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Chapter 10: Securities Act and SEC Rules
Terms in this set (114)
Securities may not be sold until the effective date of registration which is normally how many days after the final amendment to the filed registration statement?
What securities are exempt from registration requirements of the Securities Act of 1933?
-banks and savings and loans
-US government and municipal securities
-securities issued by motor carriers subject to the Interstate Commerce Act
-ST commercial paper(maturity <9 months)
When must a prospectus be delivered?
No later than the time the sale is confirmed
What publication is permitted during the offering period?
What can a tombstone ad include?
The name of the issuer
The full title of the security
The amount being offered
A brief description of the issuer's type of business
The price of the security
The date of sale
The identity of the underwriters
What is Rule 144?
Rule 144 is concerned with the sale of restricted stock and affiliate (control) stock
What is restricted stock?
A stock that is not registered and that is acquired by an individual through a private placement
What is control stock!
A stock that is acquired by an affiliated person (such as an officer or director)
Is stock acquired in the market by a control person required to follow Rule 144?
Yes, when a control person purchases the stock in the open market it becomes unregistered
Any sale under Rule 144 must be restricted to securities that are FULLY-PAID at least how many months before the sale?
Is there a holding period for control stock?
When can a control person sell a stock that was purchased through an open-market?
At any time
What is the maximum that can be sold under Rule 144?
The GREATER of 1% of the total outstanding shares OR the average weekly trading volume for the last 4 weeks
How much time must elapse between each Rule 144 sale?
When is a notice of sale under Rule 144 not have to be given to the SEC?
If the amount of the sale does not exceed 5,000 shares OR the dollar amount does not exceed $50,000
What must notice be given to the SEC for a sale under Rule 144?
At the time the order is placed
Can a corporation itself sell call option on its own securites?
Can affiliated persons from a corporation sell call option on its company's security?
Yes, under the provisions of Rule 144
What corporate actions are not required to be registered under Rule 145?
Reverse stock split
Change in par value
How long do members serve on the SEC?
Five years (per term)
How long can the SEC suspend trading on a security?
No more than 10 business days
How long can the SEC suspend trading for a security on a national exchange?
No more than 90 days
When can SROs halt trading on securities traded in their markets?
Pending release of material information
What are the characteristics of a publicly traded company required to register with the SEC?
Total assets of more than $10,000,000 and more than 500 shareholders OR of its securities trade on a national exchange or NASDAQ
An insider is a director, officer or owner of more than ______ of the outstanding stock of a cooperation.
When are individuals required to report to the SEC after they become insiders?
Within 10 days of becoming an insider
When are insiders required to report changes in their position?
No later than the 2nd business day following the change
When can short-swing profits be earned?
Within six months of purchase
What section requires anyone who acquires 5% or more of an issuer's security to complete notification?
Under Schedule 13(D) anyone who acquires 5% or more of an issuer's securities must notify which three entities?
The exchange where the security is traded
Purchases by the B/D in the over-the-counter market are permitted how many days prior to the distribution?
10 days prior
What are matched orders?
Two persons acting in concert to buy and sell a security for the purpose of raising or decreasing the price
Individuals who suffers damages because of market manipulation have to act with _______ years of the manipulative activity AND within _______ years of discovery.
3 years of the manipulative activity
1 year of discovery
What regulation was created to regulate trading practices involving new issues?
Under Rule 101 when is the restricted period during a distribution?
1 or 5 days before pricing
When does the restricted period typically begin?
Five business days prior to the pricing
When is the restriction period only one day?
When the security has an average daily trading volume (ADTV) of at least $100,000 AND the issuer's public float is $25 million or more
What are exceptions to Rule 101 (restricted period)?
