State Exempt Securities

⚠️ Which one does this chapter cover?

The chapter opens the distinction explicitly:

A security may avoid registration if:

• Considered an exempt security
• Sold in an exempt transaction

• In the previous two chapters, the text discussed how a security can be registered with the state administrator. Here, it covers the various exemptions that allow issuers and other interested parties to avoid the securities registration process.
• 🔑 An exempt security avoids registration based solely on what it is (not on how it’s sold).

🔑 The complete USA list of state exempt securities

The Uniform Securities Act (USA) specifically lists the following as securities exempt from state registration:

Statutory language, verbatim (blockquotes)

US government securities

Any security (including a revenue obligation) issued or guaranteed by the United States, any state, any political subdivision of a state, or any agency or corporate or other instrumentality of one or more of the foregoing

• Any security issued or guaranteed by the US government (at any level) is exempt. There are three broad categories of government securities to keep straight:

Canadian government securities

Any security issued or guaranteed by Canada, any Canadian province, any political subdivision of any such province, any agency or corporate or other instrumentality of one or more of the foregoing

• Canadian government securities are treated like US government securities for state exemption purposes. Securities issued or guaranteed by the Canadian federal government, provinces, cities, and other local governmental units are exempt from registration.

National foreign government securities

Any other foreign government with which the United States currently maintains diplomatic relations, if the security is recognized as a valid obligation by the issuer or guarantor

• For foreign governments other than Canada, the exemption is limited to national (federal) government securities.

Bank securities

Any security issued by and representing an interest in or a debt of, or guaranteed by, any bank organized under the laws of the United States, or any bank, savings institution, or trust company organized and supervised under the laws of any state

Any security issued by and representing an interest in or a debt of, or guaranteed by, any federal savings and loan association, or any building and loan or similar association organized under the laws of any state and authorized to do business in this State

Any security issued or guaranteed by any federal credit union or any credit union, industrial loan association, or similar association organized and supervised under the laws of this state;

• Banks (and most entities that function like banks) are commonly exempt or excluded from many registration requirements. Their securities are also exempt from registration.

• Example: If a bank is organized and regulated only in Kentucky, its securities would be exempt when offered in Kentucky. If that same bank offered securities in another state where it is not authorized to do business, the exemption would not apply.

Here are the “banking” entities included in this exemption:

Insurance company securities

Any security issued by and representing an interest in or a debt of, or guaranteed by, any insurance company organized under the laws of any state and authorized to do business in this state; [but this exemption does not apply to an annuity contract, investment contract, or similar security under which the promised payments are not fixed in dollars but are substantially dependent upon the investment results of a segregated fund or account invested in securities]

• Insurance company securities are generally exempt, except for variable contracts.

• 🔑 A practical rule: if the insurance product has the word “variable” in the name, it’s not exempt.
• For the exemption to apply, the insurance company must also be authorized to do business in that state (the same idea you saw with banks).

Railroad, common carrier, and public utility securities

Any security issued or guaranteed by any railroad, other common carrier, public utility, or holding company

Definitions

• The USA’s original language dates back to the 1930s, when railroads (a type of common carrier) were especially prominent. Securities issued by public utilities (for example, a local electric provider) also fall under this exemption.

Federal-covered securities

• Federal-covered securities are generally subject to notice filing when offered in a state, but they are exempt from full state registration.

Non-profit securities

Any security issued by any person organized and operated not for private profit but exclusively for religious, educational, benevolent, charitable, fraternal, social, athletic, or reformatory purposes, or as a chamber of commerce or trade or professional association

• Securities issued by many types of non-profits (including churches, universities, and charities) are exempt from registration.
• ⚠️ However, the USA allows the state administrator to remove this exemption if fraud is suspected or if the situation raises concerns. This matters because the North American Securities Administrators Association (NASAA) has documented numerous instances of affinity fraud over the years.

Definitions

Promissory notes

A promissory note, draft, bill of exchange or bankers’ acceptance that evidences an obligation to pay cash within 9 months after the date of issuance, exclusive of days of grace, is issued in denominations of at least $50,000, and receives a rating in one of the 3 highest rating categories from a nationally recognized statistical rating organization; or a renewal of such an obligation that is likewise limited, or a guarantee of such an obligation or of a renewal;

• Promissory notes (often called commercial paper) are short-term corporate debt obligations. They’re typically issued at a discount, pay no interest during the life of the security (zero coupon), and mature at par.

🔑 To be an exempt security under the USA, the promissory note must meet all of these requirements:

• Organizations like Moody’s and S&P Global Ratings (formerly Standard & Poors) commonly provide ratings on these securities.

Employee benefit plans

Any investment contract issued in connection with an employees’ stock purchase, savings, pension, profit-sharing, or similar benefit plan

• Many companies offer securities and other investment plans to employees without registering those offerings. A key reason for this exemption is that these plans are not offered to the general public.
• ⚠️ Like non-profit securities, the USA allows the state administrator to remove this exemption if fraud is suspected or if the situation raises concerns.

⚠️ Exemptions the administrator can remove

🔑 Numbers & deadlines

Key points

State exempt securities

• US government securities
• Canadian government securities
• National foreign government securities
• Bank securities
• Insurance company securities
• Railroad, common carrier, and public utility securities
• Federal-covered securities
• Non-profit securities
• Promissory notes
• Employee benefit plans

Sources

Primary/official references for the material in this chapter. Every link was fetched and returned HTTP 200 on 2026-08-15.