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Regulations

Terms in this set (58)

Securities Act of 1933
aimed at curbing manipulation and fraud in the new issue market. Requires non-exempt issues to be registered with the SEC and sold with a prospectus.
Securities Exchange Act of 1934
aimed at curbing manipulation and fraud in the secondary markets. Consists of a broad array of provision to curb insider abuses; require registration and self-regulation of exchanges under SEC oversight, require registration of member firms and their sales employees, require issuers to make public their financial statements, give the Federal Reserve the power to set margins, and numerous rules to curb manipulative market practices.
Regulation A
an "E-Z" registration process under the Securities Act of 1933. Permits non-exempt issuer to issue up to $50m worth of securities each year.

Tier 1: up to $20MM within a 12 month period, audited financial statements not required.
Tier2: up to $50MM within a 12 month period, audited financial statements are required.
Regulation AC
SEC rule for research analysts at brokerage firms. Requires each analyst that writes a research report to certify that the report is unbiased, is the analyst's honest opinion, that the analyst was not coerced to write a favorable report by the member firm, and that the analyst was not paid special compensation to write a favorable report.
Regulation D
An exempt transaction under the Securities Act of 1933 that allows a private placement of securities to the public without the filing of a registration statement with the SEC. Private Placement can be sold to an unlimited number of accredited (wealthy) investors, but only to a maximum of 35 non-accredited investors.
Regulation M
SEC rule addressing trading during the 20-day cooling off period for an "additional share offering." Restricts markets makers during the 20-day cooling off period and immediately thereafter.
Regulation NMS
SEC rule adopted in 2005 with a variety of provisions to promote a "National Market System" for trading equity securities. Regulation NMS incorporates some older rules and some new rules. The major new rule is the "trade-through rule" that requires "fast" markets (NYSE, NYSE-MKT and NASDAQ) to fill executable orders at the best price available in any market in 1 second or else route that order to the better-priced market. Also has a variety of provisions covering protection of customer limit orders from broker-dealer front running, the display of customer limit orders, reports that exchanges must prepare on execution quality, and reports that broker-dealers must prepare on their order routing methods.
Regulation SHO
SEC rule effective in 2005 that imposes new short sale requirements. If a stock declines by 10% or more, it can only be sold short on an upbid for the remainder of that day and the entire next day.
Regulation SP
SEC rule covering the privacy of customer accounts.
Regulation T
Federal Reserve regulation that controls the extension of credit on non-exempt securities from brokers to their customers. Defines the types of accounts in which transactions may occur, defines which securities are marginable, defines the initial margin requirements to establish securities positions in accounts, and sets maximum time periods for the collection of monies due from customers.
Regulation U
Federal Reserve regulation that controls credit extended by banks to their customers, where securities are the collateral for the loan. Broker-dealers are the "customers" of banks under this definition and this sets the amount or percentage of credit that a bank may extend to a broker-dealer who buys non-exempt securities on margin.
Rule 10b-5
the "catch-all" fraud rule under the Securities Exchange Act of 1934, that states that any action taken in the secondary market that is manipulative, though not specifically defined under the Act, still is considered to be fraudulent.
Rule 10b-18
"safe harbor" for issuers to buy their own stock in the market under the Securities Exchange Act of 1934, it outlines how an issuer can but its own stock without being accused of attempting to manipulate the stock price higher.
Rule 101
Regulation M Rule that states syndicate members who are not market makers are subject to a restricted periods for secondary offerings of either 1 or 5 business days prior to the stock's effective date.

Tier 1: Actively Traded Security - not restricted
Tier 2: Moderately Traded Security - subject to a 1 day restricted period
Tier 3: Inactively Traded Security - subject to a restriction of 5 business days
Rule 103
Regulation M Rule that states that syndicate members who are market makers may either seek an excused withdrawal or elect to operate as a passive market maker.
Rule 104
Regulation M Rule that details the requirements for stabilization of a new issue in the trading markets: that a "Notice of Stabilization" is shown on the inside cover of the prospectus indicating that stabilization may occur and that when stabilization stops the price may drop, that only 1 stabilizing bid is allowed to be placed by the managing underwriter, and that this is a "one-sided" quote (there is no "ask") which is never higher than the current independent bid if one exists.
Rule 105
Regulation M Rule that prohibits broker-dealers from purchasing shares of stock from the underwriters at the offering price to cover short positions established within 5 business days of the effective date.
Rule 144
SEC rule that permits the holder of private placement "restricted" shares to resell these securities in the public market without filing a registration statement, if the issuer has "gone public." Requires public notice of sale, places limitations on the timing of the sales, and limits the amount that can be sold.

