• An exchange offer is an offer by a corporation to exchange one security for another, made for purposes beneficial to the financial needs of the offeror, with sufficient attractiveness to entice the offeree to accept. All exchange offers must meet all the requirements as set forth by the U.S. Security and Exchange Commission.
  
  

Registration

• The first consideration in an exchange offer is a determination whether or not the offer must be registered with the SEC. The basic rule is that it must be registered unless it meets one of the recognized exemptions. Registration is expensive, due to extensive work by law firms, and is also time consuming, not only in the time to prepare the packet, but in the time the SEC expends in review. If the exchange offer can meet an exemption, such as limiting the exchange to only current holders of the corporation's securities who are not required to pay any consideration for the exchange other than the security itself, then full SEC registration is not required.
  
  

Anti-Fraud

• All securities transactions, whether registered or not, are subject to the SEC rule governing fraud, known as Rule 10b-5, based on Section 10b-5 of the Securities Act passed by Congress. According to SECLaw, this rule makes it unlawful to use or employ, for any security whether registered or not, "any manipulative or deceptive device or contrivance," all as determined by the SEC to be in the public interest. These words have been the subject of great debate and interpretation, but an exchange offer, like any other transaction, is subject to the rule which basically seeks to prohibit fraud.
  
  

Tender Offers

• The SEC has an extensive rule about tender offers, defined as a solicitation by a company to purchase a large share of the company securities. While most of this rule does not apply to exchange offers, there are provisions that do and must be complied with, such as the time requirement of the offer being open for 20 days.