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80 Cards in this Set
- Front
- Back
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Securities Exchange Act of 1934 |
Provided for the establishment of the Securities and Exchange Commission (SEC). Require the registration of stock exchanges and broker-dealers. |
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34 Act Targets
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Prohibits fraudulent, deceptive, and manipulative practices of contrivance, such as wash sales, matched orders (painting the tape), and misleading statements. Regulates insider trading. Does not prevent fraud in the sale of new issues and does not provide for the registration of new securities issues (33 act) |
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Wash Sales |
Executing trades with yourself to generate interest. |
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Matched Orders (Painting the tape) |
Manipulative practice of executing trades to give the appearance of an actively traded security thereby generating buying interest. |
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34 Act Disclosure Requirements |
1. Requires the periodic disclosure of information about a listed security 2. Requires publicly held corporations to provide annual reports to their shareholders 3. Establishes credit regulation for securities transactions (Reg T) |
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Anti-fraud Provisions of 34 Act |
Under the anti-fraud provisions of securities law, the SEC is allowed to: 1. Impose monetary penalties 2. Freeze assets of parties involved 3. File for criminal indictments |
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34 Act Corporate Actions |
An issuer is required to give notice to shareholders regarding stock splits, rights or subscription offerings and dividends but is not required to give notice regarding interest payments. |
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34 Act Dividend Distributions |
SEC rules require an issuer to give notice to FINRA no later than 10 days prior to the record date of a dividend or distribution, a stock split, rights or subscription offering.
Information required to be filed includes the name of the security, declared date, record date, and the payable date. The ex-date is not required to be filed since the ex-date is SET by FINRA. *If the issuer were a party of a proposed merger, FINRA would not be notified. Only proposed. |
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34 Act Individual Ownership |
Any individual who owns 5% of more of any class of listed equity security must notify the issuing corporation, exchange, and the SEC within 10 days from the date of acquisition of the shares. Shareholder must file Form Schedule 13D (beneficial ownership report) with the SEC. |
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34 Act and Guarantees |
A RR can never predict of guarantee a specific rise or fall in the price of a security under any circumstances. Violates the antifraud provisions. Under the 34 act, Fixed Annuities are not considered to be a security, and therefore can offer guarantees. |
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Form 10-C Report
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Form is filed with the SEC and FINRA by companies whose securities are quoted on the NASDAQ. It must be filed no later than 10 days after an one of the following changes occur:
1. When there is a change in the corporate name. 2. When there are changes in the number of shares outstanding of 5% or more than last reported. |
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Form 8-K |
Publicly held corporations must file Form 8K with the SEC whenever there is a material event that could affect the company's financial situation or the value of the company to shareholders. |
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Form 8-K Timeline |
Must be filed within 4 business days of: 1. Changes in the control of the corporation 2. The acquisition of disposition of a significant amount of assets 3. The corporation becoming the subject of bankruptcy of receivership 4. Changes in the corporation's certifying accountant 5. Any resignations by any member of the corporation's Board of Directors. |
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Form 10-Q Report |
Comprehensive report of a company's performance that must be submitted quarterly by all public companies within 35 days of the end of the company's first 3 fiscal quarters. No filing is required in the last quarter of any year. Goes to SEC. In the 10-Q the firms are required to disclose relevant information regarding their financial position. |
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Form 10-K Annual Audit Report Form |
Comprehensive summary report of a company's performance that must be submitted annually to the SEC within 90 days of the end of the company's fiscal year. 10-K usually contains must more detail than the annual shareholder's report. 10-K can never contain "projections" |
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Form 13F |
Institutional Investment Managers that exercise discretion over $100 million or more must file a schedule Form 13F with the SEC through the SEC's EDGAR website. |
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SEC Rule 168 Regularly Released Factual Business Information |
Rule applies to communications to the public by SEC reporting companies that are NOT considered to be an offer to sell or associated with any offering.
