Rules And Regulations

Front 1

Regulation A

Back 1

Small Dollar Offerings

An "EZ" registration method is given under regulation A to make it easier and less costly for smaller start-up companies to raise capital through a securities offering registered with the SEC. It provides for 2 "tiers" of capital raising:

Tier 1: Good for offerings of up to $20 million raised within a 12 month period, however audited financial statements are not required.

Tier 2: Good for offerings of up to $50 million raised within a 12 month period, but audited financial statements must be filed.

There is no prospectus for a regulation A offering. Rather, the disclosure document is called an Offering Circular.

Front 2

Regulation D

Back 2

Private Placement Exemption

If an issue is offered "privately," it is not considered to be a "public" offering and the transaction is exempt from registration.

Front 3

Rule 504

Back 3

Under Reg D Private Placement Offerings:

Covers offerings of up to $1,000,000. For such very small offerings, the rule does not specify required investor disclosures, and does not place any limit on the number of investors. Also, there is no audit requirement for the issuer's financial statements. While there is no Federal registration required, the State(s) where the issue is offered can still require State registration.

Front 4

Rule 505

Back 4

Under Reg D Private Placement Offerings:

Covers offerings of more than $1,000,000 to $5,000,000. The rule requires limited disclosures and can only be offered to 35 non-accredited investors; and to an unlimited number of accredited investors. While there is no Federal registration required, the State(s) where the issue is offered can still require State registration.

Front 5

Rule 506

Back 5

Under Reg D Private Placement Offerings:

Covers offerings of more than $5,000,000. This is the private placement rule used by pretty much everyone. The rule requires detailed disclosure to investors, similar to that required in a prospectus. The offer can only be made to a maximum of 35 non-accredited investors; and to an unlimited number of accredited investors. The issuer's financial statements must be audited - so this is more costly than 504 or 505. However, the States cannot require registration at the State level

Front 6

Rule 10b-5

Back 6

Essentially, Rule 10b-5 states that if you do something the Securities Exchange Act of 1934 didn't specify, and it is wrong, it can be considered as "fraud" under the Act.

Front 7

Regulation SHO

Back 7

Requires that every order ticket to sell be marked long or short, with a short sale defined as a sale of borrowed shares that are delivered on settlement.

To ensure that there is not a fail to deliver, the broker must "locate" the shares and deliver them on settlement. If there is a fail, a mandatory buy-in is required within a limited time frame.

Also, in 2010, the "uptick" rule was replaced with a rule stating that if a stock drops by 10% or more, for the remainder of that trading day and entire next day, the stock can only be sold short on an upbid.

Front 8

Net Capital Rule

Back 8

Minimum Net Capital Requirements: Firms are required to meet minimum "liquid capital" standards to maintain their registration and must report their Net Capital to the SEC

Front 9

Segregation Of Fully-Paid Securities

Back 9

Fully-paid customer securities must be segregated and placed in safekeeping. These securities cannot be commingled with those of other customers and pledged to a bank for a loan.

Front 10

Notification Of Free Credit Balances By Broker-Dealer

Back 10

Customers who have uninvested cash balances held at brokerage firms must receive a quarterly notice stating:

-The amount of the free credit balance;

-The funds are available upon customer request;

-The funds are not segregated from other brokerage firm cash balances.

Front 11

Notification Of Broker-Dealer Financial Condition

Back 11

Brokerage firms must send semi-annual financial statements of the firm itself to customers. The statement must include:

-Balance Sheet (audited for the year end statement; unaudited for the mid-year statement);

-Net Capital Computation that shows the amount of Net Capital of the broker-dealer.

Front 12

Regulation T

Back 12

Margin Requirement: controlling credit on securities extended from broker to customer

-Sets the initial margin requirement for stocks at 50%

-Sets the initial margin required for long-term listed options called LEAPs at 75%

Front 13

Regulation U

Back 13

Margin Requirement: controlling credit on securities from bank to broker.

Front 14

Rule 12b-1

Back 14

Investment companies are prohibited from charging, as an expense to shareholders, any selling expenses of the fund. Only operating expenses, such as custodian fees, management fees, audit fees, etc., can be charged against investment income.

However, the SEC passed Rule 12b-1 in 1980, allowing some selling and distribution expenses to be charged to fund shareholders.