I’m a bit confused about Regulation D
Section 3.5.1 says:
Regulation D applies to issuers selling unregistered securities in multiple states. We’ll discuss the state’s version of private placement later in this unit, which is a completely different rule. State private placement applies when an unregistered security is being sold only in one state.
That implies that Regulation D is an exempt security .
However, Section 3.5.5 includes Regulation D as an exempt transaction.
Are there 2 different Regulation Ds (federal & state)? And if so, why are they both called Regulation D if they’re very different from each other?
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Private placements are exempt transactions, not exempt securities. An exempt transaction means an unregistered security can be legally issued/sold if it is offered to investors in a specific manner (e.g., selling to institutions). An exempt security is one that may always avoid registration no matter which way it is issued/sold (e.g., U.S. Government bonds).
For example, let’s say a technology company wants to sell stock without registering it. Stock is not an exempt security, so the only way it can be legally issued without registration is through an exempt transaction. The technology company can sell the stock to a private (non-public) group of investors, typically comprised of wealthy individuals and institutions. This is what a private placement is.
Regulation D is the name of the federal private placement rule, which applies when securities are being sold across state lines. There is only one Regulation D rule (the federal version of private placement). There is no special name for the state’s version of the rule - it’s just ‘private placement.’ The state’s rule applies when securities are being offered in one state only.
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So is there no such thing as a Regulation D security?
Section 3.5.1 says:
NSMIA defines the following as federal-covered securities:
- Exchange traded securities
- Investment company securities
- Regulation D securities
- Certain federally exempt securities
Does that just refer to securities sold in exempt transactions under Regulation D?
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It’s the latter - a Regulation D security is just a security offered in a Regulation D private placement.
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