16.2 Securities Registration Methods

Securities must be registered at the state level unless an exemption applies. The Uniform Securities Act provides three primary methods for state registration.

Registration by Coordination

Registration by coordination is used when a security is being registered with both the SEC and one or more states simultaneously.

When Used

SEC Registration: Security is being registered under the Securities Act of 1933

Multi-State Offerings: Issuer selling in multiple states

IPOs: Initial public offerings

Follow-On Offerings: Additional offerings by public companies

Requirements

SEC Documents: Copy of SEC registration statement

Amendments: All amendments filed with SEC

Additional Information: State-specific requirements

Consent to Service: Irrevocable consent to service of process

Filing Fee: State-required fee

Effective Date

Standard: Simultaneous with SEC registration

Prerequisites: Must be no stop order pending

Price Statement: Must file statement of offering price

State Notification: Some states require advance notice

Advantages

Streamlined Process: Uses federal documents

Coordinated Timing: Effective when SEC approves

Efficiency: One set of documents for multiple jurisdictions

Registration by Qualification

Registration by qualification is used for securities NOT registered with the SEC. This is the most detailed state registration method.

When Used

Intrastate Offerings: Securities sold only within one state

Non-SEC Offerings: Securities not requiring SEC registration

Any Security: May be used even if SEC registration available

Requirements

Complete Registration Statement: Detailed disclosure document

Financial Statements: Audited financials typically required

Offering Documents: Prospectus, subscription agreements

Consent to Service: Irrevocable consent

Escrow (if required): Administrator may require impound of proceeds

Surety Bond: May be required

Effective Date

Administrator Sets Date: No automatic effective date

Discretionary: Administrator decides when to approve

Additional Requirements: May require amendments or conditions

Escrow Requirements

The administrator may require funds be held in escrow until:

Minimum Sales: Specified amount of securities sold

Specified Period: Time has elapsed

Conditions Met: Other conditions satisfied

Registration by Notice Filing (Federal Covered)

Notice filing is a simplified process for federal covered securities established by the National Securities Markets Improvement Act of 1996 (NSMIA).

What Are Federal Covered Securities?

Exchange-Listed: NYSE, NASDAQ, NYSE American listed securities

Investment Companies: Registered mutual funds, ETFs

Qualified Purchasers: Securities sold only to qualified purchasers

Regulation D Rule 506: Private placement offerings

Regulation A Tier 2: Up to $75 million offerings

Regulation CF: Crowdfunding offerings

Notice Filing Requirements

Notice: Copy of SEC filing (e.g., Form D)

Fee: State notice filing fee

Timing: Within specified period (varies by state)

No Full Registration: State cannot require full registration

State Authority Retained

Cannot Require Registration: NSMIA preempts state registration

Can Require Notice and Fee: States may collect fees

Antifraud Jurisdiction: Full authority over fraud

Enforcement: Can investigate and take action

On the Exam: Federal covered securities are exempt from state registration but may still require notice filing and remain subject to state antifraud provisions.

Comparison of Registration Methods

SEC Involvement: Coordination - Yes; Qualification - No; Notice Filing - Based on federal exemption

Complexity: Coordination - Moderate; Qualification - High; Notice Filing - Low

Effective Date: Coordination - With SEC; Qualification - Administrator sets; Notice Filing - Upon filing

Primary Use: Coordination - IPOs, public offerings; Qualification - Intrastate, private; Notice Filing - Federal covered

State Review: Coordination - Limited; Qualification - Extensive; Notice Filing - Minimal

Duration and Renewal

Standard Duration: 1 year from effective date

Calendar Year: Some states: expires December 31

Renewal Required: Annual renewal filing and fee

Failure to Renew: Registration lapses

Stop Orders

The administrator can issue a stop order to:

Deny Registration: Prevent effectiveness

Suspend Registration: Temporarily halt sales

Revoke Registration: Permanently cancel

Grounds for Stop Order

Incomplete Filing: Missing required information

Misleading Statements: False or misleading material

Fraud: Fraudulent conduct

Excessive Fees: Unreasonable commissions

Unfair Terms: Offering terms unfair to investors

Procedural Requirements

Notice: Administrator must provide notice

Opportunity for Hearing: Must allow hearing within 15 days of request

Written Order: Order must be in writing

Findings: Must include findings of fact

Key Takeaways

1. Coordination: used when registering with SEC simultaneously

2. Qualification: most detailed, used for intrastate/non-SEC offerings

3. Notice filing: simplified process for federal covered securities

4. NSMIA preempts state registration of federal covered securities

5. States retain antifraud authority even over federal covered securities

6. Registration typically lasts 1 year and requires annual renewal