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46 Cards in this Set

  • Front
  • Back
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.
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.
Accrued Interest
The interest due on a bond since the last interest payment was made. The buyer of the bond pays the market price plus _______ interest.
-Needs capital
-Hires underwriter
Underwriting Manager
(Investment Banker)
-Facilitates distribution
-Assumes liability that varies with
the type of offering
Syndicate Members
-B/D’s enlisted to assist in selling
and share in liability
Selling Group
-B/D’s accepting no liability, assist
in sales only
Firm Commitment
Syndicate must absorb losses
on unsold shares
Best Efforts
Unsold shares are returned to
the issuer
Best Efforts
All- or-None
Offering is cancelled if all
shares are not sold
Best Efforts
Offering is cancelled if set
minimum is not sold
Syndicate agrees to buy any
shares not purchased by the
stockholders in a rights offering
Primary Market Regulation
Requires securities to be registered unless they are:
-Exempt from registration or
-Sold under an exemption
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
Primary Market Regulation
-Issuers are unconditionally liable for information
provided to investors
-Underwriters are conditionally liable and must perform:
-reasonable investigation
-“due diligence”
Securities Act of 1933 - Registration:
Full Registration Timeline
Pre-registration Period:
-Prepare documents
-Start due diligence
-Underwriters may have no discussions of issue with
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
Preliminary prospectus
A.k.a “Red Herring”
Includes All information except exact price and date
Effective date; Begin post-registration period
-Sales confirmed and final prospectus delivered at or
before confirmation
-Publish Tombstone Ad
Shelf Registration (Rule 415)
Allows the flexibility of selling on delayed or continuous basis for up to 2 years
“Green Shoe Clause”?
-Over-allotment provision
-Allows for expansion of issue by a maximum of 15%
NASD Rule 2790 – Equity IPOs?
-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
NASD Rule 2790: Restricted Persons?
-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
NASD Rule 2790: Requirements
Exempt Account:
Account where all restricted persons combined own
10% or less of the account (de minimus)
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?
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/
Exempt Securities
-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
Regulation A: Small Issue Exemption
-Capital limitation of no more than $5,000,000 raised
over 12-months
-“Offering Circular” - disclosure document
Rule 147: Intrastate Exemption
-80% of issuer’s activities are confined to one state, and
-100% of investors are state residents (no resale to nonresidents
for 9 months)
Regulation D – Private Placement?
-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
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)
Control stock (Affiliated)?
registered stock owned by
officers, directors, or greater than 10% shareholders
Restricted stock?
- One year holding period
To sell restricted or control stock:
-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
Maximum amount that can be sold:
Greater of 1% of outstanding shares or the average
weekly trading volume over the last 4 weeks
Securities Exchange Act of 1934, Regulation T:
-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”
Transaction: Corporate Securities in a cash or margin account?
Settlement-3 business days

Reg T Payment Date:5 business days
Transaction: Municipal Securities?
Settlement- 3 business days

Reg T Payment Date: Exempt
Transaction: U.S. Government
Settlement- Next business day

Reg T Payment Date: Exempt
Transaction: Option Premiums?
Settlement- Next business day

Reg T Payment Date: 5 business days
Transaction: Cash Transactions for any security?
Settlement- Same Day

Reg T Payment Date: Same Day
trading ahead of client orders
“Painting the Tape”
creating a misleading
appearance of trading
Short Sale
-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+)
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
Penalties for violations of Insider Trading:
--$1 million fine or 10 years imprisonment or both
--SEC can sue for three times the damage (“treble
Regulation FD – Fair Disclosure
-Issuers are barred from selectively disclosing material non-public information to securities professionals if it
is “reasonably foreseeable” that they will trade on the
--Applies to company’s senior officials and others who regularly communicate with research analysts and