HR7127-119

What This Bill Does

The Restoring the Secondary Trading Market Act amends Securities Act section 18, the federal preemption provision for covered securities. It adds a new category of state-law preemption for off-exchange secondary trading in securities of an issuer that makes current information publicly available.

The covered current information can include periodic and current reports under Regulation A rule 257(b) or the documents and information specified in Exchange Act rule 15c2-11(b). If those public-information conditions are met, states may not directly or indirectly prohibit, limit, or impose conditions on off-exchange secondary trading in those securities.

The practical effect is to make it easier for qualifying securities to trade in secondary markets outside national exchanges, while limiting state securities regulators' ability to impose separate conditions on those trades.

Who Benefits and How

Issuers with current public information benefit because their securities can become easier to trade outside exchanges. Broker-dealers facilitating off-exchange trades benefit from fewer state-law restrictions. Secondary-market trading platforms benefit from clearer federal preemption for qualifying securities. Investors seeking liquidity in qualifying securities benefit if secondary trading becomes easier. Capital-formation advocates benefit if better resale liquidity makes exempt or smaller-company offerings more attractive.

Who Bears the Burden and How

State securities regulators lose authority to prohibit, limit, or condition covered off-exchange secondary trades. Investor-protection advocates may bear a policy burden if state-level review is reduced. Investors in less-followed securities may face more trading risk if federal public-information thresholds are not enough to substitute for state conditions. SEC staff may need to define off-exchange secondary trading and monitor interaction with rule 257 and rule 15c2-11 information requirements.

Key Provisions

• Adds federal preemption for off-exchange secondary trading of qualifying securities.
• Requires the issuer to make current information publicly available.
• Uses Regulation A periodic and current reports as one qualifying information route.
• Uses Exchange Act rule 15c2-11 documents and information as another qualifying route.
• Prohibits states from directly or indirectly limiting or conditioning covered off-exchange secondary trades.
• Reduces state blue-sky authority over qualifying secondary-market transactions.