A customer can buy an unregistered security lawfully, yet your next sale of that same security may require registration. The reason for relief matters.
Before offering a security, identify its state registration basis. Under §301 of the 1956 Uniform Securities Act, registration is required unless the security is exempt, the transaction is exempt, or federal covered status applies. You study that Act as amended. It is a model law, so its provisions operate where a state adopts them.
An issuer creates securities to raise money. An exempt security qualifies because of its issuer or characteristics. An exempt transaction qualifies because of the circumstances of a particular offer or sale. Selling nonexempt shares through an exempt transaction leaves the shares nonexempt; a later sale needs its own legal basis.
Exemptions bypass offering registration. Registration by notification, also called registration by filing, remains a registration method for qualifying seasoned issuers, meaning established issuers meeting statutory conditions.
DECISION: Check federal covered status first, because preemption removes state registration (a notice filing may remain). Then check the security, then the transaction. Separately check the firm's and representative's registration.
Common mistakes
- Treating an eight-month maturity as sufficient. §402(a)(10) also tests denominations and rating.
- Counting purchasers instead of offerees in a limited offering (see Example 2).
- Treating 90 days outstanding in public hands as a universal resale rule. The reporting and comparable state-information routes use 180 days.
Bottom line
- Exempt securities qualify through issuer or characteristics; exempt transactions qualify through their circumstances.
- Antifraud rules remain applicable, and the claimant must prove the exemption.
- Commercial paper requires nine months or less, denominations of at least $50,000, and a top-three-category NRSRO rating.
- Manual/EDGAR resale relief requires 90 days in public hands plus all additional conditions.
Exam shortcut
Start by identifying what the question exempts: the security, this transaction, or the seller's registration. Reject answers that switch subjects midway. Circle the counted unit before doing arithmetic: denomination, offeree or subscriber. Total dollars and completed purchases often distract from the actual test. For resales, identify the particular §402 route before matching dates. Avoid combining favorable conditions from different routes.
The full lesson (about 3,380 words, 23 min read) adds 2 worked examples, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- E9
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