Regulations Flashcards
(173 cards)
1
Q
Securities Act of 1933 applies to
A
Non Exempt Issues
2
Q
Registration under SEC 33 must be filed before
A
any sales related activites take place
3
Q
Registration statement includes
A
- general character of business
- use of proceeds
- historical financial statements
- biographical date on officers
- legal issues
4
Q
Deficiency letter
A
- disclosure is not sufficient
5
Q
Final Prospectus must be delivered by
A
at or prior to confirmation of sale
6
Q
Primary Distribution of Final Prospectus
A
must be given the first 90 days, after that it is no longer required
7
Q
Secondary Distribution of Final Prospectus
A
after the first 40 days, it is no longer required
8
Q
Exchange/ NASDAQ listed Distribution of Final Prospectus
A
after first 25 days, it is no longer required
9
Q
Seasoned Issuer
A
- registered with SEC for 1 year,
- minimum of $75 mil market cap
10
Q
Rule 415
A
- seasoned issuers can have a blanket letter filed with SEC for three years, bc registering with SEC is expensive
- no 20 day cooling period
11
Q
Exempt
A
- US Government Issues
- Agencies
- Municpals
- Commercial Paper, and bank acceptances
12
Q
Exempt Transactions
A
Common stock under a private placement
13
Q
Section 4 (a)(2)
A
- allows private placements to institutional and wealthy investors without registering with the SEC
14
Q
Section 4(a)(5)
A
- offers no more than 5 million made only to accredited investors are exempt
15
Q
Issues that are regulated by another Federal or state law that are exempt are
A
- Bank Issuers
- Savings and Loan issuers
- Insurance Company Issuers
- Common Carrier Issuers
16
Q
Small Businesses are ___ from SEC act of 1933
A
exempt
17
Q
Nonprofit Business are ____from SEC 1933
A
Exempt
18
Q
Non Exempt Issues from sec act of 1933
A
- Corporate stock, bonds, warrants, rights
- Options
- Investment Companies
- Non Variable Annuities
- Limited Partnerships
19
Q
Rule 147 Intrastate Exemption
A
- federal laws only apply to interstate activities
- 100% of issue must be sold to residents of the state
- issuer MUST be in that state
- for a 6 month period after, re-sale is only allowed to resident of that state
- must comply with blue sky laws
20
Q
Blue Sky Laws
A
- state registration requirements
21
Q
Regulation D
A
- private placement execution
- sold to a MAX OF 35 NON ACCREDITED INVESTORS/ UNLIMITED NUMBER OF ACCREDITED INVESTORS
- No dollar limit/ no limit on units
22
Q
Accredited Investors
A
- net worth of 1 mil
- annual income of 200,000 for past 2 years, joint 300,000
- officer or director of the issue
- financial inst. such as banks, insurance companies with assets of 5 mil or more
- non- profits with excess of 5 mil
23
Q
Private Placements can only be advertised if
A
- they are advertising to accredited investors only
24
Q
Full disclosure is given to Regulation D by
A
- an “Offering Circular” or an “ Offering Memorandum”
25
Investment Letter
- for "sophisticated investors( know the merit of the investment)"
- stating that they know that the issue is unregistered, that it cannot be readily resold in public, and tends to hold the issue as an investment
26
Purchaser Rep
- a lawyer or an accountant who evaluates the issue if the investor cannot
- registered rep cannot be a purchaser rep
27
Restricted Stock
- may only be sold in a private trade or under Rule 144
28
Regulation A
- intended to make it easier for start up companies to raise capital
29
Regulation A Tier 1
up to a maximum amount of $20 million, are given the easiest registration method and do not require audited financial statements
30
Regulation A Tier 2
- allow a maximum of $50 million to be raised, but require audited financial statements.
- Tier 2 issues are also called Regulation A+ issues and can be exchange listed.
