Introduction.
The Model State Commodity Code1 (the “Model Code”) was adopted by the NASAA2 in 1985 as a model law to be adopted by the states to address the fraudulent sale of commodities to the general public. The Model Code has been adopted in one form or another by 18 states, which will be addressed in this memorandum.3 The Uniform Securities Act (the “Uniform Act”) or other state securities laws of 6 additional states draw on the Model Code and include “commodity” within the definition of securities or address some form of commodity regulation, which will also be addressed in this memorandum.4
The Model Code defines code a “commodity” broadly to include: “any metal or mineral …, and all other goods, articles or products or items, but not numismatic coins, realty, or artwork,”5 and defines “numismatic coins” as “coins whose fair market value is at least 15% over the fair market value of the metal the coins contain.” This would be the major difference in regulations among the states for numismatics and bull ion, namely “numismatic coins” as defined above are not regulated by the states and bullion is so regulated.
The Model Code’s regulatory framework is to prohibit all commodities transactions except those that are specifically excluded or exempted. This prohibition states that: “[e]xcept as otherwise provided
… no person shall (a) sell or purchase or offer to sell or purchase any commodity (i) under any commodity contract or (ii) under any commodity option,6 or (b) offer to enter into or enter into as seller or purchaser any commodity contract or any commodity option.7 For the purposes of this rule, the term “commodity contract” includes any contract for the sale of any commodity for speculative or investment purpose,8 but excludes all transactions that provide for full physical delivery of the purchased commodity to the buyer9 within 28 days10 of payment of any part of the purchase price.11
The Uniform Act or other state securities laws of six states include “commodity” within the definition of securities or address some form of commodity regulation. These provisions draw from the Model Act and exclude numismatic coins from the definition of “commodity” and exempt from the Uniform Act’s registration and enforcement provisions sales in which commodities, including bullion, are delivered within 28 days.
The remaining states and the District of Columbia do not regulate the retail sales of commodities in general or precious metals in particular either pursuant to the Model Act, the Uniform Act or other state securities laws, apparently leaving it to the purview of the federal government.12
Survey of States that have adopted the Model Code.
California – Defines “commodity” generally and to exclude numismatic coins whose fair market value is at least 15% over the fair market value of the metal the coins contain. Excludes commodity transactions from both the definition of “commodity contract” and from the registration and enforcement provisions of the Model Act if full physical delivery of the precious metals is made within 28 days of payment of any part of the purchase price to either (i) the purchaser or (ii) an Authorized Depository. Also specific exemption from the registration and enforcement provisions of the Model Act for precious metals transactions if full physical delivery required, and made to an Authorized Depository, within 28 days of full payment, OR if agreement allows for partial payment, delivery of the quantity of metals purchased by the partial payment shall be made within 28 days to an Authorized Depository.
Colorado - Defines “commodity” generally and to exclude numismatic coins whose fair market value is at least 15% over the fair market value of the metal the coins contain. Excludes commodity transactions from both the definition of “commodity contract” and from the registration and enforcement provisions of the Model Act if full physical delivery of the precious metals is made within 28 days of payment of any part of the purchase price to either (i) the purchaser or (ii) an Authorized Depository. Also specific exemption from the registration and enforcement provisions of the Model Act for precious metals transactions if full physical delivery required, and made to an Authorized Depository, within 28 days of full payment, OR if agreement allows for partial payment, delivery of the quantity of metals purchased by the partial payment shall be made within 28 days to an Authorized Depository.
Georgia - Defines “commodity” generally and to exclude numismatic coins whose fair market value is at least 15% over the fair market value of the metal the coins contain. Excludes commodity transactions from both the definition of “commodity contract” and from the registration and enforcement provisions of the Model Act if full physical delivery of the precious metals is made within 28 days of payment of any part of the purchase price to either (i) the purchaser or (ii) an Authorized Depository. Also specific exemption from the registration and enforcement provisions of the Model Act for precious metals transactions if full physical delivery required, and made to an Authorized Depository, within 28 days of full payment, OR if agreement allows for partial payment, delivery of the quantity of metals purchased by the partial payment shall be made within 7 days to an Authorized Depository.
