When it comes to Series 63 exempt transactions questions, many get stumped. In today’s post, we offer a brief unpacking of this confusing topic.
Series 63 Exempt Transactions: Not Securities
On the Series 63 Exam, a very common point of confusion among students that we see is related to transactions that are exempt from state registration.
First, it’s important to know why a transaction would need to be registered. Generally speaking, the state wants to know when a transaction occurs in its state. Essentially they want to know if they may need to protect their citizens from the risks.
It’s important to know that just because a security is exempt from registration with the state, such as a treasury bond, that does not make all transactions with treasury bonds exempt.
For example, state registration of a transaction is required if the transaction is directed to a retail investor. A good study tip is that almost every transaction with a retail investor is not exempt from registration. In other words, the government wants to know about it. Therefore this requires a transaction to be registered when it involves a retail investor. The logic is that the state government is really trying to protect the “Mom and Pop” investor.
What Is An Exempt Transaction?
So that begs the question: What is an exempt transaction? An exempt transaction is usually one where there is minimal threat to a large number of retail investors in the state.
Not all retail investor transactions need to be registered. An example would be private placements. These would often be investments in small businesses or limited partnerships.
When a private placement targets fewer than 10 retail investors, and no commission is offered, there is no need to register the transaction. However, when more than 10 retail investors are solicited for a private security then registration is required with the state.
This follows the idea that the state government is trying to minimize the risk that a large group of retail investors become involved in what might be a questionable transaction.
Other Exempt Transactions
Institution-to-institution transactions are also exempt. This reflects the idea that the state government cares most about protecting the smaller retail investor. The thought is that institutions can handle themselves.
Other exempt transactions to watch out for are those by fiduciaries. An executor or sheriff may on behalf of others transact and since it is not for the purpose of evading the SEC Act of 1933, the state allows an exemption from registration.
Lastly, isolated transactions, such as a one off transaction between two people, and also debt related transactions, such as putting up securities as collateral, also would not require registration.
While there are many specific scenarios required to become proficient at this section, the above is a good start. While you are learning exempt transactions, take a look at exempt securities, which are generally easier topic. If you have any questions about the Series 63 Exam, feel free to reach out to a Series 63 Tutor. Good luck!