The North American Securities Administrators Association, Inc. (NASAA) has requested public comments on whether the Uniform Securities Act’s manual exemption should be amended by Model Act or Model Rule. NASAA’s Corporation Finance Section Small Business/Limited Offering Project Group asks interested persons to submit their comments electronically by email to NASAAComments@nasaa.org, with a cc: to the Project Group Chair, Faith Anderson (faith.anderson@dfi.wa.gov). The comment deadline is May 26, 2023.
Does the manual exemption continue to protect investors? NASAA’s overall quest is to determine whether the securities manual exemption under the Uniform Securities Act (USA) of 1956, 1985 and/or 2002 continue to protect investors from fraud and, if not, what changes are recommended to ensure complete protection for investors in today’s complex financial market world. Most states have adopted the manual exemption from one of the three NASAA model acts.
The USA of 2002. The USA of 2002 remains the most restrictive of the three Model Acts by mandating the exemption for only a nonissuer transaction by or through a registered or exempt broker-dealer, or a resale transaction by a 1940 Act unit investment trust sponsor, in a security of a class that has been outstanding in the public’s hands for at least 90 days, so long as a laundry list of conditions are met. But, NASAA says, even with these conditions a lot has changed in global financial markets since 2002, particularly with the advent of electronic trading platforms to greatly expand an investor’s ability to engage in secondary trading of securities that are not otherwise listed on an exchange in reliance on the manual exemption. Moreover, NASAA noted a 2016 SEC staff report proclaiming the securities of issuers that trade on these platforms present significant risks.
NASAA’s request. First, the project group asks interested persons for information on the use of the manual exemption to effect securities transactions, particularly data about how frequently the manual exemption is used. Subsequently, the project group seeks comments about:
- Whether the manual exemption’s existing requirements provide an appropriate level of protection for investors who buy securities from sellers relying on the exemption; and
- How the manual exemption could be amended if commenters believe the 2002 version provides inadequate investor protection.