31
Form 1-A
- filed with the SEC for the Tier requirements
- gives disclosure
- 20 day review period must be completed before the issue can be sold
32
Offering Circular for Regulation A
- Disclosure document
- during 20 day review period, preliminary offering circular must be delivered any customer at least 48 hours prior to sale
33
Test the Waters
- can distribute promotional materials to prospective purchasers prior to filing the offering statement with the SEC and all through the review period
34
Non Accredited Investors cannot purchase a Tier 2 offering that is
greater than 10% of their annual income or net worth
35
Rule 144
- allows small amount of stock to be sold periodically without a formal registration
- a way of registering restricted shares without registering with the SEC
36
Rule 144 and rules for selling restricted stock
- registered its shares outstanding and is in current filing with the SEC
- Files a form 144
- held securities for 6 months
- files a form 144 no more than 4 times a year
- max sale under form 144 is no more than greater than 1% of outsanding shares of the customer or, weekly average of the 4 week trading period preceding filing
37
Control stock
- affiliated or officer/ director of issue is not subject to hold for 6 months
38
Small offers and 144
- may sell up to 5,000 shares $50,000 worth every 90 days without filing
39
Act as a ___ in rule 144
- agent
40
Estate Owners and 144
- if the holder dies, his or her estate can sell the position without being subject to rule 144 limitations
41
Document that must be contained for Rule 144
- copy of the form 144
| - Issuer and Broker's representation letter
42
RULE 144A
- allows large institutional investors to trade privately placed securities
43
QIBs
- owns and invests on a discretionary basis at least $100,000,00
- can only sell to QIBS
44
PORTAL
The electronic trading of 144A for QIBS to QIBS
| - owned by NASDAQ
45
Regulation Crowdfunding
- the raising of capital by small start-up businesses through relatively small investment amounts.
- private placement securities that are exempt from registration with SEC
46
Crowdfunding offering limit
- only raise a max of 1 mil
| - can only be sold through FINRA registered broker dealers
47
Crowdfunding investment limits
- anyone can invest
- investors with income under 100,000 can only invest greater of 2,000 or 5% of the investors income
- for over 100,000 can only invest 10% of annual income
- adjusted for inflation index
48
Crowdfunding disclosure
- description of business
- discussion of risk factors
- name and positions of officers and 20% shareholders
- price of securities
- 100,000 must have financial statements by principal
- 100-500, unaduited financial statements
- 5000+ auditied financial statements
-
49
Offering requirements
- allows investors to direct questions
- obtain representation from investor that entire investment may be lost
- provide education material
-
50
Rule 145 Reorg
- substituting one security for another security
- merger or consolidation, in which securities will be exchanged
- transfer of assets from one person to another
51
Rule 153A
-shareholders must get a copy of the prospectus detailing the terms of the re org prior to the voting date
52
Rule 145 Exemptions
- stock split or reverse split
- change in par value
- stock dividend
53
Securities Act of 1934
- created SEC
| - preventing manipulation and fraud in the securities market
54
Fraud Provisions
Apply to exempt an on exempt securities
55
FINRA rules are approved by the SEC and cover
Dealer-Dealer Practices;
Dealer-Customer Practices;
Dealer-Dealer Dispute Resolution Procedures;
Dealer-Customer Dispute Resolution Procedures.
