While ICA Rule 3a-3 can seem difficult to read, its basic concept is straightforward. An entity that would be an "investment company" if viewed on a standalone basis under ICA Section 3 quantitative tests, is not if virtually all of its securities (with the limited exceptions specified in the Rule) are wholly owned by a parent company that is itself an operating company and not an investment company. By way of example, suppose that an operating company, for convenience’s sake, dropped all of its investment assets into a separate subsidiary that owned only "investment securities." Viewed in isolation, that new subsidiary could fall within the definition of "investment company," which would not make any sense, as the parent and the subsidiary viewed as a whole fall outside the definition. The fullest explanation of ICA Rule 3a-3 is in the Rule’s proposing release, also linked under the Federal Registers below. See also the topic pages on Prima Facie Investment Companies (ICA Rule 3a-1), the quantitative test for determination of whether an issuer is an investment company under ICA Section 3(a)(1)(C), and on Inadvertent Investment Companies (ICA Section 3(b)).
For a comprehensive list of exemptions and exclusions from registration available to investment companies, see the topic page on Exemptions from Registration under the Investment Company Act.