Abstract

State securities laws—in particular, state laws requiring that securities offered by issuers be registered with the states—have been an impediment to the efficient movement of capital to its highest and best use. The pernicious effects of these laws—generally referred to as “blue sky laws”—have been felt most acutely by small businesses, a vital component of our national economy.

It has been difficult to remedy this problem. States and state regulators have been tenacious in protecting their registration authority from federal preemption. The Securities and Exchange Commission, on the other hand, has been reluctant to advocate for preemption and unwilling to exercise its delegated power to expand preemption by regulation.

In recent years some progress has been made toward a more efficient regulation of capital formation, principally as a result of some congressional preemption of state registration authority. Nonetheless, state registration provisions continue to impede significantly businesses’—especially small businesses’—efficient access to external capital.

Further gains in efficient regulation of capital formation can be achieved but require actions both by states and the federal government. States must allocate more resources and effort toward vigorous enforcement of their antifraud provisions. At the federal level, Congress must preempt completely state registration authority. This duty of preemption falls to Congress, because the Commission has shown a sustained unwillingness to exercise its broad, delegated power to preempt state registration authority.

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