What are blue sky laws?

 

A: “Blue sky” laws refer to the rules that have been passed by each state to regulate the securities industry. These rules are designed to regulate broker-dealers, securities, brokers, investment advisors and financial planners. Each state has an agency, frequently known as the Securities Commission, which oversees the blue sky law.

Blue sky laws are meant to protect the public from securities fraud.  These rules may vary among the states, but  the laws generally mandate that securities offerings and sales be registered.  Blue sky laws also require the registration of brokers, investment advisors, brokerage firms and anyone else who sells securities.

Generally, blue sky laws require that the brokerage firm, broker and the security be registered before a transaction occurs.