56
Under SEC 1934, Every member firm must register with
FINRA
57
Under SEC 1934, Every officer of the firm must register with
FINRA
58
Under SEC 1934, Every sales employee must register with
FINRA
59
Tender offer for common stock must be
held for 20 business days
| - sweetener extends for 10 days
60
Tender offer for bonds made by issuer must be
held for 5 business days
| - sweetener extends for 5 days
61
Short Tender RUule
- must have a long position in the stock
62
Rule10-b-5
- if you do something the act didnt specify, and it is wrong it can be considered fraud
63
Insider Rules
- required to report trades within 2 days
- any short swing profits paid back to corporation
- prohibitted from selling own company's stock short
64
The SEC regulates
Securities only
65
Regulation SHO
- every order ticket be marked long or short
66
Proxy Solicitation
- proxy materials filed 10 days before shareholders receive
- owns more than 5% reports 13D Filing within 10 business days that 5% is reached
- passive investor, 13g filed 45 days
67
Exchange and Member firms msut
register with the SEC
68
Free Credit Balance
- uninvested cash balances must receive quarterly notice with
- amount of free credit balance
- funds are available upon customer request
- funds are not segregated from other brokerage firms cash balances
69
Broker-dealer financial condition
- must send semi-annual financial statements containing
1. Balance sheet
2. Net Capital COmputation
70
Payment for Order flow
- must disclose to customers
| - must disclose the identity of the market for the preceding 6 months
71
Payment Order Flow Quarterly Report
- % of customers orders that were non directed
- identity of 10 largest markets for who orders were non directed
- member firm's relationship with the market maker
- any arrangement for payment for order flow
72
Regulation M
-prevent manipulation by individuals with an interest in the outcome of an offering, and prohibits activities and conduct that could artificially influence the market for an offered security.
73
Rule 103
any syndicate member who is a market maker in an issuer can either 1. resign as market maker for the 20 day period
or
act as passive market maker in the security
74
passive market maker
will not bid the stock higher in the market
| agrees to limit daily volume trading
75
Rule 101
- limits on syndicate members who are not market makers
76
Tier 1 Regulation 1
- no trading restriction, applies to stock with average daily trading of 1 mil and min market cap of 150 mil
77
Tier 2 Regulation
- limited trading
- trading by syndicate makers who are not money makers is recticted for 1 day prior to effective date
- daily trading volume of 100m,000 and min market cap of 25 mil
78
Tier 3 Regulation M
-Inactive trading 5 days prior to effective date
- average daily trading volume of 100 mil
and market cap of 25 mil
79
Regulation M Trading restrictions only apply to
common stock offerings
80
Rule 105
- prohibits investors from manipulating the price of the follow on offering by selling short prior to the pricing of new shares, pushing the stock down
- fall would force underwriters to lower POP price, profiting in the end
81
Rule 104
- exempts stabilization as being a form of market manipulation as long as
- notice of stabilization is on the prospectus
- only 1 stabilizing bid
- at or below the POP
82
Tippee
recipient
83
Tipper
gives inside information
84
Violation of Tipper and Tippee,
only if the Tippee acts upon the information from the Tipper
85
Insider trading violation
up to 3x the profit or loss from the trade
5 mil for each inside trade
and up to 20 years in prison
86
Insider trading for control person
- 25 mil fine
| - must be proven that person knew about the reckless behavior
87
Inside trade fines are paid to
Department of treasury
88
Regulation FD
- selective disclosure by issuers
- when a trader is deemed to be an insider
- at quarterly meetings any information discussed must be public information
89
Regulation FD and intentional disclosure of private information at a meeting
- simultaneously disclosing the information to the broad public
90
Regulation FD and non intentional disclosure or private information at a meeting
within 24 hours file an 8k with the SEC or by a broad distribution to the public
91
Rule 105b-1
- safe harbor rule that permits statutory insiders to set up a plan for trading that companys security
- specifies a future date with amount of securities to be bought/sold
92
Rule 105b-2
- misappropriation theory, if a person stumbles upon inside information they cannot be liable
93
Trust indenture act of 1939
all interstate offerings of non exempt bonds of 50 mil
94
investment advisor
give advice for a fee
| must register with SEC
95
Federal Covered Advisors
larger advisors that must register with SEC
advisors to inv companies
any adv managing over 100 mil in assets
96
State registered advisors
advisor that does not fall under federal covered advisors
97
SIPC Covers
500 k in ewuity 250 k cash values
98
Cold calling rules
no calls before 8 am or afte r9 in recipients time zone
| must identify himself by firm name, their name and address from he is calling
99
Sarbanes-Oxley
- accounting firm acting as auditor cannot perform any other function
- CEO and cfo must certify annually financial reports
- insiders prohibited from trading their own stock during black out periods
- insiders must report trades within 2 days
100
Research analysts must be separated from
investment banking
101
Blue Sky Laws
eachc state has its own regulation
| new issues that will be offered in each State be registered in that State.
