The Uniform Securities Act of 2002

By Philip A. Feigin*

[*Disclaimer: I worked on the drafting of the Uniform Securities Act of 2002 both as Executive Director of the North American Securities Administrators Association and as counsel to the Association. Even so, for purposes of this article, the opinions, facts and impressions are solely my own, and even I may disavow them if any get me in trouble.]

Most practitioners of "blue sky" law either remember or have heard graying others relate the sorry tale that was the Revised Uniform Securities Act of 1985 (RUSA). Back then, I was a state securities regulator from Colorado, and became involved in the RUSA drafting process near its conclusion. In drafting the Colorado Securities Act of 1990, we borrowed RUSA's much-improved format (over the Uniform Securities Act of 1956USA) and a provision here and there. Several states "cherry-picked" from RUSA, and a few other states actually adopted it with some modifications. Generally speaking, however, RUSA was doomed to failure and now sits right up there on the shelf with the Federal Securities Code.

The securities world changed in 1996 with the adoption of the National Securities Markets Improvement Act (NSMIA). NSMIA imposed many sea changes in the fabric of state securities regulation, many of which, ironically, were foreseen in RUSA. State securities registration regulation was preempted for securities listed for trading on a recognized exchange, traded on the NASDAQ National Market System or issued by registered investment companies, and most securities and many transactions exempt under the Securities Act of 1933. The states' regulation of broker-dealers and agents was left relatively unscathed, except that the states had to live with the books and records requirements imposed by the Securities and Exchange Commission (SEC). The regulation of investment advisers was revolutionized, with the larger advisory firms (>$25 million under management) left exclusively to the SEC, most smaller firms (The states and the North American Securities Administrators Association (NASAA) had been adopting (unofficial) amendments to the USA for years, without the aegis of, objection, or any reaction from the National Conference of Commissioners on Uniform State Laws (NCCUSL), the outfit whose mission it is to promulgate uniform state laws. NCCUSL is generally unaccustomed to dealing in laws that are administered on an ongoing basis by state regulators, and even less so an act that is part of a complex regulatory environment with numerous federal statutes, self-regulatory organizations and a host of different regulators. In response to NSMIA, the states and NASAA reacted with remarkable speed, and within the next two years or so, most states had revised their laws, rules and regulations to conform to the new regulatory regime.

Those who championed NSMIA in 1996 were not done yet. By 1999, then Senator Phil Gramm, chairman of the Senate Banking Committee, was working on the Securities Markets Enhancement Act (SMEA), holding discussions with various interested groups to gather ideas for what was to amount to NSMIA II. Many suggestions were forthcoming. By this time, I was the executive director of NASAA in Washington, D.C., and in this new capacity, I was forced to grapple with responses to each of them. In the face of SMEA and other legislative trial balloons, and in the midst of one of the most exuberant securities market run-ups in decades, NCCUSL announced it was launching an effort to draft a new Uniform Securities Act.

At first, there was much skepticism among those who were to participate in the drafting process. Several of the NCCUSL Commissioners involved in the RUSA drafting process returned to serve as members of the new Act drafting committee, as did several veterans from the states and the American Bar Association (ABA). Despite their many scars from past battles, fortunately, there was a new camaraderie, born of the familiarity of working together on numerous issues over the intervening years as well as a significantly altered regulatory landscape. Unlike the RUSA experience, which dealt mostly with securities registration, investment company and investment adviser issues, brokerage regulation would be very much in play in the new USA (NUSA), and the industry was well represented by the Securities Industry Association (SIA). Many other interested groups participated during the deliberations of the group as well. There can be no question that the reporter for the drafting effort, Joel Seligman, Dean of the Washington University School of Law in St. Louis, was a driving and crucial force in the process as was the persistent leadership, patience, acumen and judgment of Richard Smith, who chaired the committee's efforts, and Justin Vigdor, as vice chair.

After four years of meetings and conference calls, and more paper than anyone would care to admit, NUSA was adopted by NCCUSL in Tucson, Arizona, in August of 2002. Subsequently, it has been endorsed or blessed in one way or another by NASAA, the ABA, the SIA, the New York Stock Exchange, the NASD, the Investment Company Institute (ICI) and the Investment Counsel Association of America (ICAA). It has already been introduced as legislation in several states and adopted, for the most part intact, in Missouri and Oklahoma as of the date of this article.

For the private practitioner, the immediate question is "What's it mean to me?" Having participated in every...