| Regulation of the securities industry by the Securities and Exchange Commission and by self-regulatory organizations such as the national stock exchanges is well known. However, in addition to such regulation, each state provides its own securities laws and rules that sellers of securities in the states must follow.
State securities laws have been referred to as "blue sky" laws due to their objective to prevent fraudulent sales of securities with no substance beyond blue sky. In recent years, federal legislation has been enacted in order to pre-empt and eliminate various provisions of state securities laws that duplicate provisions of federal securities laws. However, as a general rule, registration requirements in each state for securities other than "covered securities" described below have not been pre-empted, and registration of a security and of brokers and brokerage firms within a state must take place before sale of the security in the state unless such registration is exempted by state law.
Many states have adopted provisions of the Uniform Securities Act of 1956. However, even though some 40 states have adopted the uniform act, case law differs from state to state regarding the interpretation of certain provisions of the act, and it is thus important to understand the particular securities law of the state in which the sale of stock will take place.
Various types of securities are exempt from provisions of particular state statutes or from all state statutes. Thus, "covered securities" under the National Securities Markets Improvements Act of 1996 are not subject to state securities law registration requirements. Such exempted "covered securities" include those listed on the national markets, including the New York and American Stock Exchanges and the Nasdaq market. Although such securities are exempt from registration requirements in the states, the right of the states to investigate and prosecute fraud in connection with the sale or purchase of those securities is not pre-empted by the National Securities Markets Improvement Act.
Requirements for registration of brokers and agents engaged in a stock trading vary from state to state despite common forms adopted by many states that were provided by the National Association of Securities Dealers. Thus, brokers and agents should determine the particular requirements of each state in which they do business despite the similarity between forms from state to state and between examinations used in different states. Copyright 2010 LexisNexis, a division of Reed Elsevier Inc. |