Chapter 14 Flashcards
Securities act of 1934
Secondary market and covers non exempt securities from abuse
(Sec) securities, and exchange commission
Created by the act of 34, used to regulate non-exempt securities only.
Anti-fraud provisions of act 34
No parties are exempt
Wash trades
Buying and selling the same security to create the appearance of trading activity
Trading pool
Group of investors trading the same security among themselves at high price as price inflates other investors buy, Also known as “pump and dump”
Front running
Placing an order for security ahead of large orders that will impact the price of the security
Painting the tape
Trading a security to create the impression of rising or falling prices
Pegging
The price of security in the market, other than under district rules set by SEC
(IPO)
Initial public offering
Primary market , first issuance of security’s to secondary market/ non exempt securities
Standby agreement
Underwriter can purchase Unsold shares if conditions are met
The prospectus discloses it.
The agreement is in writing
a statement from the lead, underwriter a test that it couldn’t find any buyers.
The shares will not be sold within three months.
Regulation M
Set of rules under act of 34 dealing with potential market manipulations during primary offerings
Stabilization
Underwriter can buy shares below or at public offering price.
Stabilization rules
A notice of stabilization must appear on the inside front cover of the prospective
Stabilizing bid is allowed per market or market maker
Syndicate agreement will state the syndicate manager is the sole firm that can make stabilizing transaction
Insider (act of 34
Can be:
a officer
Director
10% shareholder of an issuers equity security
Insider a rules must follow
Insiders are prohibited from trading based on material non-public information (MNPI)
Short wing profits
Selling on company stock short
Violations for insider trading
liable for civil and criminal penalties
Civil penalties can be up to three times the profit realized or loss avoid it
Criminal penalties : fine up to 5 million for each inside Trade and up to 20 years in jail for each violation
Firm may be fined 25 million
Civil suits
Brought within 2 years of discovery, but no later than 5 years after the violation.
Restricted persons from buying common stock IPO’s
Finner member firms officers employees and immediate family/household
Fiduciaries to member firms,
(lawyers, accountants, etc.,
finders (ones who help a company find an underwriter to bring it to the public )
Portfolio managers
Insider trades
Must report within two business days of the event
