Blue-sky laws is the informal term for state securities laws that regulate the sale of securities within a state. The name comes from a 1917 U.S. Supreme Court opinion referring to fraudulent securities as having as much value as "a patch of blue sky."
Purpose: Protect state investors by requiring registration of securities and securities professionals operating in the state.
Relationship to federal law: - State and federal securities laws generally work side by side. - Federal preemption: The National Securities Markets Improvement Act of 1996 (NSMIA) preempts state registration for "covered securities" (nationally listed stocks, Reg D 506 offerings, mutual funds, etc.). States can still require notice filings and fees for covered securities.
State jurisdiction: A state has jurisdiction over a securities transaction if the offer or sale is made or directed into or from that state. A broker-dealer or IA in State A offering securities to a client in State B must comply with both states' laws.
Common state requirements: - Registration of broker-dealers and their agents (registered representatives). - Registration of investment advisers and their IARs. - Registration of non-exempt securities offered within the state. - Anti-fraud rules (apply even to exempt securities and transactions).
> Exam tip: For the Series 63 and 65/66, know that anti-fraud provisions always apply — even if a security or transaction is exempt from registration. NSMIA preemption (covered securities) is a common test trap.