Issuer Services
Blue Sky Laws A Guide for Issuers
In addition to U.S. federal securities regulations, blue sky laws are state securities laws designed to protect investors against fraudulent sales practices and activities. The term ‘blue sky’ comes from a statement made by a Kansas Supreme Court justice about “speculative schemes which have no more basis than so many feet of blue sky.” In 1956, with the passage of the Uniform Securities Act, a template was established that most states follow today in drafting their respective laws.
Overview: among other national exchanges Unsolicited Transactions: While blue sky laws vary from state with equivalent listing standards, An exemption to state laws is available to state, most typically require as defined by the SEC. Equivalent if brokers receive unsolicited buy or sell companies offering or selling securities (rights and warrants) requests directly from clients. However, securities, including American and related senior securities (debt the broker has to ask each customer to Depositary Receipts (ADRs), to register and preferred shares) are also acknowledge in writing the unsolicited them before they can be eligible for considered exempt. nature of their order and maintain such purchase in a particular state, unless records in case of a legal dispute. Due 2. Securities issued by 1940 Act a specific state exemption is available. to this burden, some broker-dealers registered investment companies. The laws also license brokerage firms, simply avoid non-exempt securities. their brokers and investment adviser 3. Specific securities issued by the representatives to participate in Government/Federal Reserve, Manual Exemption: transactions in the respective states. securities issued by an out-of- A more concrete blue sky exemption Assuming the brokers involved in a state municipal issuer, and private exists for secondary market transaction meet the state’s licensing transactions covered under transactions (i.e., excluding new requirements, the following are the Regulation D of the Securities issuances) under a ‘manual exemption’ different ways issuers can achieve Act of 1933. clause accepted by most states. This relief from compliance with additional allows transactions in non-registered state registration requirements. Based on the above exemptions, securities including Level 1 ADRs the only Depositary Receipt securities if the issuer publishes information Exemptions for “Federally Covered that would require blue sky compliance in a nationally recognized manual, Securities” (“NSMIA”): in different states are certain OTC- such as Mergent. Specifically, the In 1996 Congress enacted the National traded securities including Level 1 publication should include information Securities Market Improvement Act ADRs, because they are not traded on the issuing company’s executive (NSMIA) to promote capital market on an exempt exchange or platform. structure (officers and directors) along efficiency and delineate where federal For these securities, state regulation with the balance sheet and income law supersedes state law in terms of compliance or an exemption are statement for either the current year regulating securities. Specifically, this needed to be able to offer securities or the preceding year. All states and law established ‘federally covered’ to each state’s residents. Without them, territories, except Alabama, Illinois, securities that are exempt from state liquidity could be hampered due to a Kentucky, Louisiana, New York, compliance requirements, such as: restricted investor base. However, Pennsylvania, Tennessee and Virginia, there is relief for Level 1 issuers recognize the manual exemption in 1. Securities listed on the New York based on the following additional some form. Stock Exchange, Nasdaq Stock exemption criteria. Market and Chicago Stock Exchange, Issuer Services
Further relief is available to the issuer DRs as an effective capital markets For more information contact us at: for the following states: tool. Citi began offering DRs in 1928 Issuers and today is widely recognized for 1. Illinois — Foreign Private Issuers Asia Pacific providing issuers with its powerful are considered exempt from state Valentina Chuang global platform, facilitating access to registration requirements if they +852-2868-7959 a global network that issuers can use are Rule 12g3-2 (b) compliant, [email protected] to build and grow their DR program. (a prerequisite for establishing an unsponsored ADR program). Europe, Middle East and Africa In support of a depositary receipt Ayden Dagg 2. New York — All Securities including program, Citi Depositary Receipt +44-20-7500-5709 ADRs sold by a state-registered Services provides issuers with access [email protected] broker-dealer are considered to the following value-added resources: automatically exempt. • Global sales and equity distribution Latin America network with access to large and Michael C. Morcom For further details on each state’s mid-tier institutional investors. +1-212-816-6653 stance on manual exemptions, refer [email protected] to this link: Manual Exemptions • Dedicated Account Management team — enabling a single point of contact North America As of July 2020, the OTCQX Market for comprehensive support. Ganesh A. Sarpotdar has Blue Sky status in 37 states and • Specialized Structuring and +212-816-6783 the OTCQB Market in 33 states. The Implementation team that facilitates [email protected] states are: Alaska, Arkansas, Colorado, the efficient execution of transactions. Connecticut, Delaware, Georgia, Intermediaries and Investors Hawaii, Idaho (OTCQX only), Indiana, • Innovative Product Management team North America Iowa, Kansas (OTCQX only), Kentucky, to develop solutions for enhanced Michael O’Leary Louisiana, Maine, Michigan, Minnesota, access to markets and investors. [email protected] Mississippi, Missouri, Nebraska, New • Investor Relations (IR) counsel — a Jersey, New Mexico, North Dakota, Jason Zoppel team of former in-house corporate Ohio, Oklahoma, Oregon, Pennsylvania, [email protected] IR executives who consult and support Rhode Island, South Dakota, Tennessee, clients in all aspects of their global Texas, Utah, Vermont (OTCQX only), Europe, Middle East and Africa IR objectives. Virginia (OTCQX Only), Washington, Michael Woods West Virginia, Wisconsin and Wyoming. [email protected] Citi’s commitment to provide issuers All these states except for Kansas and with access to a comprehensive suite Vermont also recognize the OTCQB Group Email: of value-added resources, including a Venture Market under the manual [email protected] combination of global reach and local exemption. expertise, access to an industry-leading Bloomberg: global equity distribution network and About Citi’s Depositary Receipt Services: ADRC
Issuer Services citi.com/icg/bcma © 2021 Citibank, N.A. All rights reserved. Citi and Arc Design is a registered service mark of Citigroup Inc. The above information is being provided solely for information purposes by Citi. At the time of publication, this information was believed to be accurate, but Citi makes no representation or warranty as to correctness of the information set forth above. The above information does not constitute a recommendation, solicitation or offer by Citi for the purchase or sale of any securities, nor shall this material be construed in any way as investment or legal advice or a recommendation, reference or endorsement by Citi. Parties should consult with their own legal or tax advisors as to the implications of this information for their own circumstances. IRS Circular 230 Disclosure: Citigroup Inc. and its affiliates do not provide tax or legal advice. Any discussion of tax matters in these materials (i) is not intended or written to be used, and cannot be used or relied upon, by you for the purpose of avoiding any tax penalties and (ii) may have been written in connection with the “promotion or marketing” of any transaction contemplated hereby (“Transaction”). Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor. 2012709 02/21