What defines an "exempt security"?

An "exempt security" is characterized by the fact that it is exempt from the typical registration process mandated by securities laws, notably those overseen by the Securities and Exchange Commission (SEC). However, despite this exemption from registration, these securities are still required to adhere to anti-fraud provisions. This means that even if they do not need to go through the lengthy and costly registration process, the issuer cannot engage in misleading or fraudulent practices when selling the security.

This exemption often applies to certain types of securities, such as those issued by government entities or specific types of private offerings, emphasizing the importance of transparency and fairness in the financial markets. It's crucial to understand that while these securities are treated differently regarding registration requirements, investor protection laws remain in place to prevent fraud, maintaining market integrity.