Rules & Regulations

Question 1

SEC Rule 10b-18

Answer 1

Conditions for Issuers to Repurchase Stock- Corporations can buy back their own common stock in the secondary market provided they follow the provisions of this “rule” of the 1934 Act

Question 2

Regulation SHO

Answer 2

an SEC regulation implemented to address concerns regarding short sale practices. It established “locate” and “close out” standards that are meant to ensure proper execution of short sales and to prevent naked short selling practices

Question 3

Regulation S-P - Privacy Rules

Answer 3

This rule requires financial institutions to provide notice to consumers about the institution’s privacy policy & practice; restricts the ability of a financial institution to share nonpublic personal info about consumers w/ non affiliated 3rd parties; & allows consumers to prevent such info sharing by opting out. It also requires safeguarding of customer info. Info about consumers can be shared w/ affiliates of the BD

Question 4

The Sarbanes-Oxley Act of 2002/Reg X

Answer 4

known as the Corporate Responsibility Act. It requires that corporate CEO’s (AKA principal executive officers) and CFOs (AKA principal financial officers) certify financial reports. CEO’s & CFO”s would also be required to forfeit profits & bonuses from corporate earnings due to securities fraud

Question 5

Hart Scott Rodino Act of 1976

Answer 5

established the federal pre-merger notification program which provides the Federal Trade Commision (FTC) & the Dept of Justice (DOJ with info about large mergers & acquisitions before they occur. It gives the FTC & DOJ the opportunity to review the potential effects on competition of certain mergers, acquisitions or other consolidations that meet the Act’s size & other tests before such transaction are completed

Question 6

Regulation Fair Disclosure

Answer 6

AKA Reg FD. This regulation attempts to halt the selective disclosure of material nonpublic info by issuers to analysts & institutional investors

Question 7

Trust Indenture Act of 1939

Answer 7

regulates Corporate bonds & requires an indenture or deed of trust, which specifies the rights & duties of the issuer, underwriter, & investor

Question 8

FINRA Rule 5131

Answer 8

prohibits firms participating in the distribution of a new issue from accepting any market orders for the purchase of shares of the new issue in the secondary market prior to the commencement of trading of such shares in the secondary market

Question 9

Securities Act of 1933

Answer 9

primary purpose of this Act is to protect the public from the issuance & distribution of fraudulent securities

Question 10

Regulation M

Answer 10

is intended to prevent persons having an interest in an offering from artificially conditioning the market in order to influence the distribution.
This regulation is intended to ensure that securities should not be distributed in a market manipulated by the activities of persons having an interest in the distribution

Question 11

Rule 101

Answer 11

applies trading restrictions to underwriters, prospective underwriters & syndicate members in ADDITIONAL ISSUE OFFERINGS.
Additional issue offerings by issuers who have already completed an IPO and decide to issue additional shares to the public.

Question 12

Rule 102

Answer 12

puts restrictions on the issuer and the selling shareholders of the additional distribution. The rule restricts the issuer, its affiliates and selling shareholders from bidding for or purchasing the “covered security” or “referenced security” during the 1 or 5 day restricted period

Question 13

Rule 103

Answer 13

permits broker/dealers to engage in market making transactions in covered securities that are NASDAQ securities

Question 14

Rule 104

Answer 14

Stabilizing and Other Activities in Connection with an Offering - Stabilization or pegging the price is generally prohibited EXCEPT for the purpose of preventing or retarding a decline in the market price of a security during securities offering in accordance with SEC rules

Question 15

Rule 105

Answer 15

Short Selling in connection with an offering.

Short selling of the covered security within 5 BUSINESS DAYS PRIOR to the pricing of the public offering is prohibited

Question 16

Shelf Registration (SEC Rule 415)

Answer 16

Using a form S-3, an ELIGIBLE CORPORATION can register the maximum amount of securities it intends to issue in the upcoming 3 YEAR PERIOD. After doing so, the corporation can issue these securities from the “shelf” without filing again with the SEC. . These securities can also be used for the purpose of the exercising of warrants or conversion of outstanding shares.

Question 17

Regulation S-X

Answer 17

sets forth the form, content, and requirements for financial statements filed with or as part of the Registration Statements filed with the SEC for new issues and mutual funds

Question 18

Regulation S-K

Answer 18

regulates the requirements of the content of NON-FINANCIAL PORTIONS OF REGISTRATION STATEMENTS filed with the SEC

Question 19

SEC Rule 13e-3

Answer 19

regulates companies that are publicly traded that want to return to being a Private Company

Question 20

Reg D

Answer 20

aims at facilitating the capital formation needs of small business

Question 21

SEC Rule 504

Answer 21

• Provides an exemption for an aggregate offering of $5,000,000 or less in any 12 month period.
• no specific disclosure requirements to investors in this offering and no requirement concerning an investors qualification to purchase the issue
• generally doesn’t allow companies to solicit/advertise their securities to the public
• there is no limit to the number of investors as long as the aggregate offering doesn’t exceed $5,000,000
• this offering is done only in the states where its registered & a disclosure document is delivered under the particular state law, then the securities purchased can be sold w/o restriction by investors. If this is not true the securities purchased by investors would be restricted securities and limited in the manner in which they can be resold

Question 22

SEC Rule 506 (b)

Answer 22

AKA Traditional Private Placement

• Issuers can use “quiet’ private placements w/o solicitation/advertising, but non-accredited investors can take part if they are provided the disclosure info about the issuer, usually in a Private Placement Memorandum (PPM)
• provides exemption for an offering w/o regard to the dollar limit as long as the issue is sold to no more than 35 SOPHISTICATED investors plus an unlimited # of accredited investors
• co. cant use general solicitation/advertising
• all non-accredited investors, must be sophisticated
• securities received by an investor in this rule offering are restricted securities
• if purchased by sophisticated non-accredited investors they must be given certain info…accredited investors do not have to be given this info. if both non- accredited & accredited are purchasing both must be given the same required info