Factual Business Information: Advertisements about products of services, dividend notices, factual information about business, Forward Looking Information: Projections of revenues, etc., Statements about management, statements about the issuer's future economic performance. ** Issuers have adopted a "forward looking statement" clause in these communications. |
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Tender Offer |
A tender offer is a formal proposal to stockholders to sell their shares in response to a large purchase bid. The company initiating the tender offer normally assumes all costs and reserves the right to accept all, none, or a specific number of shares presented for acceptance. |
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Requirements to Tender Shares Legally |
Must own the security (have a net long position). |
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Tender Shares (Ownership of Shares definition) |
If the investor: 1. Or his agent has title to it 2. Has purchased the security, or has entered into an unconditional contract to purchase it but has not yet received it. 3. Owners a security convertible into or exchangeable for it and has tendered such security for conversion or exchange. 4. Has an option to purchase or acquire it and has exercised such option. 5. Has rights or warrants to subscribe to it and has exercised such rights or warrants. |
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Short Against the Box |
If a person is short against the box and wishes to sell the long side of the position, the person would have to execute the sale as a "Short" sale. Shorting against the box means that the individual is long and short the same amount of the same stock at the same time. |
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Short Against the Box Tender |
If a person is short against the box and wishes to tender the long side of the position, he would be required to first cover the short The same rule would be true if the person was long the stock and had written call options against the long stock position. Only net long positions may participate in tender offers. |
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Legal Tender Extraneous Examples |
1. A custodian tendering shares form an account managed under the Uniform Gifts to Minor Act. 2. A trustee tendering shares from a trust account. 3. A Person tendering his own shares either fully paid or from a margin account, even if the margin account is restricted. By tendering shares from a margin account, a person is reducing the risk associated with the account by turning shares into cash. |
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Illegal Tender Examples |
Illegal tender would occur when an investor tenders shares that were borrowed through a short margin account. The person does not own the shares and, therefore, cannot tender them. |
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Tender Offer Disclosure (Target Company) |
A company that is the target of a tender offer (subject company) must disclose to its shareholders it position on the Tender Offer no later than 10 business days from the date of the Tender Offer. Hostile or friendly Tender. |
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Tender Offer List |
When a member firm (broker dealer) obtains a list of a company's bondholders or shareholders due to a Tender Offer, the list can only be used in relation to the Tender Offer and not for any other purpose, unless the member firm receives permission from the issuer. |
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Tender Offer Timeline |
SEC Rules require that a tender offer must remain "open" for at least 20 business days from the day the tender offer is announced. If the bidder changes any of the terms of the offer, the offer must remain open for 10 business days from the date of the revision. When a tender offer is changed or extended, a public announcement is required no later than 9am on the business day after the date the original offer is due to expire. |
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Tender Offer Insiders |
An insider (director) of a company which has initiate a tender offer of another company's common stock would only be allowed to purchase non-convertible bonds of the target company for their own personal account. |
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Tender Offer Liability Notice |
When one BD is owed securities by another BD and those securities are subject to a corporate action, such as a Tender Offer, the owed BD will send a Liability notice to the other BD which holds the owing BD liable for the delivery of the securities in time for the owed BD to participate in the ender or corporate action. This is generally done through SMART/Track at DTCC. |
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Fairness Opinions (FINRA Fules 5150) |
A fairness opinion written by a BD expresses a conclusion as to whether the consideration offered in a transaction such as a merger, sale, or purchased assets if "fair". Does not have to be the "best" |
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Fairness Opinions Disclosures |
1. If the firm acted as financial advisor to any party to the transaction subject to the opinion. 2. If the firm will receive any significant payment or compensation contingent on successful completion of the transaction (NO DOLLAR AMOUNT IS INDICATED) 3. If the firm has any material relationship that existed during the last 2 years or that are mutually understood in which any compensation was or is to be received as a result of the relationship between the firm and any party to the transaction. |
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Fairness Opinions Disclosures (cont.) |
4. Whether or not the firm has independently verified information received with regard to the transaction and the procedures followed in arriving at their findings. 5. Whether or not the firm's fairness committee approved or issued the fairness opinion. 6. Whether or not the fairness opinion expresses an opinion about the fairness of compensation to insiders. |
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Fairness Opinion Disclosures NOT Required |
Do not have to disclose if the firm is a market maker in the security.