Idaho - Defines “commodity” generally and to exclude numismatic coins whose fair market value is at least 15% over the fair market value of the metal the coins contain. Excludes commodity transactions from both the definition of “commodity contract” and from the registration and enforcement provisions of the Model Act if full physical delivery of the precious metals is made within 28 days of payment of any part of the purchase price to either (i) the purchaser or (ii) an Authorized Depository. Also specific exemption from the registration and enforcement provisions of the Model Act for precious metals transactions if full physical delivery required, and made to an Authorized Depository, within 7 days of full payment, OR if agreement allows for partial payment, delivery of the quantity of metals purchased by the partial payment shall be made within 7 days to an Authorized Depository.
Indiana - Defines “commodity” generally and to exclude numismatic coins whose fair market value is at least 15% over the fair market value of the metal the coins contain. Excludes commodity transactions from both the definition of “commodity contract” and from the registration and enforcement provisions of the Model Act if full physical delivery of the precious metals is made within 28 days of payment of any part of the purchase price to either (i) the purchaser or (ii) an Authorized Depository. Also specific exemption from the registration and enforcement provisions of the Model Act for precious metals transactions if full physical delivery required, and made to an Authorized Depository, within 28 days of full payment, OR if agreement allows for partial payment, delivery of the quantity of metals purchased by the partial payment shall be made within 28 days to an Authorized Depository.
Iowa - Defines “commodity” generally and to exclude numismatic coins whose fair market value is at least 15% over the fair market value of the metal the coins contain. Excludes commodity transactions from both the definition of “commodity contract” and from the registration and enforcement provisions of the Model Act if full physical delivery of the precious metals is made within 28 days of payment of any part of the purchase price to either (i) the purchaser or (ii) an Authorized Depository. Also specific exemption from the registration and enforcement provisions ofthe Model Act for precious metals transactions if full physical delivery required, and made to an Authorized Depository, within 28 days of full payment, OR if agreement allows for partial payment, delivery of the quantity of metals purchased by the partial payment shall be made within 28 days to an Authorized Depository.
Maine - Defines “commodity” generally and to exclude numismatic coins whose fair market value is at least 15% over the fair market value of the metal the coins contain. Excludes commodity transactions from both the definition of “commodity contract” and from the registration and enforcement provisions of the Model Act if full physical delivery of the precious metals is made within 28 days of payment of any part of the purchase price to either (i) the purchaser or (ii) an Authorized Depository. Also, specific exemption from the registration and enforcement provisions of the Model Act for precious metals transactions if full physical delivery required and made to either (i) the purchaser or (ii) an Authorized Depository, within 7 days of full payment, OR if agreement allows for partial payment, delivery of the quantity of metals purchased by the partial payment shall be made within 7 days to an Authorized Depository.
Mississippi - Defines “commodity” generally and to exclude numismatic coins whose fair market value is at least 15% over the fair market value of the metal the coins contain. Excludes commodity transactions from both the definition of “commodity contract” and from the registration and enforcement provisions of the Model Act if full physical delivery of the precious metals is made within 28 days of payment of any part of the purchase price to either (i) the purchaser or (ii) an Authorized Depository. Also specific exemption from the registration and enforcement provisions of the Model Act for precious metals transactions if full physical delivery required, and made to an Authorized Depository, within 28 days of full payment, OR if agreement allows for partial payment, delivery of the quantity of metals purchased by the partial payment shall be made within 28 days to an Authorized Depository.
Missouri - Defines “commodity” generally and to exclude numismatic coins whose fair market value is at least 20% over the fair market value of the metal the coins contain. Excludes commodity transactions from both the definition of “commodity contract” and from the registration and enforcement provisions of the Model Act if full physical delivery of the precious metals is made within 28 days of payment of any part of the purchase price to either (i) the purchaser or (ii) an Authorized Depository. Also specific exemption from the registration and enforcement provisions of the Model Act for precious metals transactions if full physical delivery required, and made to an Authorized Depository, within 7 days of full payment, OR if agreement allows for partial payment, delivery of the quantity of metals purchased by the partial payment shall be made within 7 days to an Authorized Depository.
