Section 4
Laws, Regulations, and Guidelines
Regulation of Securities and Issuers
26 min read
· Lesson 5 of 8
Definition of a Security
Under the Uniform Securities Act, the definition of "security" is broadly construed and includes stocks, bonds, notes, investment contracts, and other instruments. Key items that are NOT securities:
- Fixed annuities and fixed insurance products
- Commodity futures contracts (regulated by CFTC)
- Collectibles, precious metals (when held directly)
- Bank CDs, savings accounts
State Registration Methods
- Registration by coordination: Used when a security is also being registered with the SEC under a federal registration statement. State registration becomes effective simultaneously with federal registration.
- Registration by qualification: Most comprehensive. Used when the security is not being registered federally. Requires extensive disclosure.
- Registration by filing (notice filing): For federal-covered securities. Simplified process — essentially just notifying the state.
Exemptions and State Enforcement
Exempt Securities (examples)
- U.S. government and municipal securities
- Securities issued by banks, savings institutions, and trust companies
- Federal covered securities (registered with SEC)
Exempt Transactions (examples)
- Isolated non-issuer transactions (occasional sales by individuals)
- Transactions with institutional investors
- Private placements (limited offerees)
Important: Exempt securities and transactions are exempt from registration only — they are NEVER exempt from antifraud provisions.
State Enforcement Authority
The state Administrator has broad antifraud authority and can bring actions against any person who commits fraud in connection with the offer, sale, or purchase of securities, regardless of exemptions.
Three Methods of State Registration
| Method | When Used | Key Feature |
|---|---|---|
| Registration by Coordination | Security is also being registered with the SEC (federal registration) | State registration becomes effective simultaneously with federal registration. Simplest method for SEC-registered offerings. |
| Registration by Qualification | Security is NOT being registered with the SEC | Most comprehensive; requires extensive disclosure to the state. Effectiveness at Administrator's discretion. |
| Registration by Filing (Notice Filing) | Federal covered securities (SEC-registered investment companies, NYSE/Nasdaq-listed) | Simplified — just notifying the state. No substantive state review. |
Exempt Securities vs. Exempt Transactions
This is one of the most critical distinctions on the entire Series 66:
| Exempt Securities | Exempt Transactions | |
|---|---|---|
| What's exempt | The security itself is exempt from registration | A specific transaction is exempt from registration |
| Future transactions | Always exempt — any transaction in this security is exempt | Only THIS transaction is exempt; future transactions may not be |
| Examples | U.S. government securities, municipal bonds, bank securities, federal covered securities | Isolated non-issuer transactions, institutional investor transactions, private placements, unsolicited orders |
| Exempt from antifraud? | NEVER. Antifraud provisions apply to ALL securities and ALL transactions, period. | |
The Golden Rule of Securities Regulation:
Nothing — no security, no transaction, no person — is EVER exempt
from antifraud provisions. An exempt security is
exempt from registration, not from the obligation to deal
honestly. If you see a question asking "which of the following is
exempt from the antifraud provisions," the answer is
NONE.
📋 Exempt Securities vs. Exempt Transactions
Classify each item correctly. Remember: neither is ever exempt from antifraud provisions!
Score: 0 / 0
⚠️ NOTHING is exempt from antifraud provisions — not exempt securities, not exempt transactions, not anything.
Concept Check
An exempt security is exempt from:
Exempt securities and exempt transactions are only exempt from the registration requirements of the Uniform Securities Act. The antifraud provisions ALWAYS apply to all securities transactions. This is one of the most tested concepts on the Series 66.
Concept Check
A private placement sold to 5 accredited investors in State X is:
A private placement to a limited number of investors is an exempt transaction — exempt from registration requirements. However, it is ALWAYS subject to antifraud provisions. No transaction, no matter how exempt from registration, can involve fraud, manipulation, or material misstatement.
Concept Check
Registration by coordination is used when:
Registration by coordination is used when a security is also being registered under the Securities Act of 1933 (federal registration). The state registration becomes effective at the same time as the federal registration. This is the most efficient method for dual-registered offerings.
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Practice Questions
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