-Transactions in government and municipal securities
-Nonconvertible investment-grade debt and preferred stock
-Registered investment companies
-Activity traded securities with an ADTV of at least $1 million AND issuer's public float is at least $150 million
-Odd lot transactions
-The exercise of any option, warrant or right
-Transactions in the subject security that are part of a basket strategy
-Securities sold with the exception under Rule 144 to qualified institutional buyers and certain Regulation S transactions
When can research reported be distributed during the restricted period from participating distribution members
When such reports are distributed with reasonable regularity
Market makers involved in a distribution cannot enter a bid of effect a purchase at a price higher than what?
The highest independent bid
In a rising market is a passive market maker required to raise its bid to meet the best independent bid rises?
They are required to but they can
Can there be passive market making when there are no independent market makers?
What is the DAILY purchase limit for passive market makers?
The GREATER of 30% of the ADTV in the stock or 200 shares
Is stabilizing permitted in an at-the-market offering?
What is the maximum price at which a stabilizing bid may be initiated?
The public offering price (POP)
Who has to be notified when a syndicate decides to do a stabilizing bid?
The market in which the stabilizing will occur
Rule 105 stipulates that it is a violation for any person to sell short a security that is subject of an offering and then purchase the security from an underwriter if the short sale was executed in what timeframe?
During the period beginning five business days prior to the pricing of the offering
When does Rule 105 regarding selling short and purchasing from the underwriter not apply?
If the offer is not a firm-commitment
How long must the syndicate manager maintain information of the amount of the short position?
30 days after the effective date of the offering
What is a penalty bid?
A penalty bid is an arrangement that permits the managing underwriter to reclaim a selling concession from a syndicate member when securities originally sold are repurchased by the syndicate in stabilizing transactions
How does overallotment occur during distribution?
When syndicate members sell more than the number of shares being offered
What is the provision that allows the syndicate to purchase up to 15% more shares than originally registered to cover overallotments?
The Green Shoe option
What prohibited market activity involves effecting stock transactions to prevent a price decline?
Pegging (typically used by long put option holders)
What prohibited market activity involves effecting stock transactions to prevent a price increase?
Capping (typically used by long call option holders)
What prohibited market activity involves effecting market transactions based on non-public information?
When must short-interest reports be received by FINRA?
By close of the 2nd business day
When do short-interest reports get filed?
As of the close of the designated settlement date which is currently the 15th of the month
Is a person considered to own a security if he or she holds a security future contracts to purchase the security and has received notification that the position will be physically settled and the security will be received?
What is the requirement that a B/D must mark all orders for equity securities, OTC and exchange listed, as long, short or short exempt?
Rule 200 under Regulation SHO
When is it acceptable for a B/D to use borrowed securities to make delivery?
-When lending to another B/D
-If the B/D knows or believes that the seller owns the security and will deliver by settlement date, but the seller fails to deliver
-A good-faith mistake
Prior to effecting a short sale a B/D must do what?
Locate the securities to be used for delivery by settlement date
In order to locate securities customers are looking to short what list was created?
Easy to Borrow List
How often does the Easy to Borrow list get updated?
Every 24 hours
For the exception of selling short for a security for share that are restricted how long does the customer have to deliver the shares?
35 days after trade date
If a B/D has a fail to deliver at a clearing firm in a threshold security for a continuous period of how many days do they have to close out the position?
13 settlement days
How long do B/Ds have to close out a fail to deliver from a threshold security?
No later than the start of the trading day after the 13th settlement day
What is a threshold security?
-There is an aggregate fail to deliver position for five consecutive settlement days at a clearing firm for 10,000 shares or more AND equal to at least 0.05% of the total outstanding shares of the issuer
-A self-regulatory organization has included the security on a threshold securities list to its members
What is the maximum civil penalty for insider trading violations?
Up to 3x the amount of gain or loss avoided in the transactions
What is the maximum criminal penalty for insider trading violations?
For individuals it is up to a $5 million fine AND/OR imprisonment for up to 20 years
For corporations it is up to a $25 million fine
What is the maximum bounty given by the SEC for insider trading tips?