Cannot give advice about how the shareholders should vote or what action should be taken by the shareholders. |
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Insider Trading |
Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include "tipping" such information, securities trading by the person "tipped," and securities trading by those who misappropriate such information. Regulated by 34 Act. |
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Insiders |
1. Officers 2. Directors 3. Principal Stockholders (10% outstanding shares) 4. Can be anyone that has access to material nonpublic information and trades on this information. |
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Inside Information |
Guidelines to determine whether inside information was used: 1. Information must be material 2. Material must be non-public 3. Person involved in the purchase or sale is an insider or tippee 4. Whether the information was a factor in a person's purchase or sale decision; the amount of time after an announcement before insiders engaged in buy or selling is closely looked at. However there is no specific timeline the SEC looks for. |
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Insider Information Additional Notes |
1. Even if the insider lost money on the trade the individual still committed an illegal act. 2. Once material information that is non-public is made public, trading is permitted 3. Anyone involved in the dissemination of non-public information whether they use it or not has violated Federal Law. |
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Selling Activities of Insiders (Restrictions) |
Insiders are prohibited from selling short or selling short against the box on share of their own company's stock. |
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Insider Filing Requirements |
1. Insiders must file a record of ownership with the SEC within 10 days of when they become insiders on Form 3. 2. Insiders must file records of changes in ownership on Form 4 within 2 business days following the change. |
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Short Swing Recovery |
The profits that are received by insiders as a result of a sale and purchase or purchase and sale of an equity security of the insiders company made within a 6 month period shall be recoverable by the company. Don't want insiders to speculate on their own company. |
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Whistleblower |
Any individual, or 2 or more individuals acting jointly, who provides information relating to a violation of securities law to the SEC. A dispute arising under the whistleblower statute is not required to be arbitrated. |
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Whistleblower Information Requirements |
Must be "original information": 1. It is derived from independent knowledge or analysis of the whistleblower 2. It is not known to the SEC from any other source of the information 3. It is not exclusively derived from an allegation made unless the whistleblower is the source of the information |
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Monetary Sanctions Awards (Whistleblowing) |
Must lead to a successful enforcement action: - But not less than 10% in total of what has been collected. - Not more than 30% in total of what has been collected. |
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Insider Trading and Securities Fraud Enforcement Act of 1988 |
Was replaced by whistleblower act: Civil liabilities of 3 times the profit gained or loss avoided, but not more than $1,000,000 Criminal penalties of $5,000,000 for individuals and up to $25,000,000 for non-natural persons with a maximum jail sentence of 20 years |
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Liability to Contemporaneous Traders for Insider Trading |
If you disseminate insider information and someone acts upon it, even without your knowledge, you are still liable. Total amount of damages imposed shall not exceed the profit gained or loss avoided in the transaction. |
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SEC Rule 10b- 18 (Conditions for Issuers to Repurchase Stock) |
Corporation can buy back their own common stock in the secondary market provided they follow the provisions: 1. An issuer must use a single broker dealer per day to bid for or purchase the issuer's common stock. (Avoid widespread demand appearance) 2. Timing - The issuer may not repurchase their own shares at the market opening and during the last half hour of trading each day. |
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SEC Rule 10b-18 (3-4) |
3. Pricing Condition - The purchase price may be no higher than the highest bid shown by a dealer or the last sale in the security, whichever is greater. 4. Purchases may not exceed 25% of the ADTV for the security (excluding block purchases) |
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Regulation SHO |
An SEC regulation implemented to address concerns regarding short sale practices. It established "Locate" and "Close-Out" standards that are meant to ensure the proper execution of short sales and to prevent naked short selling practices. Under normal market conditions there are no price test requirements on short sales. They can be executed on upticks or downticks. |
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Rule 201 |
Circuit Breakers in a falling market: 1. Short sale related circuit breaker 2. Duration of price test restriction |
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Short Sale Related Circuit Breaker |
The circuit breaker would be triggered for a security any day in which the price declines by 10 percent or more from the prior day's closing price. |
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Duration of Price Test Restriction |
Once the circuit breaker has been triggered, the alternative uptick rule (short sales may only be made above the current best national bid) would apply to short sale orders in that security for the remainder of the day as well as the following. |
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Affirmative Determination of "Locate" |
Requires member firms to confirm and document that the security that they are shorting, whether for their own account or for customers, is available to borrow and will be delivered by settlement date. If a customer wishes to short a security which the customer also "owns" the long security must be delivered within 35 days of the trade date of the short sale to qualify for the "locate" exemption. |
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"Locate" Short Sale List |
A list of securities available for short sale purposes (affirmative determination) must be updated daily and cannot be more than 24 hours old. This list would include common stock (A & B Class) and REITs. |
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Affirmative Determination if NOT required for |
1. Corporate debt securities
2. Bona fide market making transactions by a member in securities in which it is registered as a NASDAQ market maker 3. Bona fide market making transactions by a member in non-NASDAQ securities in which the market maker publishes a two sided quotation 4. Transactions which result in a fully hedged position **Affirmative Determination would be required for non-NASDAQ securities publishing one sided quotes. |
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Affirmative Determination Reporting |
Each member must maintain a record of "total" short positions in all customer and proprietary firm accounts in all equity securities (other than restricted equity securities). Reports shall be received by FINRA no later than the 2nd business day after the reporting settlement date. |
