by Robert N. Rapp
NASAA signals a newly
aggressive effort to preserve and expand investor protection authority in the
face of continuing pushes for preemption and marginalization of state
securities regulation in the United States.
On September 11, 2012,
leadership of the North American Securities Administrators Association (NASAA),
which is the association of state, provincial and territorial securities
regulators in the United States, Canada and Mexico, signaled a newly aggressive
effort to preserve and expand investor protection authority in the face of
continuing pushes for preemption and marginalization of state securities
regulation in the United States. In a rapidly changing regulatory environment,
and faced with increasingly complex markets, state securities regulators look
to enhance their position, arguing that they are the most appropriately
aggressive, reasonable and unbiased securities regulator. State regulators will
seek to persuade lawmakers that state securities regulation presents the best
option to promote capital formation, while at the same time maximizing safe and
secure investing for consumers.
Federal/State Securities Regulation
Securities regulation in the United States involves a dual federal and state
structure. State "Blue Sky Laws" first emerged early in the Twentieth
Century, and have from their inception been aimed at protecting main street
investors from fraud and abuse in the offer and sale of securities, and
policing the conduct of investment intermediaries through licensing and tough
enforcement authority. Federal securities laws came later, as part of the New
Deal legislative initiatives that produced, among others, the Securities Act of
1933 and the Securities Exchange Act of 1934. At the baseline, state and
federal securities laws have always shared the same investor protection
mission, although with very different philosophies that over time and the
evolution of national financial markets produced inefficiencies and tension in
the simultaneous operation of both regulatory systems.
In 1996, Congress took a major step to realign state and federal securities
regulatory roles in the national market context. Congress preempted certain
state authority to regulate securities offerings and transactions that are
national in character, and prescribed some limits on state authority in other
areas of securities regulation. Importantly, however, state enforcement
authority regarding fraud, and state intermediary licensing authority, were
preserved in all settings, and states retained full authority to regulate
certain securities offerings, as, for example, those made in an entirely
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Robert N. Rapp is a partner in the Capital Markets Regulatory,
Enforcement and Litigation practice at Calfee, Halter & Griswold
LLP, Cleveland, Ohio. His contributions to legal scholarship include
numerous published articles addressing securities and financial market
regulatory topics, many of which have been cited by state and federal
courts, including the United States Supreme Court. He has served on the
adjunct faculty of the Case Western Reserve University School of Law,
and as Distinguished Practitioner in Residence at the Cornell Law
School. Mr. Rapp is a former member of the NASD Legal Advisory Board,
and is currently a public member of the Market Operations Review
Committee of the Nasdaq Stock Market. He has twice served as Public
Chair of the Enforcement Advisory Committee of the Ohio Department of
Commerce, Division of Securities. A graduate of Case Western Reserve
University (B.A., 1969) and the Case Western Reserve University School
of Law (J.D., 1972), Mr. Rapp also holds a Masters of Business
Administration from the Cleveland State University School of Business
(1989). Mr Rapp authors Matthew Bender's Blue Sky Regulation and is a
contributing author to Federal Securities Act of 1933.