# Qualified Institutional Buyer (QIB): Definition, Criteria, and Benefits

> **Definition**
>
> A qualified institutional buyer (QIB) is an institutional investor that manages at least $100 million in securities and is exempt from certain regulatory protections, allowing them to trade restricted securities.

## What Is a Qualified Institutional Buyer (QIB)?

A qualified institutional buyer (QIB) is a class of investor that can be safely assumed to be a sophisticated investor and, therefore, does not require the regulatory protection afforded to investors under the Securities Act's registration provisions. Broadly, QIBs are institutional investors who manage or own at least $100 million in securities.

The SEC permits only QIBs to trade [Rule 144A](https://www.investopedia.com/terms/r/rule144a.asp) securities, which include restricted or control securities like [private placements](https://www.investopedia.com/terms/p/privateplacement.asp).

### Key Takeaways

*   Qualified Institutional Buyers (QIBs) are institutional investors with at least $100 million in securities under management or registered broker-dealers with at least $10 million in securities, which allows them access to restricted securities markets.  
    
*   QIBs have special privileges under Rule 144A, which enables them to trade in restricted and control securities, increasing liquidity in these markets.  
    
*   In August 2020, the SEC expanded the definitions of QIBs and accredited investors, allowing more entities to qualify and participate in U.S. private capital markets.  
    
*   The expansion in the QIB definition addresses previous limitations that excluded certain sophisticated investors from accessing Rule 144A offerings.

![Qualified Institutional Buyer (QIB): A class of investor that can safely be assumed to be a sophisticated investor and hence does not require the regulatory protection that the Securities Act's registration provisions give to investors.](https://www.investopedia.com/thmb/irAHpe_wV3ZO4Eu1Pdj0E7wHI7c=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/qib.asp-final-1e3a6194209b4be0a8bc989c95aefd1a.png)

*— Investopedia / Jessica Olah*

## In-Depth Look at Qualified Institutional Buyers

The QIB designation is often given to entities made up of [sophisticated investors](https://www.investopedia.com/terms/s/sophisticatedinvestor.asp). Essentially these individuals or entities, due to their experience, [assets under management](https://www.investopedia.com/terms/a/aum.asp) (AUM), and/or [net worth](https://www.investopedia.com/terms/n/networth.asp), are considered not to require the type of regulatory oversight needed by regular retail investors when purchasing securities.

Typically, a QIB is a company managing at least $100 million in securities or a broker-dealer with $10 million in non-affiliated securities. Entities considered as QIBs include banks, savings and loan associations (with at least $25 million net worth), investment and insurance companies, employee benefit plans, and entities fully owned by QIBs.

The QIB definition is generally more limited than the broader definition of accredited investors. The old and rigid QIB definition excluded some investors with $100 million in securities from QIB status, making them ineligible for Rule 144A offerings.

On Aug. 26, 2020, the SEC amended the QIB and accredited investor definitions to fix technical issues and better identify knowledgeable investors for the U.S. private markets.

The QIB amendments added a provision to the QIB definition to include any institution not already specifically listed in the definition of qualified institutional buyer but that qualifies as an accredited investor and meets the $100 million securities ownership threshold. The amendments also permitted these entities to be formed as QIBs specifically for the purpose of acquiring the securities offered.

## Exploring QIBs’ Role in Rule 144A Transactions

Under [Rule 144A](https://www.investopedia.com/terms/r/rule144a.asp), QIB's are allowed to trade restricted and control securities on the market, which increases the liquidity for these securities. This rule provides a [safe harbor](https://www.investopedia.com/terms/s/safeharbor.asp) exemption against the SEC's registration requirements for securities.

Rule 144A applies to reselling securities, not initial issues. It kicks in when securities resell from the underwriter to the investor, not from issuer to underwriter.

Typically, transactions conducted under Rule 144A include offerings by foreign investors looking to avoid U.S. reporting requirements, private placements of debt and preferred securities of public issuers, and [common stock](https://www.investopedia.com/terms/c/commonstock.asp) offerings from issuers that do not report.

These securities have a degree of complexity that may make them difficult to evaluate for retail investors, and may thus only be suitable for institutional investors that have the research capability and risk management expertise to make an informed decision about investing in them.

## Navigating Rule 144 and Exempt Securities Offerings

This rule governs the sales of controlled and restricted securities in the marketplace. This rule protects the interests of issuing companies because the sales are so close to their interests. Section 5 of the [Securities Act of 1933](https://www.investopedia.com/terms/s/securitiesact1933.asp) governs all offers and sales and requires them to be registered with the SEC or to qualify for an exemption from registration requirements.

[Rule 144](https://www.investopedia.com/terms/r/rule144.asp) offers an exemption, allowing the public resale of controlled and restricted securities, if certain conditions are met. This includes the length of time securities are held, the method used to sell them, and the number that are sold in any one sale. Even if all requirements have been met, sellers are not permitted to conduct sales of restricted securities to the public until a transfer agent has been secured.

The significance of exempt offerings has increased both in terms of the total amount raised and relative to capital raised in public registered markets. According to the SEC, in 2019, an estimated $2.7 trillion (or 69.2% of the total) was raised through exempt offerings, compared to $1.2 trillion (30.8%) from registered offerings.

## The Bottom Line

Qualified institutional buyers are "sophisticated" investors who do not require regulatory protection from the Securities Act. Rule 144A allows QIBs to trade restricted and control securities, which enhances liquidity in the market.

In 2020, the SEC amended the requirements that define QIBs and accredited investors to those that own or manage at least $100 million in securities or who are registered broker-dealers with $10 million in non-affiliated securities.

> **Article Sources**
>
> 1.  U.S. Securities and Exchange Commission. "[Defining the Term "Qualified Purchaser" Under the Securities Act of 1933](https://www.sec.gov/rules/2001/12/defining-term-qualified-purchaser-under-securities-act-1933)."
>     
> 2.  California Debt and Investment Advisory Commission. "[Issue Brief: Rule 144A Securities](https://www.treasurer.ca.gov/cdiac/issuebriefs/201307.pdf)."
>     
> 3.  Cornell University, Legal information Institute. "[Qualified Institutional Buyer (QIB)](https://www.law.cornell.edu/wex/qualified_institutional_buyer_%28qib%29)."
>     
> 4.  U.S. Securities and Exchange Commission. "[SEC Modernizes the Accredited Investor Definition](https://www.sec.gov/news/press-release/2020-191)."
>     
> 5.  U.S. Securities and Exchange Commission. "[Rule 144: Selling Restricted and Control Securities](https://www.sec.gov/reportspubs/investor-publications/investorpubsrule144)."
>     
> 6.  U.S. Securities and Exchange Commission. "[Securities Act Rule 144](https://www.investor.gov/introduction-investing/investing-basics/glossary/securities-act-rule-144#:~:text=Rule%20144%20provides%20an%20exemption,sold%20at%20any%20one%20time.)."
>     
> 7.  Cornell University, Legal Information Institute. "[Section 5](https://www.law.cornell.edu/wex/section_5)."
>     
> 8.  U.S. Securities and Exchange Commission. "[Final Rule: "Amending the "Accredited Investor" Definition](https://www.sec.gov/rules/final/2020/33-10824.pdf)." Page 4.