10% of the penalty
Do trade confirmations have to disclose if the B/D acted as an agent (broker) or as a dealer (principal)?
If a B/D acted as an agent for both sides of a transaction does that need to be disclosed?
Can a B/D act as a broker (agent) and a dealer (principal) for the same transaction?
A principal or dealer charges a _______ while a broker or agent charges a _________.
How often do written statements have to be sent to customers to whom credit is extended?
Who has the power to regulate credit in the purchase of securities?
The Federal Reserve Board
Who is in charge of enforcing the rules concerning credit given to customers to purchase securities?
How often are blotters prepared?
How long do blotters have to be kept?
How long do ledgers have to be kept?
When does the general ledger have to be prepared?
No later than the settlement date
How long do ledgers concerning securities in transfer, dividends and interests, securities borrowed, monies loaned, securities failed to deliver and long and short stock record differences have to be kept?
How long for memorandums have to be kept?
How long do copies of confirmations have to be kept?
How long do power of attorney documents have to be kept once it is terminated?
Six years after termination
How long do documents for business accounts like articles of incorporation have to be kept?
LIFETIME of the B/D
What is a tender offer?
An offer to buy stock of a company at a specific price
True or False: A person who is making a tender offer for stock may NOT buy the stock or convertible bond of the same issuer during the period the tender is open.
When do shareholders have to be notified of a tender offer?
No later than 10 business days from the date the tender is made
How long are tender offers open for typically?
At least 20 business days
If the person making the tender offer changes the information how much longer does the tender offer have to remain open?
At least 10 business days from the date that notice of change is given to shareholders
What is not factored in when determining a net long position?
What is the form filed with the SEC when a company goes private?
When a company is going private what two documents do they have to provide shareholders?
-Financial statements for the last TWO fiscal years
-The latest financial statements year-to-date
Under Rule 10b-18 regarding issuers purchases their own securities how many B/Ds can be used?
One (but a different brokers can used in the extended hours trading)
Under Rule 10b-18 regarding issuers purchases their own securities when can purchases NOT be done for actively traded securities?
Last 10 minutes of trading
Under Rule 10b-18 regarding issuers purchases their own securities when can trading NOT be done for most securities?
First transaction of the day AND the last 30 minutes of the normal trading day
Under Rule 10b-18 regarding issuers purchases their own securities what is the maximum bid?
The highest independent price
How is the highest independent price determined under Rule 10b-18?
From three independent dealers
Under Rule 10b-18 regarding issuers purchases their own securities what is the maximum quantity that can be purchased daily?
25% of the ADTV
How often can an issuer do a block trade?
Once a week
What is a block trade?
Has a purchase amount of $200,000 or more OR
at least 5,000 shares with a purchase amount of $50,000
at least 20 round lots that total 150% or more of the trading volume
Are block purchases included in the calculation of the ADTV?
In the event there is an exception to Rule 10b-18 regarding issuers purchases their own securities what is the maximum quantity that can be bought?
The volume of purchases must NOT exceed 100% of the ADTV of that security
What regulation bars issuers from selectively disclosing nonpublic, material information to securities professional or to shareholders if it's "reasonable foreseeable" that they will trade on the information?
Regulation FD (Fair Disclosure)
If a disclosure was intentionally given to the public how long until the company has to disclose it?
The must disclose it simultaneously to the public
If a disclosure was unintentionally given to the public how long until the company has to disclose it?
The company has 24 hours to publicly disclose the information
How does a company disclose information per Regulation FD?
Filing a Form 8-K
How often do FOCUS Reports Part I get filed by clearing firms?
How often do FOCUS Reports Part II get filed by clearing firms?
When do AUDITED annual statements get sent to customers?
Within 45 days after the annual report is filed with the SEC
When do UNAUDITED annual statements get sent to customers?
What two documents must be included in the audited annual statements
1) A balance sheet
2) A statement of financial condition
After the security count how long do B/Ds have to resolved short security difference?
No later than 45 days after the count
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