Federal Regulation chapter 6

Question 1

Securities Act of 1933

Answer 1

AN ACT To provide full and fair disclosure of the character of securities sold in interstate and foreign commerce and through the mails, and to prevent frauds in the sale thereof, and for other purposes. (NEW ISSUES)

Equity Securities- preferred and common stock
Debt securities – bonds
Mutual Funds
Unit Investment Trusts
Real Estate Limited partnerships
Variable Annuity Contracts

Question 2

EXEMPT SECURTIES of 1933

Answer 2

1.U.S. Government Securities
2.Municipal Securities
3.Intrastate Offering
4.Regulation A+ Offering two tiers 20m and 75M
5. Small business investment companies
6. Regulation D offering ( private placements)
7. Building and loan associations
8.Benevolent associates
9. Banks and saving and loans
10. Commercial paper with terms of 270 days or less
11. Bankers acceptances with terms of 180 days or less
12. Variable Annuities are NOT exempt from registration

Question 3

The Securities Exchange Act of 1934

Answer 3

Designed to protect the public against unfair and inequitable practices in secondary market securities transactions

Established the Securities Exchange Commission(SEC)
Requires all securities listed on a national exchange to be registered with SEC
Requires disclosure of information about all listed securities
Requires stock exchanges to be registered with the SEC
Requires credit regulation for securities transactions

Question 4

Shelf Registration

Answer 4

Using a single registration statement (FORM S-3), a corporation can register all securities it intends to issue in the upcoming three-year period, then issue them without filing again with the SEC.

Question 5

33 Act regulates PRIMARY Market, 34 regulates SECONDARY Market

Question 6

Regulation M

Answer 6

The SEC adopted Regulation M to ensure that securities should not be distributed in a market manipulated by the activities of persons having an interest in the distribution.

Intended to prevent persons having an interest in an offering from artificially conditioning the market in order to influence the distribution

Rule 101- covers the activities of underwriters, broker-dealers and other participating in a distribution
Rule 102- governs the activities of issuers and selling security holders
Rule 103- pertains to NASDAQ passive market making
Rule 104- governs stabilization transactions and certain post-offering activities by the underwriters.
Rule 105- governs short selling in anticipation of a public offering

Question 7

Regulation D Offering

Answer 7

Private Placement rules- provision under the ’33 act for exempting private companies from filing requirement under certain conditions

Question 8

Rule 504

Answer 8

cannot exceed $5,000,000

Question 9

Rule 506(b) offering

Answer 9

issuers can continue to conduct quiet private placements without using general solicitation/ advertising

Question 10

New Rule 506(c)

Answer 10

offering- issuers may now use general solicitation/advertising, but all purchasers must be accredited investors.

Issuers may use general solicitation/advertising( internet, Tv, etc)

All purchasers must be accredited investors

Issuer must reasonably believe investors are accredited, taking reasonable steps to verify they are accredited investors

Required disclosure will be driven by market demands

Question 11

SEC Rule 144

Answer 11

Sets forth conditions under which a holder of unregistered securities( Reg D) may make a public sale without filing a registration statement with the SEC.

Covers resale of Restricted and Control Stock
1. Restricted securities must be fully paid for and owned for at least six months prior to sale

2. Register Representatives may not solicit persons who have owned restricted shares for less than six months
3. Adequate public information concerning the issuer must be available
4. Sales by affiliates may be made through broker transactions or the market maker may take shares into inventory
5. Sales in any 90 day period are limited to either:

a. 1% of the outstanding stock or the average trading volume for the previous 4 weeks, whichever is greater. NEED TO KNOW

6. Form 144 Notice of Offering is effective for 90 days
7. Transactions must be reported to the SEC at the time of the sale.

Restricted shares are shares that have been acquired through a private placement and NOT registered

Question 12

SEC Rule 145-

Answer 12

Applies to the registration of transactions where an offer to sell or Offer to Sale would be considered to have been made as part of a merger, consolidation or stock reclassification

Question 13

SEC Rule 147

Answer 13

Covers Intrastate
For a period of 6 months from the date of the last sale by the issuer- all sales and resales may be made only to residents of the same state

Question 14

Blue Sky Laws

Answer 14

State securities laws that prohibit misrepresentations, misleading statements, and sales by persons not registered or licensed in the state, but do not prohibit sales of securities of non-U.S. issuers

Question 15

Basic Knowledge of Books and Records
SEC Rules 17 a-3 and 17a-4- every broker dealer is required to maintain books and records in accordance with SEC Rules 17a-3 and 17a-4 either in electronic form or hard copy or may use an external service such as depository bank.