Nebraska - Defines “commodity” generally and to exclude numismatic coins whose fair market value is at least 15% over the fair market value of the metal the coins contain. Excludes commodity transactions from both the definition of “commodity contract” and from the registration and enforcement provisions of the Model Act if full physical delivery of the precious metals is made within 28 days of payment of any part of the purchase price to either (i) the purchaser or (ii) an Authorized Depository. Also specific exemption from the registration and enforcement provisions of the Model Act for precious metals transactions if full physical delivery required, and made to an Authorized Depository, within 28 days of full payment, OR if agreement allows for partial payment, delivery of the quantity of metals purchased by the partial payment shall be made within 28 days to an Authorized Depository.
Nevada - Defines “commodity” generally and to exclude numismatic coins whose fair market value is at least 15% over the fair market value of the metal the coins contain. Excludes commodity transactions from both the definition of “commodity contract” and from the registration and enforcement provisions of the Model Act if full physical delivery of the precious metals is made within 28 days of payment of any part of the purchase price to either (i) the purchaser or (ii) an Authorized Depository. Also specific exemption from the registration and enforcement provisions of the Model Act for precious metals transactions if full physical delivery required, and made to an Authorized Depository, within 7 days of full payment, OR if agreement allows for partial payment, delivery of the quantity of metals purchased by the partial payment shall be made within 7 days to an Authorized Depository.
New Mexico - Defines “commodity” generally and to exclude numismatic coins whose fair market value is at least 15% over the fair market value of the metal the coins contain. Excludes commodity transactions from both the definition of “commodity contract” and from the registration and enforcement provisions of the Model Act if full physical delivery of the precious metals is made within 28 days of payment of any part of the purchase price to either (i) the purchaser or (ii) an Authorized Depository. Also specific exemption from the registration and enforcement provisions of the Model Act for precious metals transactions if full physical delivery required, and made to an Authorized Depository, within 7 days of full payment, OR if agreement allows for partial payment, delivery of the quantity of metals purchased by the partial payment shall be made within 7 days to an Authorized Depository.
North Carolina - Defines “commodity” generally and to exclude numismatic coins whose fair market value is at least 15% over the fair market value of the metal the coins contain. Excludes commodity transactions from both the definition of “commodity contract” and from the registration and enforcement provisions of the Model Act if full physical delivery of the precious metals is made within 28 days of payment of any part of the purchase price to either (i) the purchaser or (ii) an Authorized Depository. Also specific exemption from the registration and enforcement provisions of the Model Act for precious metals transactions if full physical delivery required, and made to an Authorized Depository, within 7 days of full payment, OR if agreement allows for partial payment, delivery of the quantity of metals purchased by the partial payment shall be made within 7 days to an Authorized Depository.
North Dakota - Defines “commodity” generally and to exclude numismatic coins whose fair market value is at least 15% over the fair market value of the metal the coins contain. Excludes commodity transactions from both the definition of “commodity contract” and from the registration and enforcement provisions of the Model Act if full physical delivery of the precious metals is made within 28 days of payment of any part of the purchase price to either (i) the purchaser or (ii) Authorized Depository. Also specific exemption from the registration and enforcement provisions of the Model Act for precious metals transactions if full physical delivery required, and made to an Authorized Depository, within 28 days of full payment, OR if agreement allows for partial payment, delivery of the quantity of metals purchased by the partial payment shall be made within 28 days to an Authorized Depository.
Oregon - Defines “commodity” generally and to exclude numismatic coins whose fair market value is at least 15% over the fair market value of the metal the coins contain. Excludes commodity transactions from both the definition of “commodity contract” and from the registration and enforcement provisions of the Model Act if full physical delivery of the precious metals is made within 28 days of payment of any part of the purchase price to either (i) the purchaser or (ii) an Authorized Depository. Also specific exemption from the registration and enforcement provisions of the Model Act for precious metals transactions if full physical delivery required, and made to an Authorized Depository, within 7 days of full payment, OR if agreement allows for partial payment, delivery of the quantity of metals purchased by the partial payment shall be made within 7 days to an Authorized Depository.