Seller can file the Form no more than 4 times a year (every 90 days) and the maximum sale is greater of 1% of outstanding shares or weekly average of last 4 weeks trading volume whichever is greater.
Rule 144A
permits large private placement offering to be made to Qualified Institutional Buyers (QIBs) who may trade these securities among themselves without having to register the securities.
Rule 145
SEC rule that requires issuers to file registration statement and issue prospectuses to investors for securities that arise out of mergers and divestitures. Does not apply to securities issued as the result of stock dividends or stock splits, however.
Rule 147
SEC rule that spells out the requirements for an issuer to obtain an exemption from registration for a new issue because the offering will be made only in one state (an intrastate exemption). 100% of the issue must be sold solely to state residents to obtain the exemption.
Rules 15g-1 through 15g-6
Commonly known as the "penny stock rule," a set of SEC rules that have been adopted by FINRA requiring that any customers who are solicited to buy a non-exchange, non-NASDAQ stock under $5, sign a detailed suitability statement that prominently discloses the high risks involved with such a security, prior to confirmation of sale.
Rule 415
known as the "shelf registration rule", this is a streamlined registration process under the Securities Act of 1933 for large, established companies. Rather than having to file a registration statement and complete a 20 day cooling off period for each new securities offering, the issuer files a blanket registration statement with the SEC that goes on the SEC's "shelf" for 3 years. Once the "shelf" filing is made, by giving 2 days' notice to the SEC, the issuer can sell new securities in the market.
Rule 605
SEC rule, part of Regulation NMS, that requires each market venue to compile monthly statistics on order execution speed, whether prices were improved, and whether payments for order flows were made. A report of these statistics is available on that market's website.
Rule 606
SEC rule, part of Regulation NMS, that requires member firms to disclose to customers, upon request, the market venues to which the member firm sent that customer's orders for the prior 6 months, whether the orders were directed to a specific marketplace by the customer or non-directed, and the time of each transaction that resulted from these orders. In addition, the rule requires each broker-dealer to prepare a quarterly report that breaks down the routing of its trades by market venue and whether payments for order flows were accepted from that venue.
Rule 611
SEC rule, part of Regulation NMS, the rule requires all markets to link in real time and be able to access each others quotes for "NMS" stocks - NYSE, NYSE-MKT (AMEX) or NASDAQ listed issues. Any executable trade sent to an exchange, third market maker, ECN or ATS must be executed in 1 second at the best price shown in all markets, otherwise the order must be routed to the better-priced market. Commonly called the "trade through rule."
Rule 612
SEC rule, part of Regulation NMS, that requires all orders entered for NMS stocks be in pennies - no sub-penny quotes or orders. Note, however, that execution can occur in sub-penny increments.
10K Report
Audited annual report
10Q report
Unaudited quarterly report
8K report
Corporate reports of "big changes" at a company - such as a change in the Board of Directors, filing for bankruptcy, a merger, etc.
Must be made within 4 business days of the "big event"
13D Filing
Filed when a person accumulates a 5% equity position and intends to exercise control over the company.
Must be made within 10 days of the date that the 5% threshold is reached.
13G Filing
Filed when a person accumulates a 5% equity position but intends to remain a passive investor.
Exempt Issues
U.S. Government, Agencies, Muni's, Foreign Government Obligations.

Bank issues, Insurance company offering except for Variable Annuities, Common Carrier issues, Public Utility issues, Non-Profit and Charitable Organizations issues, Banker's Acceptances and Commercial paper < 270 days, Small Business Investment Company (SBIC).
Regulation FD (Fair Disclosure)
SEC Regulation addressing the selective disclosure by issuers of material non-public information, and when insider trading liability arises in connection with a trader's use or knowledge of material non-public information.

If an issuer makes an intentional non-public disclosure, it must simultaneously disclose the information by broad distribution to the public.

