National Securities Markets Improvement Act of 1996
Mutual Funds, Investment Advisers, and the National Securities Markets Improvement Act
Paul S. Stevens and Craig S. Tyle, 52(2): 419–78 (Feb. 1997)
The Article presents an overview of the recently enacted National Securities Markets Improvement Act, as it affects investment companies and investment advisers. NSMIA amended the Investment Company Act of 1940 and the Investment Advisers Act of 1940 in several important respects and, more significantly, reallocated and rationalized the regulatory responsibilities of federal and state regulators with respect to investment companies and investment advisers. The Article discusses factors that led to the enactment of the legislation, explains its various provisions, and notes interpretive questions that have arisen or are likely to arise under NSMIA.
The National Securities Markets Improvements Act—One Year Later. Introduction
Mark A. Sargent, 53(2): 507–09 (Feb.1998)
The National Securities Markets Improvements Act of 1996 became effective January 1, 1997. NSMIA was the culmination of a political struggle over the future of blue sky law among the securities industry, securities professionals (principally lawyers), the SEC, and the most important stakeholders, the state securities regulators. This Symposium is an attempt to identify and analyze many of the important new issues that have emerged in the year that has passed since NSMIA became effective.
The Impact of NSMIA on State Regulation of Broker-Dealers and Investment Advisers
Howard M. Friedman, 53(2): 511–61 (Feb. 1998)
NSMIA changed dramatically the relative roles of state and federal government in regulating both broker-dealers and investment advisers. In providing the new framework for broker-dealer regulation, Congress required states to conform their financial regulation and record-keeping requirements to those of federal law and immunized from state registration the salesperson who temporarily follows the traveling client out of state. Congress painted with a broad brush and created many ambiguities. The SEC has done little to clarify the uncertainties that Congress created. In the investment adviser area, Congress replaced the preexisting dual registration model with one that required registration only at one level. Large investment advisers register with the SEC; smaller advisers register with the states. States, however, retain jurisdiction over investment adviser representatives employed by federally registered advisers. The SEC has issued elaborate rules implementing this division of authority.
NSMIA ... One Year Later: The States' Response
G. Philip Rutledge, 53(2): 563–74 (Feb. 1998)
NSMIA represents the most comprehensive reallocation of authority among state and federal government for regulation of financial services in the United States since Congress passed seminal federal securities legislation in the 1930s and 1940. In the year since NSMIA was passed, the states, through the North American Securities Administrators Association, have responded quickly by adopting uniform amendments to state securities laws to accommodate NSMIA provisions, developing a comprehensive set of standards for the regulation of investment advisers subject to state authority and introducing a coordinated review system for public offerings of corporate equity securities subject to state review. These state actions are consistent with the predicate underlying NSMIA that there is an essential regulatory role for the states, and this role is most effective when states operate in coordination with each other and operate under similar rules and procedures.
The Impact of NSMIA on Small Issuers
Rutheford B Campbell, Jr., 53(2): 575–89 (Feb. 1998)
Small businesses are a vital part of our economy, accounting, depending upon one's definition, for perhaps forty percent of the business activities in this country. Capital formation for small businesses historically has been fraught with difficulties, which include nonsensical and discriminatory state securities laws. Because of the statutory exclusions from NSMIA's preemption provisions, NSMIA itself provides no relief from state securities laws for small businesses engaged in capital formation. NSMIA does, however, contain a broad delegation of authority to the SEC, which the author believes could be used to expand significantly and beneficially the preemptive scope of NSMIA and thereby provide important benefits for the capital formation activities of small businesses.
Testing the Limits of NSMIA Preemption: State Authority to Determine the Validity of Covered Securities and to Regulate Disclosure
Robert N. Rapp and Fritz E. Berckmueller, 63(3): 809–854 (May 2008)
The National Securities Market Improvements Act of 1996 ("NSMIA") significantly limited the scope of state securities regulation under blue sky laws. NSMIA preempted state authority over the registration and qualification of securities offerings deemed "national" in character and established categories of "covered securities" for the purpose of setting those limits. NSMIA includes among "covered securities" those securities offered and sold pursuant to Rule 506 of Regulation D under the Securities Act of 1933. Recent state and federal courts have determined that the issuer must show the actual validity of, and not mere reliance on, the exemption and, just as important, have recognized that states may determine whether the exemption applies and exercise registration–related enforcement authority where the exemption is ruled invalid.
At the same time, NSMIA expressly preserves general state antifraud enforcement authority. Some courts have upheld the state's exercise of antifraud enforcement authority to prohibit specific fraudulent issuer disclosure documents within the state in an offering of NSMIA "covered securities."
These two sets of cases set up a confrontation between the historic mission of blue sky laws and the intended scope of NSMIA preemption that opens the door to reconsideration of the purpose of NSMIA. We call for a balance of federal and state regulatory authority that is consistent with the actual realignment of roles that NSMIA was designed to accomplish.