National Securities Markets Improvement Act of 1996 and Blue Sky Preemption

• Publication year: 1997
• Pages: 33
• Citation: Vol. 26 No. 4 Pg. 33

26 Colo.Law. 33 Colorado Lawyer 1997.

1997, April, Pg. 33. National Securities Markets Improvement Act of 1996 and Blue Sky Preemption

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33

Vol. 26, No. 4, Pg. 33

The Colorado Lawyer
April 1997
Vol. 26, No. 4 [Page 33]

Specialty Law Columns
Business Law Newsletter
National Securities Markets Improvement Act of 1996 and Blue Sky Preemption
by Allen E.F. Rozansky

Column Ed.: David P. Steigerwald of Sparks Dix, P.C Colorado Springs - (719) 475-0097

This newsletter is prepared by the Business Law Section of the CBA to apprise members of the Bar of current information concerning substantive law. This month's article was written by Allen E. F. Rozansky, Denver, an associate with Fredlob Sanderson Raskin Paulson & Tourtillott, LLC (303) 571-1400

In regulating the securities markets, the federal and state governments have long struggled to balance the goal of marketplace efficiency with the goal of protecting inves-tors. These goals are, however, often contradictory: greater protection for inves-tors may reduce the efficiency of the capital formation process. The National Securities Markets Improvement Act of 1996 ("NSMIA")1 is the latest effort at striking the proper balance, containing a number of significant reforms to the federal securities laws, including:

1) the elimination of state regulation of certain types of securities offerings;

2) the preemption of state regulation of larger, more significant investment advisers;

3) the limitation of the states' authority over broker-dealers;

4) the amendment of the Investment Company Act of 1940 ("ICA")2 and the Investment Advisers Act of 1940 ("IAA")3; and

5) the reduction of the fees charged by the Securities and Exchange Commission ("SEC").

Most provisions of the NSMIA became effective on the date of enactment, October 11, 1996; the amendments to ICA *§ 3(c) and the IAA are effective on April 9, 1997. Although the NSMIA is too broad to be covered comprehensively in this article, one aspect - the elimination of state regulation of certain securities offerings - is of particular importance to the practitioner and will be the focus of this article.

Need for Reform

States have regulated the offer and sale of securities since the early twentieth century.4 Today, all fifty states, the District of Columbia, Puerto Rico, Guam, and the Virgin Islands have adopted Blue Sky laws, each with its own peculiarities and regulatory complexities.

In hearings on the NSMIA, the House-Senate Conference Committee observed, "Securities offerings and the brokers and dealers engaged in securities transactions are all currently subject to a dual system of regulation that, in many instances, is redundant, costly, and ineffective."5 The desire to reform the securities laws was echoed during Congressional testimony by several organizations, including the Securities Industry Association, the North American Securities Administrators Association, and the Public Securities Association.6 The Chairman of the Securities and Exchange Commission ("SEC") also commented on the need to reorganize the current system of securities regulation:

The current system of dual federal-state regulation is not the system that Congress or the Commission would create today if we were designing a new system. . . . The current scheme of federal-state regulation is particularly onerous for investment companies, which are extensively regulated by the Commission, and whose business is fundamentally national in nature.7

Congress was careful to balance this glaring need for reform with the need to protect investors and the capital markets In presenting the NSMIA, the Con-ference Committee stressed...