Exempt Transaction

What is an Exempt Transaction?

Exempt transactions are securities transactions that are exempt from registration requirements, either in part or in full, outlined in the 1933 Securities Act.

The 1933 Securities Act was enacted after the Great Depression in the United States to bring regulation and transparency to the U.S. markets to help avoid extreme market turmoil and catastrophic financial losses going forward.

A central part of the legislation is a “disclosure philosophy” requiring large amounts of backup and registration for most types of transactions. However, over the years, certain types of transactions have become exempt.

Transaction Exemptions in the United States

The list below outlines a list (2020) of exempt transactions pertaining to the 1933 Securities Act:

1. Regulation A Offerings
2. Regulation D Offerings
3. Rule 144 Offerings
4. Some Intrastate Offerings

1. Regulation A Offerings – Understanding What Qualifies

Regulation A offerings have a total value of securities offered at the $5 million threshold or less and are considered exempt. They are small market offerings and are not considered to be sizable players in the market at all.

Depending on the complete nature of the transaction, however, it may still be required to file a registration but with far less disclosure. Some types of securities that may be granted an exemption for their transactions include:

• Non-profit securities
• Financial institution securities
• Public utility securities
• Federal or foreign government-issued securities

2. Regulation D Offerings and Their Importance

Regulation D allows for exemptions on transaction filing. Shorter disclosure forms must be filed; however, securities issued under Regulation D offerings cannot issue more than $5 million worth of securities within a one-year period.

Furthermore, no individual issuing the securities can have been convicted of securities fraud or any other relevant criminal offense.

3. Rule 144 Offerings – A Deeper Understanding

Under the SEC Act, public resale of some restricted securities can be done without any registration. It is generally with securities that are controlled and with requirements on minimum securities holding time and a specified volume that can be unregistered.

Rule 144 refers to the form number that must be filed with the SEC to complete exempt transactions. Transactions are no longer exempt if they exceed a sale price of $50,000 or have over 5,000 shares traded within a three-month period.

Furthermore, securities sold within a three-month period do not exceed 1) the weekly trading volume of the security in the previous four months, 2) the weekly volume reported through transaction systems on an exchange like the NYSE, and 3) totaling 1% of outstanding shares.

The entire process must be carefully analyzed by legal professionals whenever such types of transactions occur to ensure proper compliance and legal accuracy are being upheld.

What is Traditionally Found in a Registered Securities Transaction?

To better understand what is excluded from exempt securities transactions, it is beneficial to analyze what is required for registration.

When a security is to be registered, four key things are generally part of the disclosure system created by the Securities and Exchange Commission (SEC). They are:

• Description of the security being offered
• Information on the type of security – common or preferred stock
• Financial statements verified by independent accountant operations (generally the Big Four)
• Management information on the issuer of the security

More Resources

CFI is the official provider of the global Capital Markets & Securities Analyst (CMSA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:

• The 1933 Securities Act
• Securities and Exchange Commission (SEC)
• Trading Securities
• Types of SEC Filings
• See all equities resources