Securities Act § 3 — Exempt Securities (15 U.S.C. § 77c)
Overview
Section 3 of the Securities Act of 1933 exempts certain classes of securities from the registration requirements of Securities Act § 5 — Registration Requirement (15 U.S.C. § 77e). Unlike transaction exemptions under Securities Act § 4 — Exempt Transactions (15 U.S.C. § 77d), exemptions under § 3 are permanent and transferable — the security itself is exempt regardless of who sells it or to whom.
Exempt Categories (§ 3(a))
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Government securities (§ 3(a)(2)): Securities issued or guaranteed by federal, state, or local governments. Includes securities of U.S. territories and the District of Columbia.
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Bank securities (§ 3(a)(2)): Securities issued by national banks or state-chartered banks subject to examination by banking authorities.
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Short-term commercial paper (§ 3(a)(3)): Any note, draft, bill of exchange, or banker’s acceptance arising out of a current transaction with a maturity of nine months or less at time of issuance. Must not be ordinarily purchased by the general public. Key limitation: purely commercial, not investment, paper.
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Nonprofit securities (§ 3(a)(4)): Securities issued by religious, educational, benevolent, fraternal, charitable, or reformatory organizations, no part of whose net earnings inures to any person’s benefit.
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Common carrier securities (§ 3(a)(6)): Securities of carriers subject to the Interstate Commerce Act (now regulated by other means).
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Intrastate securities (§ 3(a)(11)): Securities offered and sold only to residents of the state in which the issuer is organized and doing business. Also implemented by Rule 147. Distinguished from Rule 147A (which allows general solicitation to out-of-state residents).
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Insurance and annuity contracts (§ 3(a)(8)): Certain insurance and annuity contracts subject to state regulation, excluding variable annuities (which the SEC has held are securities).
Key Distinction: § 3 vs. § 4
| Feature | § 3 (Exempt Securities) | § 4 (Exempt Transactions) |
|---|---|---|
| What is exempt | The security itself | The transaction |
| Transferability | Exempt in any transaction | Only the specific transaction |
| Example | U.S. Treasury bond | Private placement by issuer |
| Resale concern | None — always exempt | Resale may require registration |
A security exempt under § 3 is exempt permanently — a subsequent resale by any party does not require registration. By contrast, securities sold under a § 4 transaction exemption may become “restricted securities” subject to resale limitations under Rule 144.
Anti-Fraud Provisions Still Apply
Exemption from registration under § 3 does not exempt the issuer or seller from the anti-fraud provisions of the securities laws. Section 17(a) of the Securities Act and Rule 10b-5 under the Exchange Act continue to apply to all securities transactions, exempt or not.
Interaction with Intrastate Exemption
The § 3(a)(11) intrastate exemption requires:
- Issuer incorporated or organized in the state
- Issuer doing business in the state (principal place of business)
- Offers and sales only to state residents
- Entire issue remains within the state
If even one offer is made to an out-of-state person, the exemption is lost for the entire offering. Rule 147 provides a safe harbor with specific requirements, including a 6-month resale restriction within the state.
Related Pages
- Securities Act § 4 — Exempt Transactions (15 U.S.C. § 77d)
- Securities Act § 5 — Registration Requirement (15 U.S.C. § 77e)
- Securities Act of 1933 (15 U.S.C. §§ 77a–77aa)