Answer 15

3 years
Customer Confirmation
Copies of orders given or received on behalf of the broker-dealer or customers
Names and addresses of beneficial owners of all accounts
Fingerprints for all persons associated with a broker-dealer, transfer agent or clearing firm

4 years
CUSTOMER COMPLAINTS- maintained at the office of Supervisory Jurisdiction(OSJ)

note muni complaints 6 years

5 years
Monetary instruments sales records and must be available upon request

6 years
Blotters of Original Entry
Customer and General Ledgers
Customer Account Information
Securities Records

MAINTAIN FOR LIFE
Articles of Incorporation
Articles of Partnership
Supporting entity documents such as Minutes and stock certificate Books

Question 16

Customer Protection Rules

Answer 16

Customer Protection Rule – SEC Rule 15c3-3 customers funds are held in a reserve bank account.

Regulation S-P- Privacy Rules
Customer must be sent an annual privacy notice
Must deliver an initial privacy notice

Providing “Opt Out” options
On the form
On the electric means of a digital form
By a toll-free number

Question 17

FinCEN and USA PATRIOT Act

Answer 17

Financial Crimes Network-Fin CEN

Bureau of the U.S. Treasury
Mission- safeguard the financial system from illicit use
Combat money laundering
Promote national security through the collection, analysis, ad dissemination of financial intelligence and strategic use of financial authorities.
Functions under “Bank Secrecy Act” (BSA)

Financial firms that transfer funds, including wire fund transfer of $3,000 or more, must collect, retain, and record certain information including the:

Question 18

Money Laundering Abatement Act

Answer 18

Verify identity of any customer within five business days
Member firms must determine if a person is on a known or suspected terrorist list from the OFFICE ASSETS CONTROL(OFAC)

Question 19

Political Contribution Rules(pay-to-play)

Answer 19

Investment Advisors Act of 1940 SEC Rule 206(4)5 and FINRA Rule 2030
According to the industry’s political contributing rules, which of the following are valid exceptions for allowing a covered person to make political contributions?

The contribution was for a maximum of $350 per election, and the covered person was entitled to vote in those elections.

The contribution was for a maximum of $150 per election, and the covered person was not entitled to vote in those elections.

Question 20

Securities Act of 1933

Answer 20

new issues( securities)

Question 21

The Securities Act of 1934

Answer 21

deals with the secondary Market

Question 22

Regulation M

Answer 22

The SEC adopted Regulation M to ensure that securities should not be distributed in a market manipulated by the activities of persons having an interest in the distribution.

Question 23

SEC Rule 144

Answer 23

Sets forth conditions under which a holder of unregistered securities( Reg D) may make a public sale without filing a registration statement with the SEC.

Question 24

Rule 506(b)-

Answer 24

Issuers to issue an unlimited amount of Securities so long as no more than 35 non-accredited Investors participate in the Offering.( shares are restricted)

Question 25

Rule 506(c)-

Answer 25

issuers may now use general solicitation/advertising, but all purchasers must be accredited investors.

Question 26

Reg D private placements

Answer 26

unregister securities

Question 27

Rule 504

Answer 27

Any trust or charitable organization with total assets in excess of $5,000,000 is considered to be an “accredited investor” for purposes of private placements.
( changed to $10,000,000)

Question 28

FINRA Rule 5130

Answer 28

Covers restrictions on the purchase and sale of initial equity public offering (IPOs) by restricted persons and their immediate family members

Question 29

Form 144

Answer 29

effective for 90 days

Question 30

SEC Rule 144-A

Answer 30

allows the sale of restricted(unregistered) securities to QIBs

Question 31

SEC Rule 145

Answer 31

Applies to the registration of transactions where an offer to sell or Offer to Sale would be considered to have been made as part of a merger, consolidation or stock reclassification ( does not require registration with the SEC for changes in par value or stock splits

Question 32

SEC Rule 147

Answer 32

covers intrastate offering

Question 33

Customer Protection Rule (SEC rule 15c3-3

Answer 33

ensure customers fund are held in a safe area, such as a safe area.

Question 34

Regulation S-P Privacy Rules

Answer 34

allows customers to “opt out” , must be provided annual

Question 35

Trust Indenture Act of 1939

Answer 35

federal law that requires a qualified trustee to represent bondholders

Question 36

Taping Rules- FINRA rule 3170..

Answer 36

to record conversations between clients and registered persons

Question 37

Trust Indenture Act of 1939

Answer 37

(corporate debt)- federal act that requires that all corporate bonds and debentures be issued under an indenture (legal contract) or deed of trust. The bond indenture specifies the rights and duties of the issuer, underwriter, and investor.