors with general solicitation permitted. Rule 504 permits offerings up to $10 million in a 12-month period with fewer restrictions.

Example: A hedge fund raises $50 million through a Regulation D Rule 506(b) offering from 80 accredited inves...

The primary federal regulator of securities markets, investment advisers, and securities offerings established by the Securities Exchange Act of 1934. Enforces federal securities laws including the Securities Act of 1933, Securities Exchange Act of 1934, Investment Company Act of 1940, and Investment Advisers Act of 1940. Regulates investment advisers with $110M+ AUM (mandatory; $100M-$110M optional) and oversees national securities exchanges.

Example: An investment adviser managing $120 million in client assets generally must register with the SEC us...

A nonprofit membership corporation, created by the Securities Investor Protection Act of 1970 (SIPA), that returns cash and securities to customers of a failed SIPC-member broker-dealer. Coverage is limited to $500,000 per customer (per separate capacity), of which a maximum of $250,000 may be for cash claims. SIPC is not a government agency, is not the FDIC, and does not protect against declines in the market value of investments.

Example: A brokerage firm goes bankrupt while a customer holds $300,000 in stocks and $150,000 in cash awaiti...

Model state securities law drafted by the National Conference of Commissioners on Uniform State Laws (and later amended by NASAA) that provides the framework for state securities regulation. Covers registration of investment advisers that generally have less than $100M AUM, broker-dealers, and securities offerings at the state level. Coordinates with federal law through provisions for federal-covered advisers, notice filing, and the de minimis exemption (no place of business in a state and no more than 5 clients there, other than institutional clients, in the preceding 12 months). Grants state administrators authority to investigate violations, issue orders, and enforce anti-fraud provisions.

Example: Under the Uniform Securities Act, an investment adviser managing $75 million generally registers wit...