Chapter 1 Overview of Regulation Flashcards Preview

Uncategorized > Chapter 1 Overview of Regulation > Flashcards

Flashcards in Chapter 1 Overview of Regulation Deck (51)
Loading flashcards...

Act of 1933

Regulates the new issue market

Requires registration of most new issues
-Secondary offering,

Identifies exemptions from the act


Act of 1934

Regulates the trading of securities in the secondary market

-Requires registration of securities firms
-Defines insiders
-Establishes margin guidelines ( Regulation T)


A Financial and Operational Combined Uniform Single (FOCUS) report Part I is filed:



Which of the following systems is used to report information on the origination, transmittal, and execution of an equity security?

The Order Audit Trail System (OATS).

The Order Audit Trail System (OATS) is a system that enables a regulator (FINRA) to review equity market activity. OATS records the life of an order from receipt, to routing, to modification if applicable, and to cancellation or execution. The TRF is a reporting system for equity securities. TRACE is used to report transactions in corporate debt. The NSCC is a clearing system used by broker-dealers. (70158)


Which of the following situations requires a DK (don't know) notice?

.b. The firms disagree on the amount of shares in the trade.

A DK notice is used for a don't know trade. This occurs when one side does not recognize the trade or the firms disagree on the details. Choice (b) is the only situation that would require a DK notice. (70162)


Shares of stock in a corporation are called equity securities because shareholders:

Have an ownership interest in the company

Shares of stock are referred to as equity securities since shareholders have an ownership interest (equity) in the company. Choices (a) and (d) are true statements but they are not the reason that shares of stock are called equity securities. (63209)


A trader at your firm executes an order for a corporate bond. The trade must be reported to the:

Trade Reporting and Compliance Engine (TRACE)

The Trade Reporting and Compliance Engine is a reporting system that was created to provide greater transparency in the corporate bond market. The Trade Reporting Facility is the reporting system for stocks listed on Nasdaq. The OTC Reporting Facility is a reporting system for non-Nasdaq or OTC equity securities, which are quoted on the OTCBB or in the OTC Pink Market (Pink Sheets). The Real-Time Transaction Reporting System is the reporting system for municipal bonds. (63760)


A registered representative will be soliciting customers to purchase low-priced equity securities. A special disclosure document must be provided to customers if the securities are quoted on:

The OTC Pink Market

A special disclosure document may be required if the customer will be trading low-priced securities (known as penny stocks). Under SEC rules, a penny stock is generally defined as an equity security with a bid price of less than $5.00 and is not listed on an exchange (e.g., NYSE or Nasdaq). An electronic communication network (ECN) mostly quotes securities that are listed on an exchange. (63585)


A registered representative (RR) in your office would like to compensate a client for referrals the client provided that resulted in commissions. Which of the following statements is TRUE concerning such compensation?

The client is unregistered and may not be compensated for the referrals.

In order to be compensated, the client would need to be registered with the same broker-dealer and in the same states as the customers. Referral fees would be considered a type of compensation. (63401)


A bond on which a call notice has been issued is purchased by a customer. Which yield must be disclosed on the confirmation?

The yield to call

When bonds are called, the yield to call must be disclosed on the confirmation. If a call notice has not been issued, the lower of the yield to call or the yield to maturity must be disclosed. (63649)



Any market place that has the ability to bring buyers and sellers together.
NYSC - Physical
NASDAQ- Electronic



1st time company offers shares


Secondary/Follow-On Offering

Raises capital again



Middle person between issuer and investors



Helps underwriter sell



Company chooses to list on an exchange



Two venues for quotations of non listed securities:
1. Pink sheets (aka the OTC Pink Market)
2. OTCBB (Bulletin Board)




Who is responsible for unsold shares

Syndicate commits to the entire offering

Syndicate is responsible for unsold shares




Who is responsible for unsold shares

Syndicate sells what it can

Issuer is responsible for unsold shares



Best-Efforts All-or-None

Who is responsible for unsold shares

Offering is cancelled if all shares are not sold

Issuer is responsible for unsold shares



Best-Efforts Mini-Max

Who is responsible for unsold shares

Offering is cancelled if a set minimum is not sold

Issuer is responsible for unsold shares




Most on firm commitment basis
Who is responsible for unsold shares

Used for secondary offering

Syndicate is responsible for unsold shares


Securities Act of 1933
regulates what and
requires what

-regulates the primary market
-requires securities to be registered

-Some securities may be exempted from registration

1. type
2. way


Securities Act of 1933 - Scope of the Law
1, 2, 3

1. To prevent for full and fair disclosure to investors
2. Prevention of fraud in the sale of new issues
3. No ruling as to investment merit -- SEC "no approval clause" on prospectus cover


Full Registration Timeline

1. Preregistration Period

-Document preparation
-No communication with the public


Full Registration Timeline

2. File registration statement; begin 20-day cooling-off period

-No sales or money accepted
-Issuer distributes preliminary prospectus
-All info except exact price and date
-Nonbinding indications of interest
-Register the issue at the state level (Blue-Sky)

-Starts when co files the reg statements with the SEC


Full Registration Timeline

3. Post Registration Period (Effective date)

-Sales confirmed and final prospectus delivered
-Dealers who sell securities in the aftermarket may be required to provide purchasers with a copy of the final prospectus
-No funds can be accepted unless effective date

-Effective date - when SEC allows you to sell the securities


Red Flag Issue

B/D MUST provide a Final Prospectus to EVERY purchaser, even those who already received a Preliminary Prospectus. Send it anyway.

Access electronically OK

Access = Delivery


Exempt Securitas

Exempt from registration
1. U.S Government and Agency Securities
2. Municipal Securitas
3. Securities issued by banks (not Bank Holding Cos)
4. Those issues by non-profit organizations
5. Short term, unsecured corporate debt
-Maturity no exceeding 270 days

All remain subject to antifraud provisions of the '33 Act


Exempt Transactions

Regulation D - Private Placement
-Sold to an unlimited number of accredited investors
-Institutional investors
-Financial test for individuals accredited investor
-$1 million net worth
- $200K annual income

-With no more than 35 non-accredited investors

-Stock acquired is restricted from resale (illiquid)

-Many hedge funds are sold in this matter