Securities Issuances Regulated by State Law
Do issuers have to Comply with State Securities Laws?
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Are all issuers of securities required to comply with state blue sky laws?
Generally, no. In 1996, Congress passed the National Securities Markets Improvement Act (NSMIA) with the purpose of simplifying the registration process for issuers of securities. The NSMIA preempted any state regulation of certain covered securities. Covered securities include:
those traded on a national exchange (such as the NYSE or CME); securities of registered investment companies, and offers of securities exempt from Federal registration under Regulation D, Rule 506.
NSMIA effectively limited the ability of states to regulate many security offerings. In addition to these preempted offerings, states also recognize any number of exemptions for certain issuances of securities:
- isolated transactions involving the issuance of securities;
- offers or sales to a limited number of offerees or purchasers within a stated time period;
- issuances qualifying as private offerings under Rule 504; and
- issuances to a predefined, but limited, number of purchasers.
Another optional model law is known as the Uniform Limited Offering Exemption. This provision excuses certain securities offerings, such as offerings issued pursuant to Regulation D, Rule 505.
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Discussion: Why do you think federal securities law sought to exempt certain securities issuances from state regulation? Why do you think that some states choose to either adopt or not adopt the Uniform Limited Offering Exemption?
Practice Question: Under what circumstances does federal law limit the ability of states to regulate the issuance of securities?