Blue sky laws or blue sky securities law collectively denote the securities rules and regulations of different states or jurisdictions. These state blue sky laws are in addition to the federal securities law. In order to protect the investing public from fraud, these laws require registration of securities and offerings in the concerned state of sale or issue of such securities as well as registration of brokerage or brokerage firms in the state of functioning. Each state has its own regulatory agency, called the state Securities Commissioner, to enforce the state securities law.
The blue sky laws of 40 out of 50 states have borrowed in varying degrees from the Uniform Securities Act of 1956. Nevertheless, the blue sky statutes vary widely across different states or jurisdictions with very little uniformity or standardization of norms.
While the federal securities law is for ensuring transparency and disclosure in the securities market to assist the investor in informed decision making; the state securities or blue sky laws focus on anti fraud measures and registration of securities and brokers within the respective jurisdictions. Federal and state security laws were complementary to each other but historically in course of functioning these often overlapped each other, particularly for securities sold or offered on national basis and brokers operating on a national scale across multiple states.
To address the issue of such duplication and overlapping domains, the Congress had passed the National Securities Market Improvements Act (NSMIA) of 1956. These provisions comprise the federal blue sky laws. The NSMIA shifted the matter of registration of mutual fund shares and securities sold or offered on national basis and the regulation of brokers operating on a national scale from the ambit of the state authorities to domain of the Securities and Exchange Commission. Breach of these provisions has consequences similar to violation of federal securities law.