Exemption (securities)
Also known as: securities exemption, exempt status
An exemption in securities law excuses a security, transaction, or person from registration requirements that would otherwise apply. Exempt parties still fall under the law's antifraud provisions — they are excused from registration, not from the law itself.
An exemption relieves a security, a transaction, or a person from specific registration requirements under federal or state securities law. U.S. Treasury securities, municipal bonds, and securities issued by banks are classic examples of exempt securities, while private placements and unsolicited orders are common examples of exempt transactions.
It's important to distinguish an exemption from an exclusion. An excluded party doesn't meet the legal definition in the first place — for example, a bank is excluded from the definition of broker-dealer under the Uniform Securities Act. An exempt party does meet the definition but is excused from registering. Either way, the practical result is similar: no registration is required.
Exemptions exist because some issuers are already heavily regulated or backed by taxing power (governments, banks, insurance companies), and some transactions don't involve the general investing public. Requiring full registration in those cases would add cost without meaningfully protecting investors.
One rule has no exemption: antifraud provisions apply to everyone. A person selling an exempt security in an exempt transaction can still be prosecuted for fraud or deceit. The Series 63, Series 65, and Series 66 exams test exemptions heavily — expect questions asking you to identify which securities and transactions are exempt from state registration, and to distinguish exempt from excluded.
Key takeaways
- An exemption excuses a security, transaction, or person from registration requirements, not from the securities laws themselves.
- Common exempt securities include U.S. government securities, municipal bonds, and bank-issued securities; common exempt transactions include private placements and unsolicited orders.
- Exempt means the definition applies but registration is excused; excluded means the definition never applied at all.
- Antifraud provisions have no exemption — they apply to every person and every security.
- The Series 63, 65, and 66 exams all test the difference between exempt and excluded, plus lists of exempt securities and transactions.