The National Securities Markets Improvement Act of 1996 ("NSMIA")

In October, 1996, Congress passed a bill titled "The National Securities Markets Improvement Act of 1996" (NSMIA). That bill became law and extensively amended various provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment Company Act of 1940, and the Investment Advisers Act of 1940. A new definition was created: "Covered Security", referred to under state securities laws as "Federal Covered Security". State securities registration requirements were preempted with respect to "Federal Covered Securities". However, states with filing requirements in place (including Wisconsin), prior to the adoption of NSMIA may continue to require Notice filings, consisting of filing fees and copies of documents filed with the Securities and Exchange Commission (SEC), except as to securities traded in major securities markets designated in NSMIA and by SEC rules.

A summary of the major categories of "Federal Covered Securities" follows:

• Securities issued by an open-end mutual fund, closed-end mutual fund, unit investment trust, or face amount certificate company, that is registered under the Investment Company Act of 1940.
• Securities offered pursuant to the provisions of Rule 506 of Regulation D under the Securities Act of 1933.
• Securities offered by a municipal/governmental issuer, unless the issuer is located in the state in which the securities are being offered.
• Securities offered by an issuer exclusively to its existing security holders where no commission or other remuneration is paid directly or indirectly for soliciting the exchange.

In addition, NSMIA impacted state broker dealer and investment adviser licensing provisions. With respect to broker-dealers, NSMIA prohibits states from enacting or enforcing any broker-dealer licensing requirement that differs from federal requirements relating to specified areas such as net capital, bonding, and books and recordkeeping. However, states retain anti-fraud authority and the ability to investigate and institute proceedings for sales practice violations by firms or their sales agents.  With respect to the regulation of investment advisers, NSMIA divided the licensing authority between the SEC and the states. The SEC is given exclusive licensing authority for investment advisers managing $25 million or more in assets or advising mutual funds. However, states retain anti-fraud jurisdiction. Non-SEC registered investment advisers are subject to licensure in states in which they do business unless the investment adviser does not maintain a place of business in the particular state and has fewer than six clients in that state. A state may continue to require representatives of investment advisers having a place of business located in the state to be licensed and may collect licensing fees. Also, states retain anti-fraud jurisdiction over investment adviser representatives. A summary of the impact of those changes, as they affect broker-dealers, agents, and investment advisers transacting business in Wisconsin, may be found under the Licensing & Compliance section.