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Series 62 > Trading Securities > Flashcards

Flashcards in Trading Securities Deck (48):

Name four key areas of the Securities Exchange Act of 1934...

1. Trading of securities
2. Regulation of companies with securities trading in the secondary market
3. Regulation of exchanges
4. Regulation of BDs and SROs


What are the registration requirements on corporations of 1933 and 1934 Acts?

1933 Securities Act requires registration of securities when first offered.
1934 Exchange Act requires corporations to register with SEC once its total assets and number of shareholders reaches certain level.


What's the best course of action if an RR receives material, non-public information on a company?

Contact a principal or compliance officer at his firm.


Creating a false impression of volume through coordinated trades is known as...

Painting the tape / wash sales


Capping and pegging are...

Forming pools or syndicates for purpose of raising or lowering the price (both illegal)


An insider is defined as...

Director, officer or owner of more than 10% of a corporation and their immediate family members


Someone becoming an insider must...

Report to SEC on Form 3 within 10 days.
Any change in stock position must then reported in second business day after the change.


Someone acquiring 5% or more of the equity securities of a company must...

Report through a 13D filing within 20 business days stating reason for the holding
(Persons acting in concert - eg purchase for a minor - are covered)


What are the restrictions on insiders trading stock?

- No short swing profits
- If sold within first six months, company may sue for the profit
- After six months holding any profit from a sale followed by a repurchase within six months is also recoverable
- No short selling


What is shorting against the box?

An insider selling short against a long position held elsewhere to ensure timely delivery of securities in legal transfer.


Six points on a customer confirmation of a trade...

1. Trade and settlement dates (NOT TIME)
2. Agent or principal
3. Name, price, number of shares or principal amount of bonds
4. Redemption features on a bond
5. Amount of commission
6. If firm is a market maker or specialist


The status of an order as solicited or unsolicited must be disclosed where? Order ticket or customer confirmation?

Order ticket


Free credit balances of customers of a BD are payable on demand. How often must a BD inform customers of their balance?

Every three months


What must a BD do if it executes a sale and customer fails to deliver securities within 10 days after settlement?

Close out the transaction by buying the same securities – "buy in"


Regulation FD on Fair Disclosure covers disclosure of material non-public information by...

Requiring a company to disclose simultaneously to public or to do so within 24 hours / before next trading day opens using SEC Form 8-K


Regulation M places restrictions on underwriters and issuers of new issues around....

...bidding on or purchasing stock in secondary market to support a new issue.
No time limit on permitted stabilisation.


Regulation M Rule 101 prevents distributors of a new issue to buy or bid during restricted period of...

1 or 5 days before pricing until the end of distribution


What is passive market making?

Underwriters of an issue can still be market makers (to preserve liquidity) but cannot enter a bid or effect a purchase at a price higher than the highest independent price


In a falling market a passive market maker can delay lowering its bid until...

Its purchases have reached or exceeded lesser of
- twice the minimum quotation size
- passive market maker's remaining daily limit


What is a passive market maker's daily purchase limit?

Average daily trading volume as determined by FINRA – note it is net purchases.
Can complete a single order which breaches limit but must then withdraw.


Under Rule 104 – what is permissible stabilising?

- Not allowed in an at-the-market offering
- maximum price is public offering price
- must be disclosed to market and the person to whom bid is made


What type of short sales are prohibited by Rule 105?

During period 5 BUSINESS days before pricing and ending with pricing, violation to sell short a security subject to offering and then purchase that security from an underwriter


An unlisted stock with a market value of less than $5 is known as...

A Penny Stock


What must a BD do for Penny Stock transactions?

- Prior to any trading give customer a Risk Disclosure Document
- For each transaction disclose current quotation / compensation for BD / compensation for RR


What are key features of Penny Stock transaction Cold Call Rule?

1. Approve account determining suitability, delivering written assessment of suitability and receiving signed copy back
2. Obtain written agreement to the transaction specifying identity and quantity to be purchased


What transactions are exempt from Cold Call Rule?

1. With institutional accredited investor
2. Non recommended transactions
3. Transactions with established customers (at least one year from a transaction or deposit or with three penny stock transactions)


How long must tender offers generally be held open for?

20 days


What is short tendering?

Tendering securities you don't own


Five features of Regulation S-K on projections?

1. Reasonable basis
2. May provide a review of previous projections
3. Full and prompt disclosure of material facts
4. Management may resume or discontinue projections
5. External review permitted but not required


What is registration by reference?

Referring to – rather than including – documents filed with SEC (generally within last five years)


What deals with missing, lost, counterfeit and stolen securities?

Securities Information Centre


Exemption of registration of equity securities under Section 12 of 1934 Act applies to issuers with...

- Less than 500 holders of a class of equity security
- Total assets less than $5m


Companies registered under Section 12 must provide the SEC with...

Quarterly and annual reports


SIPC covers each customer to what extent?

- A maximum of $500k of which a maximum of $250k in cash
– in a margin account only equity, not market value, is covered


When must BDs advise customers of SIPC?

In writing in account opening and once per year thereafter


Regulation M-A allows more flexibility in cross
Border M&A, however one key requirement that remains...

Provision of a summary term sheet to investors


Under Rule 103 - Passive Market Making - in a falling market, PMM must (after reaching limits) must drop its price to...

The highest independent bid or lower
Limits are purchases reaching or exceeding lesser of 2x minimum quote size or PMM's remaining daily limit


Under SEC Display Rule, MM receiving a limit order may display or alternatively...

1. Execute upon receipt
2. Deliver to an ECN
3. Deliver to another firm that complies with display rule


Can insider trading happen without a transaction?

No. A transaction must take place. However it need not be profitable.


How are established customers treated by penny stock rules?

Exempt from account approval procedure, but must receive Risk Disclosure Document prior to first transaction and be subject to penny stock transaction rules


Who can enter orders into an ECN?

Any subscriber - most open to all investors and traders


When must confirmations on a stock transaction be sent?

At or before completion (ie by the settlement date)


According to the Display Rule if a MM is at the inside and receives a lot order at the inside, it must increase its displayed size UNLESS...

The order is de minimis - 10% or less of the displayed size - in which case no change


What securities would not be protected by SIPC?

Those in the name of the customer held by the customer


When a stock goes ex-dividend and orders adjusted, how is a dividend of 43.5 treated?

Always round dividend UP to whole cent and THEN adjust price


If an issue has a green shoe clause, to what extent can an issuer generally overallot?



What's the timeframe for a principal to approve a customer order?

Same day


What's the ADF?

Alternative Display Facility quoting NMS stocks
OTC stocks are NOT NMS securities