Registration Methods Overview
Under the Uniform Securities Act, securities must be registered before they can be sold in a state unless an exemption applies. Understanding the different registration methods and when each is used is essential for the Series 63 exam.
Why Securities Must Be Registered
The fundamental principle of the USA is that:
"It is unlawful for any person to offer or sell any security in this state unless it is registered under this act or the security or transaction is exempted."
Registration serves to:
- Provide disclosure to investors
- Allow state review of offerings
- Protect investors from fraud
- Ensure adequate information is available
Three Methods of Registration
The USA provides three methods for registering securities at the state level:
| Method | Primary Use | Complexity |
|---|---|---|
| Coordination | SEC-registered offerings sold in multiple states | Moderate |
| Qualification | Intrastate offerings (one state only) | Most complex |
| Filing (Notice) | Federal covered securities | Simplest |
Quick Comparison
| Feature | Coordination | Qualification | Filing |
|---|---|---|---|
| SEC Registration Required? | Yes | No | N/A (federal covered) |
| State Review | Limited | Full | None |
| Effective Date | When SEC effective | 30th day after filing | When SEC effective |
| Documents | Same as SEC | State-specific | Copy of SEC filing |
| Best For | National offerings | Local offerings | Investment company shares |
When Each Method Is Used
Registration by Coordination
Use coordination when:
- Issuer is also registering with the SEC
- Securities will be sold in multiple states
- This is an initial public offering (IPO) or follow-on offering
Registration by Qualification
Use qualification when:
- Securities are NOT registered with SEC
- Offering is limited to ONE state (intrastate)
- SEC has no jurisdiction over the offering
Registration by Filing (Notice Filing)
Use notice filing when:
- Securities are "federal covered" under NSMIA
- Investment company securities (mutual funds)
- Securities sold under SEC Rule 506
Registration Statement Requirements
All registration methods require certain basic information:
| Requirement | Description |
|---|---|
| Issuer Information | Name, address, state of incorporation |
| Security Description | Type, amount, offering price |
| Use of Proceeds | How funds will be used |
| Underwriter Information | Names of selling firms |
| Financial Statements | Audited financials (varies by method) |
| Consent to Service | Allows Administrator to receive legal papers |
| Filing Fee | State-specific amount |
Registration Duration
| Aspect | Rule |
|---|---|
| Effective Period | One year from effective date |
| Renewal | New registration required for continued offering |
| Amendments | Required for material changes |
Key Point: A securities registration is effective for one year from its effective date. If the offering continues beyond one year, a new registration must be filed.
The Administrator's Role
The state Administrator has authority to:
| Power | Description |
|---|---|
| Review | Examine registration statements |
| Request Information | Demand additional disclosure |
| Deny Registration | Refuse if requirements not met |
| Issue Stop Orders | Halt effectiveness of registration |
| Impose Conditions | Require escrow, limit sales, etc. |
Stop Orders
The Administrator may issue a stop order to deny, suspend, or revoke a registration:
| When Issued | Reason |
|---|---|
| Before Effectiveness | Prevent registration from becoming effective |
| After Effectiveness | Suspend or revoke existing registration |
Grounds for Stop Orders
| Ground | Example |
|---|---|
| Incomplete filing | Missing required information |
| False statements | Material misrepresentations |
| Fraud | Offering would work as fraud |
| Failure to pay fees | Non-payment of filing fees |
| Violation of orders | Ignoring Administrator's conditions |
Due Process: Before issuing a stop order, the Administrator must provide notice and opportunity for a hearing. However, the Administrator may summarily postpone or suspend pending the hearing if public interest requires.
Key Takeaways
- Securities must be registered unless exempt
- Three registration methods: Coordination, Qualification, Filing
- Coordination is for SEC-registered offerings
- Qualification is for intrastate offerings only
- Filing (notice) is for federal covered securities
- Registration is effective for one year
- Administrator can issue stop orders to deny or revoke registration
Which method of securities registration would be used for an initial public offering (IPO) that will be sold in multiple states?
A securities registration statement becomes effective and the issuer begins selling shares. How long does the registration remain effective?
Before the Administrator issues a stop order to deny a securities registration, the Administrator must:
3.2 Registration by Coordination
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