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Merit Regulation
Kansas Pioneered Merit Regulation
Kansas pioneered merit regulation in 1911 when the first comprehensive securities act was passed by the Kansas Legislature and became law on March 15 of that year. Several states and Canadian provinces followed with enactment of similar laws shortly thereafter and 22 years later the United States enacted the federal Securities Act of 1933. However, the federal securities laws do not include substantive merit requirements, but require only that securities offerings include full disclosure of all material facts in an offering of securities.

For more of the history of the first Kansas securities law and why it and other states’ laws are referred to as Blue Sky laws, please go to the History page on our website.

Merit Provisions
The merit provisions in the 1911 Kansas Blue Sky law consisted of a section that gave the commissioner broad authority to determine whether the plan of business of an issuer was fair, just and equitable or whether any aspects were judged to be unfair, unjust, inequitable or oppressive by the commissioner.

The modern Kansas Uniform Securities Act (KUSA) includes the same unfair, unjust or inequitable language under K.S.A. 17-12a306(a)(7)(C) as grounds for denial, suspension or revocation of a securities registration. However, KUSA further requires specific standards to be published in regulations for defining conduct or terms that are deemed unfair, unjust, inequitable or would otherwise tend to work a fraud on purchasers. The specific standards are published under K.A.R. 81-7-1 and K.A.R. 81-7-2, in which various NASAA statements of policy were adopted by reference.

In order to register securities in Kansas and a majority of other states, fairness criteria must be met in addition to full disclosure of all material facts that investors need to make an informed investment decision. Registration with the Securities and Exchange Commission (SEC), however, is possible with unfair, unjust or inequitable terms as long as there is full disclosure of such terms of the offering or plan of business of the issuer.