What Is a Non-Issuer Transaction?
Let me explain what a non-issuer transaction is: it's a deal involving a security that isn't directly or indirectly done for the benefit of the company that issued it. You'll see most of these on the secondary market, like stock exchanges, but things like secondary offerings or share buybacks do involve the issuer, so they don't count.
Key Takeaways
- A non-issuer transaction is the purchase or sale of securities without the issuer's involvement.
- An isolated non-issuer transaction is an ad-hoc exchange between two private parties, often over-the-counter, and it's exempt from registration.
- Non-issuer transactions with outstanding securities mainly refer to trades on secondary markets among counterparties, excluding the issuer.
Understanding Non-Issuer Transactions
You should know that isolated non-issuer transactions are exempt from the SEC's registration requirements. For example, if you sell 100 shares of XYZ stock to a family member, that deal doesn't need registration.
But once you make that sale, you technically become a non-issuer broker-dealer. That's someone who doesn't issue securities or plan to, but buys and sells them for their own account or for customers. Regulations are lighter for these non-issuer broker-dealers, though they're restricted in what they can do to keep that status legally.
Auditors and Non-Issuer Broker-Dealers
If you're auditing a non-issuer broker-dealer, you must be registered with the PCAOB by the date of your report. I recommend starting the registration process right away. Non-public broker-dealers, contact the SEC’s Division of Trading and Markets if you need to discuss your situation.
You also have to comply with Exchange Act Rule 17a-5(f)(3), which requires independence under §210.2-01(b) and (c). However, you're not subject to the partner rotation or compensation rules in §210.2-01(c).
Types of Exempted Non-Issuer Transactions
Let's break down the types. First, isolated non-issuer transactions: states define 'isolated' locally, but it means non-recurring. Say you move to Idaho with stock certificates from Tennessee that aren't registered there; you can sell them to your neighbor without registration because you're not the issuer and it's isolated.
Then there's non-issuer transactions in outstanding securities, often called the 'manual exemption.' This applies if the issuer is current on SEC financial reporting, not in financial trouble, and not a blind pool or shell corporation. The securities must have been public for at least 90 days, making the transaction exempt.