102
Registration by coordination
coordinates state registration application with federal application filed with SEC
103
Registration by qualification
used by company that has never filed in state before , most difficult
104
registration by filing
used by a company that has previously filed in the state
105
Securities exempt from state registration
Blue Chip Stocks
| manual exemptions
106
Salesperson and Blue Sky Laws
making calls in a state or to that state must be registered in that state
series 63
107
Investment advisor Registration
must register and pass the series 66
108
Arbitration Panel
2 public and 1 non public arbitrator
109
Second Job and FINRA
- written notice must be given to employer firm
- receive approval from employer firm to be an officer or director of another company
- must be disclosed on u4
110
CE Regulatory Element
computer training on 2 anniversary and every 3 years after that
111
Regulatory Element is not completed
- must be completed within 120 days
| - persons registration is suspended, cannot be paid
112
CE Firm Element
- annual training to cover relevant products, regulations and compliance issues
113
Annual compliance review
firm holds an annual compliance review attended by all registered represenatives
114
Military Leave
- can leave and pick up right where they left
- can still receive commisions
- can have another broker services customers and they can share their commisions
115
U5 Form
- if terminated, filed within 30 days
| - 2 years after not being associated w a firm must re register
116
Reportable events
promptly within 30 days after even
117
Brokercheck
- broker's employment history
- broker's license
- broker's complaint and license directory
- Broker's OBA
118
Correspondence
all correspondence must be approved in advance unless has complaince program in place
119
Correspondence criteria
- any written or electronic communicate that is distributed to less than 25 retail customers within any 30 day period
- must be retained for 3 year
120
Registered Rep and customer sharing accounts
prohibitied
| - unless, written approval of employer, profit and loss be shared in direct proportion to capital contributed
121
Changing order ticket after execution
not allowed unless signed off by branch manager
122
Time Stamp on Tickets
every ticket must be stamped with the time it was exectued or cancelled
123
Copies of order ticket must be kept for
3 YEARS
124
Options transaction costs
- significantly higher than other investments
125
Cash on Delivery Transactions
- firm has record of name and addres of agent
- order ticket notes it is COD
- confirmation is mailed no later than business day
- firm has obtained an agreement from customer with instructions to apay
126
Customer disputes
only handled by arbitration if customer signs the agreement
| = handled by 3 public arbitrators
127
retail communication
any written or electronic communication provided to more than 25 retail investors within 30 day period, must be approved by principal prior
128
institutional communication
written/electronic communication to institutional investors, do not require prior approval as long as it has a "post use and approval" program in place
129
Retail communication types
- advertising
- sales literature( directed to a specific audience, circulars, market letters, password protected)
- independently prepared reprint
130
Recommendations and retail communications
- cannot be made in advertising
| - can be made and sales literature and reprints
131
Copies of communication must be kept for
3 years
132
FINRAs filing rules for retail communication
first year or operation all retail communications must be filed 10 business days ahead of use
retail communications must always be filed
mutual fund
operation retail communications with member performance rankings
133
CMO advertising Disclosure
```
coupon
anticipated yield and average maturity
specific tranche id
final maturity date
underlying collateral
```
134
Research Report approved by
approved by Superior Analyst
135
Research Report Standards
recommendation must have a basis in fact which can be sustained as reasonable
- market price of stock at the time
- supporting documentation to the recommendation must be furnished upon request
- must be dated
- must state risk
136
A member may not issue research reports regarding an issuer for which the member acted as manager or co-manager of an initial public offering for
10 days following the effective date of the offering
| 3 days following secondary offering
137
If a research report recommends a security, the following disclosures are required:
- member firm/ affiliate owns more than 1% of stock
- associated person/household member has a financial interest in the security
- has managed/co managed security withina year
- has received compensation for this security
- is an investment banking service of this client
138
Research Report
any client communication that analyzes individual security or companies that includes enough information to make a research decision,
- distributed to more than 15 people
139
Third Party Research Report
- identity of firm must be disclosed
- conflict of interest must be disclosed
- representative must have prior approval to give out a third party research report
140
Research Report Retention
3 years
141
Regulation AC
requires research analysts at member firms to certify each published research report; and to make a quarterly certification covering all public appearances made during that quarter
142
If an analyst fails to make the Regulation AC ,
FINRA must be notified; and for the next 120 days, any research reports authored by that analyst must include the disclosure that the analyst did not provide the required certification.
