Series 65 Securities Exemptions: Exempt Securities vs. Exempt Transactions

Exemptions are among the most heavily tested topics on the Series 65. The exam will ask you whether a specific security or transaction requires registration under the Uniform Securities Act (USA). Getting these questions right requires understanding two completely separate lists: exempt securities and exempt transactions.

These are not the same thing, and the exam exploits that confusion constantly.

Why the Distinction Matters

An exempt security is never required to register under state law, regardless of how it is sold. An exempt transaction is a method of sale that does not require the underlying security to be registered — but if the security is sold through a non-exempt transaction later, it would need to be registered at that point.

Think of it this way: an exempt security is always off the registration hook. An exempt transaction is a one-time pass.

Exempt Securities

The following categories of securities are exempt from state registration requirements under the USA:

U.S. government and agency securities: Treasury bills, notes, bonds, and agency securities such as GNMA (Ginnie Mae). Note that GNMA, FNMA, and FHLMC are not direct obligations of the U.S. government, but their securities are still considered exempt.

Municipal securities: Bonds issued by states, cities, counties, and other government subdivisions. This includes general obligation bonds and revenue bonds.

Foreign government securities: Securities issued by the national government of a foreign country with which the U.S. maintains diplomatic relations. Note this applies only to the national government, not to subdivisions or municipalities of foreign countries — except for Canadian governments at all levels (federal and provincial).

Bank and savings institution securities: Securities issued by banks, savings institutions, and trust companies regulated under federal or state banking law.

Insurance company securities: Policies and annuity contracts issued by insurance companies regulated and supervised by their state insurance department. This includes fixed annuities but not variable annuities (which are securities and must be registered).

Non-profit and religious organizations: Securities issued by non-profit, charitable, educational, or religious organizations.

Common carriers: Securities issued by railroads, trucking companies, and other common carriers regulated by federal agencies such as the Interstate Commerce Commission.

Commercial paper: Short-term promissory notes with a maturity of 270 days or less and a face value of $50,000 or more. Both conditions must be met.

Exempt Transactions

An exempt transaction allows a security to be sold without state registration for that specific transaction. Common exempt transactions include:

Isolated non-issuer transactions: An occasional sale of a security by an existing owner who is not the issuer. The word "isolated" is key — this exemption is not available for a series of transactions designed to distribute a security.

Unsolicited brokerage transactions: Transactions initiated by the customer, not the broker-dealer or agent. The order must come from the client without any solicitation. If the broker-dealer suggested the trade even casually, the exemption may not apply.

Underwriter transactions: Sales between issuers and underwriters, or between underwriters.

Institutional transactions: Sales to financial institutions, broker-dealers, investment companies, insurance companies, pension funds, and other institutional buyers. The key is that the buyer is a sophisticated institution, not a retail investor.

Private placements: Offers and sales to no more than 10 non-institutional persons in any 12-month period in a state, provided: no commission is paid specifically for soliciting those non-institutional buyers, no general advertising is used, and each non-institutional buyer either buys for investment (not resale) or is told they cannot resell for a period.

Fiduciary transactions: Sales by executors, administrators, trustees in bankruptcy, guardians, or sheriffs. These transactions are incidental to their role, not part of a distribution.

Pre-organization certificates: Subscriptions for securities issued before a company is actually formed, with no more than 10 subscribers, no commission paid to solicit subscriptions, and no payment made until full subscription is obtained.

Common Exam Traps

Fixed vs. variable annuities: Fixed annuities are insurance products and exempt from securities registration. Variable annuities are securities and must be registered. The exam tests this distinction frequently.

Canadian government exemption: Unlike other foreign governments where only the national government qualifies, Canadian federal and provincial governments both receive exempt status.

Commercial paper requirements: Both the maturity limit (270 days or less) and the denomination requirement ($50,000 or more) must be present. If one condition is missing, the paper is not exempt.

Private placement head count: The 10-person limit for non-institutional persons applies per state. Institutional buyers do not count toward this limit.

Exempt transaction ≠ exempt security: Selling through an exempt transaction does not make the underlying security exempt. If the same security is later sold through a non-exempt channel, it needs to be registered.

When you see an exemption question on the Series 65, always ask first: is this about the security itself or the method of sale? That single question will point you to the right list every time.