State Securities Laws & Regulations
This is the largest and most heavily tested area of the Series 66, roughly 45% of the exam. It combines the state-law framework of the Uniform Securities Act (USA) with the federal framework of the Investment Advisers Act of 1940 (IAA 1940) and NASAA model rules. You must know who has to register (broker-dealers, agents, investment advisers, and IARs) and who is excluded or exempt; how securities themselves get registered; the difference between exempt securities and exempt transactions; the powers and reach of the state Administrator under USA §§407–414; the federal-versus-state split created by the National Securities Markets Improvement Act (NSMIA); and the fiduciary and ethical duties an adviser owes a client. Antifraud authority is the thread that runs through everything: even when a security or transaction is exempt from registration, it is never exempt from the antifraud provisions.
Registration of BDs, Agents, IAs, and IARs
The USA regulates four categories of persons, and the exam expects you to separate them cleanly. A broker-dealer (BD) is a person in the business of effecting securities transactions for its own account or for others. An agent is an individual who represents a BD or an issuer in effecting those transactions; note that only individuals are agents, and clerical or purely ministerial employees who never take orders or solicit are excluded from the definition. An investment adviser (IA) is a firm in the business of giving securities advice for compensation, and an investment adviser representative (IAR) is the individual who does that advising, solicits clients, or supervises those who do. Whether a firm registers with the state or with the SEC turns on the federal-versus-state divide created by NSMIA. Advisers with assets under management (AUM) of $110 million or more must register federally with the SEC as "federal covered" advisers; those under $100 million register with the states. Between $100M and $110M there is a buffer band where the adviser may choose, which prevents constant re-registration as markets move AUM up and down. A mid-sized adviser (typically $25M–$100M) generally registers with the state. Crucially, a federal covered adviser is not beyond state reach: states retain antifraud authority and may require a notice filing and fee, plus state registration of the adviser's IARs who have a place of business in the state. Exclusions and exemptions reduce the registration burden. A BD with no place of business in a state may avoid state registration when it deals exclusively with institutional clients, other BDs, or issuers, or when its only in-state clients are existing customers on vacation or temporarily present. A de minimis exemption lets an out-of-state IA with no in-state office serve five or fewer retail clients in a twelve-month period without registering. Agents of exempt issuers (for example, U.S. government or municipal securities) may themselves be exempt from agent registration. Always distinguish an "exclusion" (you are outside the definition entirely) from an "exemption" (you fit the definition but are relieved from registering).
Methods of Securities Registration
Beyond registering people, the securities themselves must be registered in a state unless they are federal covered, exempt securities, or sold in an exempt transaction. The USA provides three methods, and the exam wants you to match each method to the type of issuer that uses it. Registration by coordination is the workhorse for issuers making an interstate public offering. The issuer files its federal registration statement under the Securities Act of 1933 with the SEC and simultaneously files with the state. Because the two filings run in parallel, state effectiveness is timed (coordinated) to become effective at the same moment the SEC declares the federal registration effective, provided the state's minimum waiting period and required documents are satisfied. This is efficient for firms doing a national IPO. Registration by qualification is the most burdensome method and the default when no federal registration is involved, such as a purely intrastate offering. The issuer must supply a full slate of financial and business disclosures, and the registration becomes effective only when the Administrator so orders. Because there is no federal filing to piggyback on, the state controls timing entirely. Registration by filing (also called notification, where available) is a streamlined method historically reserved for seasoned, established issuers with a track record, letting them file abbreviated information. Federal covered securities, by contrast, do not go through any of these state methods at all: under NSMIA the state may only require a notice filing and a fee. Federal covered securities include exchange-listed securities, securities senior to them from the same issuer, and investment company shares registered under the Investment Company Act of 1940. A vital exam point: registration in any form never means the Administrator approved the offering's merits, judged it a good investment, or guaranteed its value. Telling a client otherwise is a prohibited misrepresentation of the effect of registration.