South Carolina - Defines “commodity” generally and to exclude numismatic coins whose fair market value is at least 15% over the fair market value of the metal the coins contain. Excludes commodity transactions from both the definition of “commodity contract” and from the registration and enforcement provisions of the Model Act if full physical delivery of the precious metals is made within 28 days of payment of any part of the purchase price to either (i) the purchaser or (ii) an Authorized Depository. Also specific exemption from the registration and enforcement provisions of the Model Act for precious metals transactions if full physical delivery required, and made to an Authorized Depository, within 28 days of full payment, OR if agreement allows for partial payment, delivery of the quantity of metals purchased by the partial payment shall be made within 28 days to an Authorized Depository.
Washington - Defines “commodity” generally and to exclude numismatic coins whose fair market value is at least 15% over the fair market value of the metal the coins contain. Excludes commodity transactions from both the definition of “commodity contract” and from the registration and enforcement provisions of the Model Act if full physical delivery of the precious metals is made within 28 days of payment of any part of the purchase price to either (i) the purchaser or (ii) an Authorized Depository. Also specific exemption from the registration and enforcement provisions of the Model Act for precious metals transactions if full physical delivery required, and made to an Authorized Depository, within 7 days of full payment, OR if agreement allows for partial payment, delivery of the quantity of metals purchased by the partial payment shall be made within 7 days to an Authorized Depository.
West Virginia - Defines “commodity” generally and to exclude numismatic coins whose fair market value is at least 15% over the fair market value of the metal the coins contain. Excludes commodity transactions from both the definition of “commodity contract” and from the registration and enforcement provisions of the Model Act if full physical delivery of the precious metals is made within 28 days of payment of any part of the purchase price to either (i) the purchaser or (ii) an Authorized Depository. Also specific exemption from the registration and enforcement provisions of the Model Act for precious metals transactions if full physical delivery required, and made to an Authorized Depository, within 28 days of full payment, OR if agreement allows for partial payment, delivery of the quantity of metals purchased by the partial payment shall be made within 28 days to an Authorized Depository.
Survey of Uniform Act States or Other State Securities Laws that include “Commodity” within the definition of Securities.
Alaska – Alaska has not adopted the Model Code, but portions of its Uniform Act specifically deal with “option contracts on commodities,” which are probably inapplicable to the retail precious metals industry.13 There is no distinction in Alaska between the regulation of numismatics and bullion. As the retail precious metals industry does not generally provide option contracts as one of the products it provides, the sale of precious metals is not likely a security pursuant to this definition. Selling precious metals may be a security, however, where there is continuing dependency on the seller. This could be the case if a buyer has a continuing dependency on the retail precious metals dealer ’s assurances that it would, at any time, repurchase precious metals from the buyer. A repurchase guaranty that involves this risk sharing between the retail precious metals dealer and the buyer might indicate a transaction constituting an investment contract in Alaska. Consequently, precious metals cannot be sold with any repurchase guarantee in Alaska.
Arizona – Arizona has not adopted the Model Code, but portion of the State’s Uniform Act specifically deal with commodities and draw from the Model Code. Certain transactions are exempt transactions under the State’s Uniform Act. To avoid registration, a retailer must either: (a) sell only numismatic coins whose fair market value is at least 15% over the fair market value of the metal the coins contain; or (b) meet the exclusion from the definition of “commodity investment contract” by making full physical delivery of the “commodity” within 28 days of any partial payment, or (c) meet the exemption for “precious metals” commodity contract by having the agreement require, and the purchaser receive, within 7 days from payment of any portion of the purchase price, physical delivery of the quantity of the precious metals purchased by such payment.
Illinois – Illinois has not adopted the Model Code, but portion of its State Securities Code specifically deals with commodities. Illinois defines a “mineral investment contract” as: any investment, account, agreement, or contract where profits are dependent upon the transportation, mining, milling, flotation, refining, hallmarking, sale, resale, or repurchase of a metal or mineral, even if there is any potential for profit from the fluctuation in the value of the metal or mineral, except any contract or agreement for the sale or purchase of a metal or mineral between merchants. There is no distinction in Illinois between the regulation of numismatics and bullion. Illinois defines “mineral deferred contract” as: any account, agreement, or contract for the purchase or sale, primarily for speculation or investment purposes and not for the use or consumption by the offeree or purchaser of the metal or mineral. Excluded from the definition of “mineral deferred delivery contract” is: (a) a contract or agreement that requires physical delivery of the meal or mineral to be purchased under the agreement, within 28 days after the payment of any portion of the purchase price and (b) any contract or agreement for the sale or purchase of a metal or mineral between merchants. Illinois securities laws specifically exempt “mineral investment contracts” and “mineral deferred delivery contracts” from any securities regulation. The retail precious metals industry should consider, however, attempting to meet the exclusion from the definition of “mineral deferred delivery contract” by requiring and making full physical delivery within 28 days of payment of any portion of the purchase price.
