Covered Securities

The National Securities Markets Improvement Act of 1996 ("NSMIA") created a new class of securities, called "covered securities," through amendment to Section 18 of the Securities Act of 1933.

What is a covered security?

In short, a covered security is one that enjoys a federally imposed exemption from state securities registration. NSMIA prevents states from

imposing additional disclosure or "merit" standards on such offerings,

requiring registration or qualification of such securities or transactions involving such securities, or

prohibiting or limiting the use of any offering document prepared by or on behalf of any issuer of such securities.

The list of covered securities includes:

Securities listed, or authorized for listing, on the New York or American Stock Exchange, the NASDAQ National Market System, or on a national exchange which the SEC by Rule determines has listing standards substantially similar to those of the named markets (In January of 1998, the SEC also designated by rule securities listed on the Chicago Board Options Exchange, Tier 1 of the Pacific Exchange, and Tier 1 of the Philadelphia Stock Exchange);

Securities equal in seniority or senior to securities described in the preceding paragraph;

Securities issued by an investment company registered under the Investment Company Act of 1940;

Securities offered or sold to a "qualified purchaser" as that term is defined by the SEC (expected to be similar to "accredited investor" in Rule 501 of Regulation D under the 1933 Act);

Securities offered or sold pursuant to most of the exemptions contained in 1933 Act Section 3(a), plus under Section 4(2)(including certain exchange offers but excluding the intrastate exemption in Section 3(a)(11), the non-profit exemption in Section 3(a)(4), and any municipal/governmental security offered and sold in the state in which the issuer of the security is located); and

Securities that will be covered securities under any of the above upon completion of the transaction.

NSMIA provides that states may continue to impose filing requirements for documents filed with the SEC, may require the filing of consents to service of process, and may impose filing fees in the amounts provided by state law on the day before NSMIA became effective.

In Wisconsin, covered securities requiring filings (see § 551.29, Wis. Stats., and related rules in § DFI-Sec 2.04, Wis. Adm. Code) include the following:

Regulation D, Rule 506 Offerings

Industrial Revenue Bonds (non-Wisconsin Issuers)

Exchange Offers with Existing Securityholders not involving sales commissions

Investment Companies including

Rule 429 Amendments: If the issuer files a Rule 429 amendment (a new registration statement) with the SEC to increase the amount of securities registered, a new notice and $750 filing fee must be filed in Wisconsin.