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Mandatory Close Out for Short Sales |
This requirement is applied when it appears that there may not be enough stock available to buy in the market to cover the short interest in a security, such as smaller issuers or in connection with a Tender Offer. The rule requires brokers-dealers to "close out" failure to deliver positions in threshold securities that have persisted for 13 consecutive settlement days by purchasing the securities of "like kind and quantity"
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Threshold List
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A daily list of equity securities that have failed to deliver for 5 consecutive settlement days, and meet the following criteria: |
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Threshold List Criteria |
1. There are aggregate fails to deliver at a registered clearing agency of 10,000 shares or more per security. 2. The level of fails is equal to at least one half of one percent of the issuer's total shares outstanding. 3. The security is included on a list published by a SRO. |
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Threshold Removal |
The security ceases to be a threshold security it if does not exceed the specified level of fails for five consecutive settlement days. |
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Locate Requirements (International) |
If a broker dealer sends an order for a short sale to one of its branch offices outside of the SU for execution, the order would still be subject to the "locate" requirements. |
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Regulation S-P |
1. Requires financial institutions to provide notice to consumers about the privacy policy and practice. 2. Restricts ability of a financial Inst. to share nonpublic personal information. 3. Allos consumers to prevent such information sharing by "opting out" 4. Requires safeguarding of information |
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Regulation S-P Requirements
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1. Firm must deliver initial privacy notice to new customers no later than when the relationship is established with the customer and to provide an annual privacy notice to all customers. |
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Personally Identifiable Information |
Means an information a consumer provides to obtain a financial product or service or information about that consumer that results from any transaction involving a financial product or service with that consumer. |
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Personally Identifiable Information Examples |
1. Information for loan, credit card, etc. 2. Information for financial transactions 3. Internet "cookie" 4. Information from a consumer report **Does NOT include information that is aggregated and has no identifiable data that pertains to consumers. |
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Reasonable Means of Opting Out |
1. Providing customers with a check off box on a reply form 2. Provide an electronic means to opt out 3. Provide a toll free telephone number *Not reasonable the customer is required to write a letter of notification |
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Sarbanes Oxley Act of 2002 |
Requires corporate CEOs and CFOs certify financial reports. Required to forfeit profits and bonuses due to securities fraud. Also: - Prohibits executives from selling company stock during blackout periods - Requires that insiders report company stock trades within 2 days. - Prohibits company loans to executives or directors. - Requires immediate disclosure of material changes in the company's financial condition. |
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Reg X |
Federal Reserve board regulation that covers US persons who obtain credit to purchase or carry US securities outsider of the US. Reg T applies within US. |
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Hart Scott Rodino Act of 1976 |
Established the federal pre-merger notification program, which provides the FTC and DOJ with information about larger m&A before they occur to give them opportunity to review potential effects on competition, etc. |
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Hart Scott Rodino Provisions |
1. 30 Day wait period. May be terminated before. Unlawful to close the transaction until the waiting period has been satisfied. 2. Filing requirement is required only if the size of the transaction exceeds a certain dollar threshold: $63.4 million for 2010 (test question) |
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Trust Indenture Act of 1939 |
Regulates corporate bonds and requires an indenture or deed of trust, which specifies the rights and duties of the issuer, underwriter, and investors. DOES NOT REGULATE: 1. Gov't Issues 2. Muni issues 3. Private placements 4. Unit Investment Trusts Provides for the appointment of a trustee to protect the corporate bondholders in the event of a conflict of interest. |
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SEC Rule 15a-6 Exemption of Foreign BDs |
SEC Permites foreign BDs to conduct a securities business with US customers and does not require that they register with the SEC. If they choose to not register, their activities are restricted. |
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Exemption of Foreign BDs Restrictions |
1. Can visit US Clients but they must be accompanied by a US registered person 2. They can effect securities transactions with US institutional clients but they must got through a US registered BD and records of trading activity must be maintained. 3. Securities business is not subject to SEC restrictions if it is conducted outside of the US. 4. Foreign BDs can send research reports directly to major US Institutional clients provided they do not follow up with those clients to discuss the report. Order must go through a US registered BD. |
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Blue Sky Laws |
Proper state registration of member firms and their personnel is required before soliciting customers. States require registration or filing of: 1. Resident and non-resident broker-dealers doing business in that state. 2. Resident and non-resident salesmen doing business in that state. |
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Securities Can Be Registered in a State By |
1. Qualification 2. Notification 3. Coordination *NOT indemnification |
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Blue Skying the Issue |
The practice of analysis, investigation, and qualifying a new issue of securities with various state laws. |
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Blue Sky Exemption |
A state will generally exempt a security from registration if it is listed on a national securities exchange. |
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Uniform Securities Act defines "Agents" as |
1. Individuals who act as finders for issuers and underwriters. 2. Individuals who effect buys and sells of securities for broker-dealers 3. Individuals who act as a broker in US Gov't Securities. |
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Securities |
1. Voting Trust Certificate 2. Investment Contracts 3. Certificate of Interest in a profit sharing agreement **NOT a fixed annuity |
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Sub Chapter S Corp |
Treated as partnership with flow through of taxation. Limit is 100 shareholders. Partnerships cannot be shareholders. Husband and wife are treated as a single shareholder. |
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C Corproation |
Double taxation. No limit on shareholders. |