Montana – Montana has not adopted the Model Code, but portion of its State Securities Code specifically deals with commodities. Montana securities laws provide that a “commodity investment contract” is a ‘security.” Certain transactions are exempt from securities regulation under Montana law. To avoid registration and the enforcement provisions under Montana Securities/Commodities law, a retailer must: (a) sell only numismatic coins whose fair market value is at least 15% over the fair market value of the metal the coins contain; or (b) meet the exclusion from the definition of “commodity investment contract” by having full physical delivery required and made within 28 days of any partial payment, or (c) meet the exemption for precious metal commodity contract by having physical delivery of the quantity of metals purchased required and made with 7 days of any partial payment to an Authorized Depository.
New Hampshire – New Hampshire has not adopted the Model Code, but portion of its State Securities Code specifically deals with commodities. There is no distinction in New Hampshire between the regulation of numismatics and bullion. New Hampshire defines: “investment metal” as any object which contains gold, silver or platinum, and “investment metal contract” incudes (i) a sale of investment metal in which the seller or an affiliate of the seller retains physical possession of the investment metal; or (ii) a contract of purchase or sale that provides for the future delivery of an investment metal or any option to sell such a contract; or a (iii) sale of an investment metal pursuant to a margin or leverage contract. Investment metal contract does not include a sale of an investment metal where full payment is made to the seller and physical delivery is made is made to the purchaser personally, and not to an agent, within 20 days of the date of purchase, provided that a purchaser may designate a bank, savings institution, trust company, or licensed broker-dealer within this state only to accept physical delivery on his behalf … but the party accepting delivery must (1) maintain the metal or gem in safekeeping and (2) identify the metal or gem as specific property of the purchaser.
New York – New York has not adopted the Model Code, but portion of its State Securities Code specifically deals with commodities. New York defines “commodity” to include “precious metal” and does not exclude numismatic coins. A typical precious metal retailer’s business meets the meaning of a “commodities contract.” New York does not have a delivery exclusion for the definition of “commodity contract.” New York defines “commodity broker-dealer” as any person engaged in the business of selling or offering to sell commodities through commodity contracts to the public within or from the State of New York. Most retail sales of “commodities contracts’ meets the definition of “commodity broker-dealer” and thus the retailer’s salespeople are “commodity salespersons.” This means both should file registration applications with the N.Y. Attorney General.14
Utah – Utah has not adopted the Model Code, but portion of its State Securities Code specifically deals with commodities. Utah defines “commodity contract” as a “security” under securities laws. A “commodity contract” is specifically exempted, however, from the securities registration requirement and prospectus requirements under Utah’s securities laws. Utah law excludes from the definition of “broker-dealer,” however, any person affecting transactions in a commodity contract. Utah defines “commodity” to include any precious metal, except numismatic coins whose fair market value is at least 15% over the fair market value of the metal of the metal the coins contain. There is an exclusion from the definition of “commodity contract” is full physical delivery is required and made within 28 days of payment of any part of the purchase price.
The only pitfall dealing in numismatics we see is not knowing that it requires registration in New York Attorney General as a commodities broker because there are no exclusions in the New York law for either numismatics or actual physical delivery.
Our office assists with these registrations on a daily basis. Give us a call if your business is in need of assistance in this area.
1 Model State Commodity Code §§ 1.01 – 3.08 (North Am. Sec. Administration. Assoc. 1997), reprinted in Model State Commodity Code, NASAA Rep. (CCH) ¶¶ 4401-48, at 3201 – 25 (Nov. 18, 1997) (1997 version includes technical amendments adopted October 5, 1985, April 29, 1989, and November 18, 1997).
