General Securities Sales Supervisor (Series10) Practice Exam

When can a company under Regulation S sell securities without SEC registration?

1. When sold only to accredited U.S. investors

2. When sold to foreign corporations only

3. When sold to non-U.S. residents

4. When the issuer asserts registration is too costly

The correct answer is: When sold to non-U.S. residents

A company can sell securities under Regulation S without SEC registration primarily when the securities are offered and sold to non-U.S. residents. Regulation S is designed to facilitate offshore offerings, allowing companies to raise capital from international investors without needing to comply with the registration requirements that would apply in the United States. This regulation is crucial for ensuring that U.S. laws do not impede foreign investment and allows companies to tap into global markets. Selling to non-U.S. residents means that the transaction falls outside the jurisdiction of U.S. securities laws, which is a fundamental premise of Regulation S. Therefore, it provides a streamlined process for companies looking to offer securities to foreign entities or individuals, so long as those securities are not targeted at U.S. investors. This aspect helps delineate the boundaries of U.S. regulatory reach in international transactions, promoting greater access to capital for issuers. The other choices imply certain conditions that do not constitute a valid basis under Regulation S for selling securities without SEC registration. For example, selling only to accredited U.S. investors or foreign corporations would still be subject to SEC regulations, while asserting that registration is too costly does not qualify as a legitimate exemption.