12.7. Exemptions from the SEC Registration Process

While most securities sold in the U.S. must register with the SEC, the Securities Act of 1933 exempts certain kinds of securities from registration. Examples of exempt securities are:

• U.S. Treasuries

• Municipal securities

• Securities issued or guaranteed by a federal agency (CMOs and MBSs)

• Securities issued by a nonprofit (including church bonds)

• Commercial paper (matures under nine months)

• Bankers’ acceptances (matures under nine months)

• Bank securities (not including bank holding companies)

• Eurobonds

Securities that are nonexempt:

• Stocks

• Corporate bonds

• American Depository Receipts (ADRs)

All securities offered for sale in the U.S. must be registered with the SEC, unless they meet the requirements for an exemption. If a company’s securities issues meet the exemption criteria, the issuer may offer its securities without complying with the SEC’s rigorous registration requirements.

Note: Although these securities are exempt from the registration requirements of the 1933 Act, they are still subject to the Act’s fraud prohibitions.

The rules around exempt securities, especially Regulation D, make use of the concept of an accredited investor, which is defined as any of the following:

• Banks, broker-dealers, investment advisers, insurance companies, and investment companies

• Corporations, trusts, partnerships, and LLCs with more than $5 million in assets

• Most employee benefit plans with more than $5 million