2 North American Securities Administration Association.
3 California, Colorado, Georgia, Idaho, Indiana, Iowa, Maine, Mississippi, Missouri, Nebraska, Nevada, New Mexico, North Carolina, North Dakota, Oregon, South Carolina, Washington, and West Virginia have adopted the Model Code as a separate statutory section.
4 These states include Alaska, Arizona, Illinois, Montana, New Hampshire, New York, and Utah.
5 Most states define numismatic coins as a coin whose fair market value is at least 15% higher than the value of the metal it contains.
6 Model Code § 1.01(i) and 1.04(a). The full definition of “commodity option” is any account, agreement or contract giving a party thereto the right but not the obligation to purchase or sell one or more commodities and/or one or more commodity contracts, whether characterized as an option, privilege, indemnity, bid, offer, put, call, advance guaranty, decline guaranty or otherwise, but shall not include an option traded on a national securities exchange registered with the United States Securities and Exchange Commission.
7 Model Code § 1.02. Also, (a) any commodity option contract, and (b) the sale of any commodity contract or commodity option contract are outside of the scope of this survey, as well as margin or leverage commodities contracts, which are generally outside of the scope of products offered by the physical precious metals industry.
8 The definition contains a presumption of speculative or investment purposes.
9 The Office of the General Counsel of the CFTC has stated to state administrators that physical delivery to a depository also constitutes physical delivery to the buyer. CFTC, Office of the General Counsel, Interpretive Letter No. 85-2, note 4 (August 6, 1985). Consequently, this survey relies upon this CFTC interpretive guidance where the Model Act as adopted by the states fails to explicitly provide that physical delivery to a depository constitutes physical delivery to the buyer.
10 Some states also have specific exemptions from the registration and enforcement provisions of the Model Act for precious metals transactions if full physical delivery required, and made to an Authorized Depository, within 7 days of full payment, OR if agreement allows for partial payment, delivery of the quantity of metals purchased by the partial payment shall be made within 7 days to an “Authorized Depository,” defined as a depository that is not the seller that is either “(1) a financial institution, (2) a depository, the warehouse receipts of which are recognized for delivery purposes for any commodity on a contract market designated by the Commodity Futures Trading Commission, (3) a storage facility licensed or regulated by the United States or any agency thereof, (4) a facility for the storage of precious metals or foreign currencies located within a state of the United States and operated by an armored contract carrier defined under subdivision (e), or (5) a depository designated by the commissioner.”
11 Model Code § 1.01(e).
12 Alabama, Arkansas, Connecticut, Delaware, the District of Columbia, Florida, Hawaii, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, Ohio, Oklahoma, Pennsylvania, Rhode island, South Dakota, Tennessee, Texas, Vermont, Virginia, Wisconsin, and Wyoming.
13 Alaska’s Uniform Act’s definition of a security includes “an option on a contract for the future delivery of agricultural or mineral commodities or any other commodity offered or sold to the public and not regulated by the Commodity Futures Trading Commission. (Alaska Stat. Ann. §45.55.900).
14 Section 12(e) of the Commodity Exchange Act, as amended (the “Act”), provides: “Nothing in [this Act] shall supersede or preempt -- … (2) the application of any Federal or State statute, including any rue or regulation thereunder, to any transaction in or involving any commodity, product, right, services, or interest (A) that is not conducted on or subject to t he rules of a contract market, or … (C) that is not subject to regulation by the [CFTC] under [Section 4c or 19 of the Act]; or (3) the application of any Federal or State statute, including any rule or regulation thereunder, to any person required to be registered or designated under this chapter who shall fail or refuse to obtain such registration or designation.” Consequently, pursuant to Section 12(e)(2) of the Act, New York is expressly empowered to prohibit under its own laws those commodity transactions not permitted by the Act and CFTC regulations promulgated under the Act, and pursuant to Section 12(e)(3) of the Act, empowers New York to proceed through its own courts or administrative bodies against any person required to be registered under the Act who fails or refuses to obtain such registration.
© Cosgrove Law Group, LLC (June 28, 2023).