Exempt Securities vs. Exempt Transactions
This distinction is one of the most reliably tested ideas on the Series 66, and the key is to ask what earns the exemption. An exempt security is exempt because of the nature of the issuer or the security itself, so the exemption travels with the security no matter how many times it trades. Classic exempt securities include U.S. government and agency securities, municipal bonds, securities issued by banks and savings institutions, securities of insurance companies, and certain securities of nonprofit, religious, and educational organizations. Because the exemption attaches to the security, the issuer's public offering need not be registered in the state. An exempt transaction, by contrast, is exempt because of the manner or circumstances of the particular sale, not because of what is being sold. The exemption applies to that one transaction only. Common examples include an isolated non-issuer transaction (an ordinary secondary trade not made by the issuer), unsolicited customer orders, private placements meeting the USA's limits on the number of non-institutional offerees, transactions with institutional buyers such as banks and insurance companies, transactions with fiduciaries such as executors and trustees in bankruptcy, and transactions between an issuer and an underwriter. Because the exemption is transaction-specific, the same security could be sold in a registered public offering at another time. Watch two frequent traps. First, a fixed whole life insurance policy or a fixed annuity is generally excluded from the definition of a security altogether, whereas variable annuities and variable life are securities and are regulated as such. Second, and most important, every one of these exemptions relieves only the registration requirement. The antifraud provisions of the USA (and of federal law) apply to all persons and all transactions, exempt or not. An agent who lies about a municipal bond has committed fraud even though the bond is an exempt security. The Administrator may also, by rule or order, revoke a transaction exemption if it is abused.
Administrator Powers and Civil Liability
The state Administrator is the securities regulator (often a division of the Secretary of State or a dedicated commissioner), and USA §§407–414 spell out its powers. The Administrator may deny, suspend, cancel, or revoke the registration of a person or security for statutory cause, but only if doing so is in the public interest and a specific enumerated ground exists. Grounds include a securities-related felony or any felony within the past ten years, filing a false or misleading application, willful violations of the Act, insolvency, and being enjoined from the securities business. These sanctions require notice, an opportunity for a hearing, and written findings; the Administrator cannot revoke a registration on a whim. To enforce the law the Administrator may investigate (in-state or out-of-state), issue subpoenas for witnesses and documents, administer oaths, and issue cease-and-desist orders. A cease-and-desist order may be issued with or without a prior hearing to stop an ongoing or threatened violation, but the Administrator cannot by itself impose criminal penalties or issue injunctions; it must refer matters to a court for those. Jurisdiction under §414 reaches any offer or sale that originates in the state, is directed into the state, or is accepted in the state, capturing calls made from, to, or answered within its borders. Bona fide newspaper and broadcast media distributed generally are given a jurisdictional carve-out. Civil liability protects defrauded investors. A purchaser who buys a security sold in violation of the Act may sue to recover the consideration paid plus interest at the state rate, plus costs and reasonable attorney's fees, less any income already received on the security (a right of rescission). If the buyer has already sold, damages are measured similarly. The USA sets a statute of limitations, commonly the earlier of two years after discovery or three years after the sale, so the exam may test that a stale claim is barred. Sellers can sometimes cure a violation by making a written offer of rescission before suit.
Ethical Practices & Fiduciary Obligations
The Investment Advisers Act of 1940 and NASAA model rules impose a fiduciary standard that is stricter than the standard historically applied to brokers. An investment adviser owes each client an ongoing duty of loyalty and a duty of care: it must place the client's interests ahead of its own, provide advice that is in the client's best interest, seek best execution, and fully and fairly disclose all material conflicts of interest. The Supreme Court's reasoning in SEC v. Capital Gains Research Bureau, together with SEC Release IA-1092, establishes that non-disclosure of a material conflict is itself fraud, even without intent to harm. This is why an adviser that also earns commissions, or that recommends an affiliate's product, must disclose that conflict prominently. Disclosure is delivered through Form ADV. Part 2A, the firm brochure, and Part 2B, the brochure supplement, must be delivered to a client at or before entering the advisory contract. Under the SEC's rule for federal covered advisers, if the brochure is not delivered at least 48 hours before signing, the client must be given a two-business-day window to cancel the contract without penalty; NASAA's model rule for state advisers is similar. The brochure must also be delivered or offered annually. Advisory contracts may not be assigned to another firm without the client's consent, and for a partnership adviser a change in a majority of partners is deemed an assignment requiring notice. Under IAA §205, adviser contracts must be in writing and may not charge fees based on a share of capital gains or appreciation, except performance-based fees charged to "qualified clients" who meet a net-worth or AUM threshold that is periodically inflation-adjusted (verify the current figure). Prohibited and unethical practices include churning (excessive trading to generate commissions), selling away, guaranteeing a client against loss, exercising discretion without prior written authorization, borrowing from or lending to non-institution clients, and commingling client and firm assets. Custody of client funds or securities triggers heightened rules: the adviser must use a qualified custodian, ensure clients receive account statements at least quarterly, and (for state advisers) meet minimum net capital or bonding and undergo a surprise verification.
Last updated: September 2026
Practice stays free. The full NASAA Series 66 (Uniform Combined State Law) study guide is the material itself, taught start to finish — a downloadable PDF + EPUB you keep.