Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/46

Click to flip

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.
Accretion
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.
Issuer
-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
Mini-Maxi
Offering is cancelled if set
minimum is not sold
Stand-By
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
Liability:
-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
customers
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?
Stabilization?
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
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)
Control stock (Affiliated)?
registered stock owned by
officers, directors, or greater than 10% shareholders
Restricted stock?
Unregistered
- 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
Securities?
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
“Front-running”
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:
Criminal
--$1 million fine or 10 years imprisonment or both
Civil
--SEC can sue for three times the damage (“treble
damages”)
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
information
--Applies to company’s senior officials and others who regularly communicate with research analysts and
investors