What are Exempt Securities?

Under financial regulations in the United States, exempt securities are securities which do not need to be registered and reported under the Securities Act of 1933. There are several different criteria which can qualify a security for exemption from registration and reporting rules. People who are not clear about whether or not a specific security is exempt can consult a financial adviser or broker, who should be able to provide information and advice.

The Securities and Exchange Commission (SEC) oversees securities in the United States. Under the Securities Act of 1933, the SEC can take a number of steps to protect investors. The Securities Act is designed to prevent fraud, to make sure that information disseminated about securities is truthful, and to provide investors with information about the securities they buy. This is where registration and reporting requirements come in, with securities for sale needing to be registered with information about the parent company, a description of the securities, and the financial status of the company offering them.

Exempt securities do not need to fulfill this registration requirement. A classic example of an exempt security is a Treasury security. Likewise, municipal bonds and commercial paper are exempt securities. Small security offerings and intrastate offerings are also exempted from needing to comply with the Securities Act. Another example of exempt securities is securities which are only offered to accredited investors, investors who are authorized to be involved in high risk investments. The assumption is that such investors are able to protect themselves. These exempt securities may be subject to other regulations which are designed to protect consumers.

Securities which are not offered by a dealer, issuer, or underwriter are exempt as well. This caveat was put in place so that individual traders were not subject to reporting rules. Otherwise, every time someone wanted to sell securities, they would need to be registered and reported. This would be cumbersome, and could inhibit the free market in addition to generating a rather substantial amount of paperwork for SEC personnel and traders.

The SEC takes its regulatory responsibilities seriously. Protecting investors is of key importance for financial health, and investors as well as the general public rely on the SEC to discharge its legal duties. Misrepresentation of securities as exempt or failure to comply with reporting rules can be grounds for legal penalties, including penalties which bar people from being involved in the financial industry in the future.