143
FINRA code of procedure
1. complaint is filed with OHO
2. If OHO not satifised, hearing in front of FINRA hearing panel
3. If either party disagrees, appeal with the FINRA Adjudicatory Council
4. If either party disagrees again, appeal with SEC
5. Disagrees again appeal with Federal Court
144
FINRA code of procedure penalty
- censure, suspension, expulsion, and fines
145
MRVP Fine
2500
146
What documents fall under 3 year retention
advertising
correspondence
customer orders
147
what documents fall under 4 year retention
customer complaints
148
what documents fall under 6 year retention
customer account statements
149
MSRB does not regulate
municipal issuers
150
MSRB can set regulations but cannot
force rules
151
Broker Dealer Enforcement AGencies under MSRB
SEC and FINRA
152
Municipal Securities Series 53
Engaged in management, direction supervision
- maintenance
- training
- processing
- research
- communications
- trading
- finacial advisory
- underwriting
153
Municipal Securities 52
not a principal
| actions are not solely clerical or ministerial
154
Clerical Duties
- recording/entering orders
- reading approved quotes
- giving trade reports
155
If Series 52 is not passed within
180 days, he or she cannot perform any duties of a municipal representative
156
Municipal Principal
MSRB requires one from every municipal broker/dealer
157
Reviews required by Muncipal Principal
- opening of each customer account
- each municipal securities transaction
- handling of all customer complaints
- all correspondence relation to the solicitation of municipal securities
158
May pay for work under MSRB rules if
- prior to employment, written agreement with details of work and compensation
- written consent of that person's employer
159
Signature requirements under MSRB
RR and manager
160
MSRB requirements for opening a new account at another firm
- dupe confirms
| - any written instruction of the employer be followed by your firm
161
MSRB Annual Notice to Customers
- statement that broker dealer is registered with SEC and MSRB
- Website address for MSRB
- Statement to the availability of an MSRB Brochure
162
MSRB Financial advisor wishes to underwrite a security
cannot be underwriter under any circumstances
163
MSRB New Issue disclosure
- required to send final official statement, if prepared
| - required to disclose spread for negotiated offerings
164
MSRB written complaint record must be kept for
6 years
165
Reasonable relationship to determine fair market value
- overall inventory position
- inventory position in that security
- anticipation of direction of movement
- knowledge about facts of the customer
166
Nominal quote
- workable
| - informational
167
subject quote
- usually subject to some condition and has to be re-verified
168
Floor Broker
used to execute a transaction on the CBOE, may be either an employee member of firm or independent, cannot hold inventory
- under obligation to obtain best avaiable price
169
Market makers and CBOE
make the market, trade for their own account, does not deal w public
cannot act as floor broker in same security
170
OBO
works on salaried basis mainting public orders
public orders have priority over accounts with member firms
cannot take inventory positions
cannot take spreads
171
Designated Primary Market Maker
maintains a bid and ask quote in each assigned option, will handle the book of public limit orders
172
trading rotation
calls for bids and offers for each each series to establish opening price, only in single specified option contracts
173
closing rotation
always performed on last trading day prior to expiration,
