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46 Cards in this Set
- Front
- Back
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Accredited Investor?
How to Qualify? |
An investor that meets requirements for Regulation D Private Placement.
a) an affiliate of the issuer b) a financial institution c) an individual with $1 million net worth, or $200,000 annual income. |
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Accretion
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A method of adjusting tax-payer's cost basis of a bond bought at an original issue discount.
The annual _______ is treated as interest for tax-purposes. |
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Accrued Interest
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The interest due on a bond since the last interest payment was made. The buyer of the bond pays the market price plus _______ interest.
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Issuer
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-Needs capital
-Hires underwriter |
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Underwriting Manager
(Investment Banker) |
-Facilitates distribution
-Assumes liability that varies with the type of offering |
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Syndicate Members
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-B/D’s enlisted to assist in selling
and share in liability |
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Selling Group
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-B/D’s accepting no liability, assist
in sales only |
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Firm Commitment
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Syndicate must absorb losses
on unsold shares |
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Best Efforts
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Unsold shares are returned to
the issuer |
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Best Efforts
All- or-None |
Offering is cancelled if all
shares are not sold |
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Best Efforts
Mini-Maxi |
Offering is cancelled if set
minimum is not sold |
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Stand-By
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Syndicate agrees to buy any
shares not purchased by the stockholders in a rights offering |
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Primary Market Regulation
Requires securities to be registered unless they are: |
-Exempt from registration or
-Sold under an exemption |
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Primary Market Regulation
Scope of the law: |
-To provide for “full and fair disclosure”
-SEC “no approval clause” on prospectus cover -No ruling as to investment merit |
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Primary Market Regulation
Liability: |
-Issuers are unconditionally liable for information
provided to investors -Underwriters are conditionally liable and must perform: -reasonable investigation -“due diligence” |
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Securities Act of 1933 - Registration:
Full Registration Timeline Pre-registration Period: |
-Prepare documents
-Start due diligence -Underwriters may have no discussions of issue with customers |
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Full Registration Timeline
File Registration Statement; begin 20-day cooling-off period |
-No sales allowed; no money accepted
-Possible deficiency letter from SEC -"Blue Sky" the issue (state registration) - Registration of B/Ds, RRs and securities -Notification (Filing), Coordination, Qualification -Issuer distributes preliminary prospectus A.k.a “Red Herring” All information except exact price and date Indications of interest (non-binding) -Due diligence meeting held just prior to issuance |
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Preliminary prospectus
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A.k.a “Red Herring”
Includes All information except exact price and date |
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Effective date; Begin post-registration period
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-Sales confirmed and final prospectus delivered at or
before confirmation -Publish Tombstone Ad |
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Shelf Registration (Rule 415)
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Allows the flexibility of selling on delayed or continuous basis for up to 2 years
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“Green Shoe Clause”?
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-Over-allotment provision
-Allows for expansion of issue by a maximum of 15% |
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NASD Rule 2790 – Equity IPOs?
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-Restricts sales of new issues of all equity IPOs, not only those deemed “hot issues”
-Member firms may not sell new issues to accounts in which a restricted person has a beneficial interest |
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NASD Rule 2790: Restricted Persons?
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-NASD member firms and any member firm employees
-Immediate family members of restricted persons if: -Materially supported by employee -provide 25% of income or share household, or -Buying from B/D where employee works -Employee controls allocation of shares -Portfolio managers purchasing for themselves -Owners of a broker-dealer |
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NASD Rule 2790: Requirements
Exempt Account: |
Account where all restricted persons combined own
10% or less of the account (de minimus) |
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NASD Rule 2790:
Pre-Condition of Sale? |
-Firms must have written verification as to eligibility of
purchasers (updated annually) -Is client associated with a B/D? -Is their immediate family associated with a B/D? |
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Stabilization?
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The ability of an underwriterof a new issue to act in the secondary mkt to maintain the price of a security at the highest independent bid price/
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Exempt Securities
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-U.S. Government and Agency Securities
-Municipal Securities -Securities issued by banks -Those issued by non-profit organizations -Short term corporate debt; not exceeding 270 days -Small Business Investment Company issue |
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Regulation A: Small Issue Exemption
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-Capital limitation of no more than $5,000,000 raised
over 12-months -“Offering Circular” - disclosure document |
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Rule 147: Intrastate Exemption
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-80% of issuer’s activities are confined to one state, and
-100% of investors are state residents (no resale to nonresidents for 9 months) |
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Regulation D – Private Placement?
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-A sale of securities directly to “accredited” investors (or
-to a limited number of non-accredited investors) No limit on number of accredited investors Officer / Director of Issuer Institutions Individuals who have met a financial test Net Worth of: 1 million Annual Income of: 200,000 in each of the last 2 years. (300,000 for married couples) |
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Control stock (Affiliated)?
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registered stock owned by
officers, directors, or greater than 10% shareholders |
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Restricted stock?
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Unregistered
- One year holding period |
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To sell restricted or control stock:
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-SEC must be notified by filing Form 144 at the time the sell order is placed
-One then has 90 days to sell the specified securities |
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Maximum amount that can be sold:
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Greater of 1% of outstanding shares or the average
weekly trading volume over the last 4 weeks |
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Securities Exchange Act of 1934, Regulation T:
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-Payment Date:
The latest date for customers to meet their margin requirement is the fifth business day after trade date (T + 5 or S + 2) -Applies to both cash and margin accounts -Failure to meet Reg T -Sell out immediately -Freeze the account for 90 days -During freeze, all transactions “in advance” |
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Transaction: Corporate Securities in a cash or margin account?
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Settlement-3 business days
Reg T Payment Date:5 business days |
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Transaction: Municipal Securities?
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Settlement- 3 business days
Reg T Payment Date: Exempt |
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Transaction: U.S. Government
Securities? |
Settlement- Next business day
Reg T Payment Date: Exempt |
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Transaction: Option Premiums?
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Settlement- Next business day
Reg T Payment Date: 5 business days |
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Transaction: Cash Transactions for any security?
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Settlement- Same Day
Reg T Payment Date: Same Day |
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“Front-running”
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trading ahead of client orders
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“Painting the Tape”
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creating a misleading
appearance of trading |
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Short Sale
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-Sale of securities that are borrowed from a brokerdealer
-Seller will return securities to the broker-dealer at some future date -Sellers anticipate a price decline enabling them to cover their position at a lower price -_________ may only take place if the transaction produces a “plus or zero plus tick” (+ or 0+) |
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Insider Regulation:
Defined as any: Must register with SEC within: Report purchases and sales by the end of the: |
-Officer or director of issuer, or Greater than 10% owner
-10 days -2nd business day following the transaction -Cannot sell short -Cannot keep “short swing” profits --Profit earned on stock held less than 6 months |
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Penalties for violations of Insider Trading:
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Criminal
--$1 million fine or 10 years imprisonment or both Civil --SEC can sue for three times the damage (“treble damages”) |
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Regulation FD – Fair Disclosure
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-Issuers are barred from selectively disclosing material non-public information to securities professionals if it
is “reasonably foreseeable” that they will trade on the information --Applies to company’s senior officials and others who regularly communicate with research analysts and investors |
