Certification Pursuant To Section 25100(o) – Why It Still Matters (Part 1)

On October 11, 1996, President Bill Clinton signed the National Securities Markets Improvement Act (aka the “NSMIA”) into law. The NSMIA preempted qualification requirements under state blue sky laws with respect to “covered securities”. In general, the act designated certain securities as “covered securities”. Other securities were designated ”covered securities” only with respect to specified categories of transactions.

Section 102 the NSMIA (which amended Section 18 of the Securities Act of 1933) deems securities listed (or authorized for listing) on the NYSE, the American Stock Exchange or the National Market System of NASDAQ to be “covered securities”. A security is also a “covered security” under the NSMIA if it is listed (or authorized for listing) on a national securities exchange (or tier or segment thereof) that has listing standards that the SEC determines by rule to be substantially similar to the foregoing three exchanges. To date, the SEC has listed five exchanges (or tiers or segments thereof) under Rule 146 for this purpose. (As discussed in this earlier post, the SEC recently proposed adding a sixth exchange – the BATS Exchange, Inc.) Finally, securities of the same issuer that are equal or senior in seniority are “covered securities”. Section 18(b)(1)(C). A “senior security” is defined as any bond, debenture, note, or similar obligation or instrument constituting a security and evidencing indebtedness, any stock of a class having priority over any other class as to distribution of assets or payment of dividends. Section 18(d)(4). Noticeably absent from the definitions of “covered security” and “senior security” are warrants or options to acquire covered securities (more about this below).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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