CHAPTER 2 Flashcards
(27 cards)
ADR
Represent a share of foreign company held on deposit by bank
Bought in US dollars, dividends paid in US dollars
Owner may request bank cancel and sell shares to them
ADR is a domestic security representing a foreign security in US markets
Advantages and Disadvantages of ADRs
A:
Ease of use - Traded like US stocks
Taxation - Dividends paid have foreign withholding that is credit against US income. Cap gain taxable in US
D:
Currency and political risk
Voting and preemptive rights: not required to send voting rights to you, can sell or take
Section 144 Stock Rules
Restricted securities (private placement)
These securities may not be sold unless they are held for 6 months after fully paid off.
Wording around restrictions called legend certs
Issuer must remove restriction before investor can sell
Control stock rules
Restricted stock that is owned by directors, officers, or persons who own 10% or more, families combine.
When a control person wants to sell, must complete form 144 to determine number they can sell over a 90-day period
Volume limitations are greater of 1% of outstanding shares OR
Average weekly trading volume past 4 weeks
Stock Rights
Company wants to issue more shares then they give existing stockholders option to buy in the same proportionate amount
Have 30-45 days to buy, these are SHORT TERM
Stock Rights Rules
1 RIGHT PER SHARE OWNED
Can:
exercise
sell
expire
Might be multiple rights to buy 1 share
Usually option to buy the stock at a DISCOUNT below MV
Warrants
Often a sweetener with preferred stock or debt.
LONG TERM
Can buy the securities at a specific price over a long term above the current MV when issued
Helps lower credit places offer less interest
Stock Dividends
Reinvest dividends so you get more dividends and price is adjusted down
Way for corp to raise more capital and reinvest dividends
Stock Splits
Forward Split: Increase shares, 2/1 x shares = new shares
1/2 x current price = new price
meant to decrease price and basis decreases
Reverse Split: 1/2 x shares = new shares
2/1 x current price = new price
decrease shares and increase price and basis
EVEN/UNEVEN SPLITS
Even if it has a 1 in it
Uneven if it does not have a 1
Merger
Two companies combine
Acquisition
One company buys another
Spin-Off
One company leaves parent company
Buyback
Company buys its own outstanding shares in the open market to reduce shares and increase value of outstanding
Tender Offer
Offer to directly buy back shares from owners not through secondary market. Can do this with debt. Normally cash offers.
Decisions made by BoD
Stock split
Dividend
Hiring senior execs
Tax consequences of corporate events to shareholders
If shareholders get cash for the event - it is taxable
If shareholders get more shares - it is NOT taxable
Issuers Giving Info for Corporate Actions
Needs to be title, date, date of record, date of payment, cash dividend paid, stock dividend rate, rate of stock split distribution
Notice needs to be given no later than 10 business days
Proxy Voting
Vote on things that shareholder needs to be a part of
Proxy Solicitation
If shareholders are solicited, the SEC requires a company give info about the items to be voted on and let SEC review this first
Street Name Stock
Member firms need to vote in accordance with BDs customers who purchased the shares and if customer signs and returns proxy the member must as recommended by the issuers management
Proxy Does not return
Needs to be returned by the 10th day, if not then member may vote as they see fit but never for major decisions. If major then no vote.
How does the street name hold the proxy
held electronically and not with BD
For securities held in street name, who is the owner?
The customer is the beneficial owner
