Exempt Security

Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority and you can order it here)                  

A security that is exempt by Section 3 of the SECURITIES ACT OF 1933 from all requirements of the act, except the fraud provisions of Section 17.

As specified in the act, the following are exempt securities:

1.  Any security issued or guaranteed by the United States or any territory thereof, or by the
     District of Columbia, or by any state of the United States, or by any political subdivision of a
     state or territory, or by any public instrumentality of one or more states or territories
     exercising an essential governmental function, including industrial development bonds.

2.  Any security issued or guaranteed by any corporation created and controlled or supervised
     by and acting as an instrumentality of the government of the United States, pursuant to
     authority granted by the Congress of the United States.

3.  Any security issued or guaranteed by any national bank, or by any banking institution
     organized under the laws of any state or territory, the business of which is substantially
     confined to banking and is supervised by the state or territorial banking commission or
     similar official.

     However, the preceding exemption from registration requirements of the Securities Act of
     1933, for “any security issued or guaranteed by bank” does not include any interest or
     participation in any collective trust fund maintained by a bank (meaning any national bank,
     District of Columbia bank, or any banking institution organized under the laws of any state
     or territory).  But the exemption does apply to any interest or participation in any common
     trust fund or similar fund maintained by a bank exclusively for the collective investment and
     reinvestment of assets contributed thereto by such bank in its capacity as trustee, executor,
     administrator, or guardian.  The preceding notwithstanding, the term “bank” in the case of a
     collective trust fund or common trust fund or similar fund has the same meaning as in the
     Investment Company Act of 1940 (see INVESTMENT COMPANY).

     Moreover, the preceding numbered exemption from registration requirements of the
     Securities Act of 1933 does not apply to bank holding companies with 500 or more
     stockholders.  Pursuant to the Securities Act Amendments of 1975, banks with 500 or more
     stockholders are subject to “SEC-like” registration of public offerings with the Comptroller of
     the Currency in the case of national banks and banks operating in the District of Columbia.

4.  Any security issued by or representing an interest in or a direct obligation of a Federal
     Reserve bank.

5.  Any note, draft, bill of exchange, or bankers acceptance which arises out of a current
     transaction or the proceeds of which have been or are to be used for current transactions,
     and which has a maturity at time of issuance of not exceeding nine months, exclusive of
     days of grace, or any renewal thereof the maturity of which is likewise limited.

6.  Securities issued by nonprofit organizations.

7.  Securities issued by savings and loan, building and loan, or similar organizations, provided
     the withdrawal fee at or before maturity is not in excess of 3%.

8.  Securities issued by motor carriers subject to the Interstate Commerce Act, or any interest
     in a railroad equipment trust.

9.  Certificates issued by a receiver or by a trustee in bankruptcy with court approval.

10.  Insurance policies and annuity contracts issued by corporations subject to supervision of
       state insurance or banking commissioners.

11.  Securities exchanged by an issuer with existing security holders exclusively, with no
       commission or other remuneration involved for soliciting the exchange.

12.  Securities sold solely to residents of the state in which the issuer is incorporated and
       doing business.

The SECURITIES AND EXCHANGE COMMISSION may from time to time by its rules and regulations, and subject to such terms and conditions as may be therein prescribed, add any class of securities to the securities exempted (15 U.S.C. 77c(b)).  It can do this if it finds that the enforcement of the registration requirement with respect to such securities is not necessary in the public interest and for the protection of investors because of the small amount involved or the limited character of the public offering, except where the aggregate amount at which such issue is offered to the public exceeds $500,000 (Regulation A general exemption for U.S. and Canadian issues up to that amount).  The commission has adopted the following additional exemptions:

1.  Regulation B exemption for fractional undivided interests in oil or gas rights up to $250,000.

2.  Regulation E exemption for securities of a small business investment company up to
     $500,000.

3.  Regulation F exemption for assessments on assessable stock and for assessable stock
     offered or sold to realize the amount of assessment up to $300,000.

4.  Rules 234-237 and 240 exemptions of first lien notes, securities of cooperative housing
     corporations, shares offered in connection with certain transactions, certain securities
     owned for five years, and certain limited offers and sales of small dollar amounts of
     securities by closely held issuers.

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