1. Introduction
2. Investment vehicle characteristics
3. Recommendations & strategies
4. Economic factors & business information
5. Laws & regulations
5.1 Securities laws
5.2 Definitions
5.2.1 Persons
5.2.2 Exempt & excluded
5.2.3 Issuers & securities
5.2.4 Broker-dealers
5.2.5 Agents
5.2.6 Investment advisers
5.2.7 Investment adviser representatives
5.2.8 The SEC & state administrator
5.2.9 Offers & sales
5.3 Registration
5.4 Enforcement
5.5 Communications
5.6 Ethics
6. Wrapping up
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5.2.2 Exempt & excluded
Achievable Series 66
5. Laws & regulations
5.2. Definitions

Exempt & excluded

Exams focused on laws and regulations establish rules that must be followed. While it’s important to be aware of those rules, it’s equally important to know when they don’t apply. You can safely assume the law does not apply when something is exempt or excluded. In a nutshell, exemptions and exclusions are exceptions to various rules and regulations. Although both are exceptions, they’re exceptions for different reasons.

An exemption exists if the law explicitly states the rules don’t apply to a person or circumstance. For example, let’s focus on road speed limits, which apply to automobiles on the road. Ambulances would be considered exempt from the speed limit if their lights were flashing, assumptively rushing to help someone in need. Even if an ambulance was going 30 miles per hour over the speed limit, they wouldn’t be pulled over or subject to any legal penalties. Therefore, ambulances are exempt from road speed limit laws.

Bringing it back to finance, Treasury bonds are considered exempt securities. If you’ve studied for the SIE or Series 7, you probably remember this aspect of securities laws*. Treasury bonds are securities; investors purchase them with the assumption of return and can potentially lose money on them. However, securities laws exempt them from registration, both at the federal and state level (we’ll learn more about this later). This allows the Department of the Treasury to sell Treasury bonds without filing disclosure paperwork with the SEC.

*If this is the first you’re hearing about Treasury securities being exempt from registration, don’t worry about it! We’ll learn more about the specifics later in this material.

An exclusion exists if the person or circumstance cited in the law is not subject to those rules. Or, another way of saying the law doesn’t apply, and therefore an exception exists. Let’s revisit speed limits again. If a cheetah was running down the road and breaking the speed limit, it obviously wouldn’t be subject to the law. The speed limit wouldn’t apply because they’re meant to regulate cars, trucks, and other road vehicles, not animals. Therefore, the cheetah is excluded from speed limit laws.

Back to finance again; fixed annuities are considered excluded securities*. Fixed annuities are insurance products not subject to market value fluctuations, and consequently are not considered securities. Like Treasury bonds, they are not required to be registered or regulated. However, they avoid these rules for a different reason. Treasury bonds avoid securities laws because regulations explicitly state they are not subject to those rules, while fixed annuities avoid securities laws because they’re not considered securities.

*For now, all you need to know is a fixed annuity is an insurance product that is not subject to securities laws or regulations.

As you make your way through the rest of this material, you’ll learn about various sets of regulations and rules. It’s important to know the law, but it’s also important to know when it doesn’t apply. Test questions could not only focus on the exceptions - exemptions and exclusions - but also the differences between the two. For example:

All of the following securities are eligible for exemptions from registration, EXCEPT:

A) Treasury bonds
B) Treasury bills
D) Fixed annuities

Can you figure it out?


Answer: D) Fixed annuities

All Treasury (US Government) securities, including Treasury bills, Treasury bonds, and STRIPS, are exempt from registration requirements. Although they are securities, which are typically subject to securities laws and regulations, applicable rules and regulations (which we’ll learn more about later) explicitly state US Government securities are not subject to registration requirements (an exemption).

Fixed annuities are not subject to registration requirements either, but for a different reason than US Government securities. They do not meet the definition of a security, and therefore are excluded from securities laws.

We’ll dive deeper into securities in the next chapter, which should clear up any confusion about our discussion of exempt securities or products excluded from securities laws.

Key points


  • Regulations do not apply because of ongoing legal exception


  • Regulations do not apply because the item or entity is not the subject of the law

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