Qualified Institutional Buyer (QIB)

What is a QIB?

A Qualified Institutional Buyer (QIB) is an institutional investor deemed sufficiently sophisticated to participate in markets for restricted and control securities without the same regulatory protections given to retail investors. The designation grants access to certain private-market trading avenues, most notably transactions under Rule 144A.

Qualification criteria

Common qualifying characteristics include:
* Institutions that manage or own at least $100 million in securities.
* Registered broker‑dealers that own and invest at least $10 million in non‑affiliated securities.
* Typical entities that can be QIBs: banks, savings and loan associations (with minimum net worth thresholds), investment companies, insurance companies, employee benefit plans, and entities wholly owned by qualifying institutions.
* Since the SEC amendments in 2020, institutions that meet the accredited investor standard and the $100 million securities threshold can also qualify, including entities formed specifically to acquire offered securities.

Role in Rule 144A transactions

Rule 144A provides a “safe harbor” allowing eligible securities to be resold among QIBs without SEC registration. Key points:
* Rule 144A applies primarily to resales (from underwriters to institutional buyers) rather than initial issuer offerings.
* It increases liquidity for restricted and control securities—such as private placements, certain debt, preferred securities, and shares of non‑reporting issuers—by creating a market among sophisticated buyers.
* Issuers (including foreign issuers) often use Rule 144A offerings to raise capital without the reporting burden of registered public offerings.

Rule 144 and resale of restricted/control securities

Rule 144 governs the public resale of restricted and control securities and sets conditions that, when met, permit resale without registration. Typical conditions include:
* Required holding periods.
* Limitations on the manner of sale and the number of securities sold in any transaction.
* Requirements related to public information and availability of a transfer agent.
Section 5 of the Securities Act mandates registration for offers and sales unless an exemption applies; Rule 144 is a frequently used resale exemption.

Regulatory change and market impact

In August 2020 the SEC revised the QIB and accredited investor definitions to address technical limitations and better identify knowledgeable participants in private markets. The amendments broadened eligibility by including certain accredited investors that meet the $100 million securities threshold and clarified that entities may be formed specifically to participate in offerings.

The use of exempt offerings (including Rule 144A and other private-market mechanisms) has grown substantially relative to registered public offerings, making an understanding of QIB status increasingly important for market participants.

Benefits and risks

Benefits:
* Access to private and restricted securities not available to retail investors.
* Increased liquidity in markets for complex securities.
* Ability to participate in institutional‑only placements and resale markets.

Risks and considerations:
* Reduced SEC protections compared with registered offerings.
* Investments may be complex, less transparent, and harder to value.
* QIBs are expected to have the expertise and infrastructure to perform due diligence and manage risks.

Key takeaways

• QIBs are institutional investors that meet specific asset or securities thresholds and may trade restricted and control securities under Rule 144A.
• Rule 144A promotes liquidity by creating a resale market among QIBs for securities that are not registered with the SEC.
• The SEC expanded the QIB/accredited investor definitions in 2020 to broaden participation in private capital markets.
• Participation as a QIB confers access and flexibility but requires institutional sophistication and acceptance of greater private‑market risk.

Sources

U.S. Securities and Exchange Commission — Rule 144A and related rules; final rules amending the accredited investor definition
Cornell Legal Information Institute — Qualified Institutional Buyer (QIB); Section 5 of the Securities Act
California Debt and Investment Advisory Commission — Issue brief on Rule 144A