• May 2019
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Qualified Institutional Buyer (QIB)

A corporate entity that may be appropriately classified as an “accredited investor,” as defined by SEC Rule 501 of Regulation D.

In order to be considered an accredited investor, a corporation must own and invest, on a discretionary basis, at least $100 million in securities; eligible broker-dealers must own and invest at least $10 million in this way. To be recognized as an accredited investor, a corporation or organization must maintain the status of a corporate entity. Individuals cannot be treated as qualified institutional buyers. Most often, QIBs operate as insurance companies, banks, investment companies and distinct employee benefit plans.

The major benefits associated with classification as a financially sophisticated QIB involve the ability to trade securities in the marketplace, the right to purchase private placements and the opportunity to take advantage of a so-called safe harbor exemption. This Securities and Trade Commission exemption makes certain corporation’s registration requirements more manageable. Under Rule 144A, QIBs may trade preferred securities of public corporations, common stock offerings from corporations not required to report to the SEC and other select securities.

 

EXAMPLE:

Accountant: “I have good news. The corporation’s discretionary ownership and investment activity has rendered it eligible for classification as a qualified institutional buyer.”

Executive: “Woo hoo! Ice cream all around… as soon as you explain whatever you’re talking about.”

Accountant: (Sighs.)