Exempt securities
Also known as: exempt security
Exempt securities are securities that do not have to be registered with regulators before being sold. Common examples include U.S. government securities, municipal bonds, and securities issued by banks — though antifraud rules still apply to all of them.
Exempt securities are excused from the registration requirements of securities law — federally under the Securities Act of 1933, and at the state level under the Uniform Securities Act. The issuer can sell them to the public without filing a registration statement or delivering a statutory prospectus.
The classic exempt list includes U.S. government and agency securities, municipal bonds, securities issued by banks and trust companies, insurance company securities, securities of nonprofit and religious organizations, and short-term commercial paper meeting specific criteria (such as maturities of 270 days or less). At the state level, federal covered securities — like those listed on major exchanges or issued by registered investment companies — are also generally exempt from state registration.
Why exempt them? These issuers are either backed by government taxing power, already supervised by another regulator (banking or insurance authorities), or issuing instruments considered low-risk. Requiring registration would duplicate oversight without adding much investor protection. Note that a security's exemption travels with it: an exempt security is exempt from registration and from advertising-filing requirements, but never from antifraud provisions.
Exempt securities are a staple of the state-law exams. The Series 63, Series 65, and Series 66 all expect you to recognize the exempt list on sight and to distinguish exempt securities (about what is sold) from exempt transactions (about how a sale occurs).
Key takeaways
- Exempt securities can be sold without registering with the SEC or state regulators.
- Major categories include U.S. government securities, municipal bonds, bank securities, insurance company securities, nonprofit securities, and qualifying commercial paper.
- Exemptions generally exist because the issuer is a government body, is already supervised by another regulator, or presents limited investor-protection concerns.
- No security is ever exempt from antifraud provisions.
- The Series 63, 65, and 66 exams test the exempt securities list and the difference between exempt securities and exempt transactions.