If the issuer makes a non-intentional non-public disclosure, it must promptly (within 24 hours) disclose the information by filing an 8K with the SEC.
Trust Indenture Act of 1939
Requires all interstate offerings of "non-exempt" (corporate) bonds of $50MM or more to be made with a trust indenture, appointment of a "substantial" Trustee to protect interest of bondholders, and insure requirements set forth are adhered to by issuer; trustees cannot have "conflicts of interest."
Investment Company Act of 1940
Requires that all Investment Companies must register with the SEC and defines the types of investment companies that are allowed: Face Amount Certificate company, Management Company, Unit Investment Trust.
Investment Advisers Act of 1940
Requires that one who gives investment advice for a fee must register with the SEC if they give advice interstate to 15 or more persons. Broker/dealers, bank and general circulation newspapers are not considered to be Investment Advisers, thus firms that offer "wrap accounts" and non-managed flat fee accounts require investment adviser registration.
Securities Investors Protection Act of 1970 - SIPC
Established a non-profit member corporation funded by its member securities broker-dealers that protects customers from broker/dealer failure, covering $500,000 equity per customer, inclusive of $250,000 cash coverage.
Federal Telephone Consumer Protection Act of 1991
Requires that unsolicited calls (and faxes) cannot be made before 8:00 AM nor after 9:00 PM in the time zone of the recipient.

Caller must identify himself by name, firm and where they are calling from (address or phone number).

Requires firms to maintain a No-Call List and established the National Do Not Call Registry.
Sarbanes-Oxley Act of 2002
Requires that the accounting firm acting as an auditor for an issuer cannot simultaneously provide non-audit service to the issuer and must report to an "independent" audit committee at the issuer.

Requires CEO and CFO of the issuer cannot have been employed by the company's audit for 1-year preceding the audit and must certify annually the financial and disclosure statments made in the 10K and 10Q reports.
Blue Sky Laws
Requires that new issues sold have to be registered with State's securities commission and does not exempt issues from state registration under the Act of 1933.
Series #4
Registered Options Principal Exam
Series #6
Investment Company/Variable Contracts Products Limited Representative Exam
Series #7
General Securities Representative Exam
Series #11
Assistant Representative - Order Processing Exam
Series #63
Uniform State Law Agent's Exam
Series #52
Municipal Securities Representative Exam
Series #53
Municipal Securities Principal Exam
Series #65
Registered Investment Adviser's Exam
Series #66
Combines the Series #63 and the Series #65
Correspondence
Defined by FINRA as any written or electronic communication destributed or made available to 25 or fewer retail investors, existing or prospective, within any 30 calendar day time frame.

Does not require prior principal approval as long as the firm as a compliance program in place.
Retail Communication
Defined by FINRA as any written or electronic communication distributed or made available to more than 25 retail (non-institutional) investors within a 30 calendar day time frame (specifically an investor with less than $50MM of assets).

Does require principal approval prior to distribution.
Institutional Communication
Defined by FINRA as any written or electronic communication distributed or made available only to institutional investors, including banks, savings and loans, investment companies, government entities, FINRA members or any person with assets of $50MM or more.

No prior principal approval is required as long as the firm has policies and procedures in place for "post-use review and approval."
Advertising
Defined by FINRA as material intended for a mass market: newspapers, magazines, TV, tape recordings, websites, billboards, etc., including static "non-interactive" information on Internet Bulletin Boards, social networking, etc.
Sales Literature
Defined by FINRA as material sent to more than 25 investors, more specific in nature (directed to a specific audience), like market letters, circulars, seminars, research reports, form letters, etc., including password protected websites.
Independently Prepared Reprint
Defined by FINRA as a reprint or excerpt of any article issued by a publisher not affiliated with the FINRA member and not commissioned by the FINRA member.

If distributed to more than 25 investors = Retail Communication
If distributed to 25 or less = Correspondence
Public Appearance/Public Forum
Defined by FINRA as participation in a seminar, forum (including electronic venues), radio, TV, or other public appearances. These are spontaneous, unrehearsed "appearances."

If attended by more than 25 investors = Retail Communications
If attended by 25 or less = Correspondence
Rule G-2
MSRB Rule stating that all people effecting a municipal transaction must be qualified.
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