We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is a Covered Security?

Mary McMahon
Updated Feb 10, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

A covered security is exempt from certain state regulations under United States federal law. These securities are traded nationally and exemption streamlines the trading process to make it easier and more efficient to exercise trades, facilitating healthy market conditions. For a security to qualify, it needs to meet some specific criteria, to ensure that securities subject to more regulation aren’t inadvertently included in this category. The criteria used to determine if something qualifies as a covered security are subject to update by acts of legislation in the event needs change over time and legislators choose to respond.

The decision to create a covered security category for regulatory purposes was made in 1996 as part of the National Securities Market Improvement Act. This legislation amended the Securities Act of 1933, a landmark piece of legislation passed in response to concerns about US financial markets and the Great Depression. Changing the original legislation provided room for new financial products and modes of doing business that were no longer adequately covered under the 1933 law.

These securities are traded on a national stock exchange overseen by the Securities and Exchange Commission (SEC). In addition, securities considered equal or in seniority to those that are considered covered under this standard also meet the requirements, as do those issued by certain investment companies, and those bought by qualified purchasers. This term is defined by the SEC, allowing streamlined trades for institutional and certain other investors who are able to assess risk and take on more complex financial products than average investors.

Covered securities are not subject to state registration requirements, although federal law still holds. This can make it easier to trade a covered security on a national level, as investors primarily need to concern themselves with federal regulations. At a brokerage or investment firm, legal staff members may take care of these issues on behalf of the company, allowing traders to focus on actually executing trades. Individuals need to make sure they adhere to the laws pertaining to trading activity to avoid fines or other problems.

If investors are not sure about whether something is a covered security, they can check the documentation. This is also of concern to issuers, who may handle their securities differently depending on their status. Securities exempt from state regulations may be more freely traded and marketed, as long as the company conforms with national requirements designed to protect investors and the public.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGeek researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.