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58 Cards in this Set
- Front
- Back
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The Securities Act of 1934 is responsible for
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1. regulation of traders, exchanges, extension of margin credit by the Federal Reserve Board, trading activities (regulation SHO), insider transactions, regulation of client account, customer protection, net capital and financial responsibility for broker dealers, reporting requirements for issuance
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What are the keywords for Securities Act of 1934
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People act, secondary market, outstanding securities, trading activities
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If a company makes a tender offer for another company, the Act of 1934 states that the shareholders of the target company may tender shares only to the extent of
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Their net long position
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The Maloney act enabled the SEC to create is SROs, or designated examining authorities DEA, for monitoring brokers and dealers not affiliated with an exchange. Who are these SROs
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FINRA and the MSRB and CBOE
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The trust indenture act 1939 applies to corporate bonds with what characteristics
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Issue size of more than 5 million dollars within 12 months, maturity of nine months or more. Government and municipal issues are exempt
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The investment company act of 1940 required investment companies to
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Register with the SEC before selling shares, state their investment objectives in the registration statement and prospectus, have net worth of at least $100,000 before offering shares, owned by a minimum of 100 shareholders, and comply with standards on pricing, public sales and reporting
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Agents of investment advisory who provide advice for a fee must register and pass
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Series 65 or 66 exam ( for representatives with a series 7).
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Who is the securities investor protection corporation, SIPC
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A independent Membership Corporation formed to protect investors under SIP act of 1970 It is not an agency of the US government although it is government sponsored. It collects annual assessment from broker dealers. insures accounts to $500K
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What is the SIPC coverage
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Accounts are covered to a maximum of $500,000 with cash claims not to exceed $250,000 of that total for separate customer. How an account is titled will determine if it represents a separate customer
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What accounts are not covered by SIPC
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Commodities, commodities futures contracts and foreign currencies because they are not considered securities. Money markets are considered securities and therefore not subject to the $250k cash limitations. Margin accounts are combined with cash account and treated as cash
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Regarding advertising and the SIPC, broker must include on all advertising
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Their membership in the SIPC
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Firms required to join the SIPC must purchase a blanket fidelity bond. The purpose of the bond is to protect against employee theft. What is the minimum coverage
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The amount is based on the firm's net capital requirement with certain exceptions. Note that the MSRB also requires fidelity bond
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What is the valuation date for customer securities claims
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The same day the customer protection proceedings begin. This is the same time the court is petition to appoint an SIPC trustee
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What is the Chinese wall or fire wall
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The barrier against a free flow of sensitive information
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What is the penalty for violation of the insider trading act
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300% of profits made or losses of avoided. Violators may also face criminal penalties of up to 20 years in jail. If an employee of the broker dealer, the firm could be fined up to trebel damages or $5,000,000 whichever is greater
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What is a contemporaneous trader
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Person who enter trades at the same time and in the same security as a person who has inside information. Contemporaneous traders may sue person that has violated insider trading regulations. Suits may be initiated up to 5 years after the violation has occurred
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How much does the informer get in the insider trading act
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10% of the amounts recovered under civil penalties
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What are the penny stock cold calling rules that apply to solicited transactions only
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When a representative contact a potential customer, they must first determine customer suitability. The customer must sign and date the suitability statement before any stock trades can be affected. In addition the rep must disclose the name, number of shares, current quotation, and commission to the customer
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What customers are exempt from the suitability statement requirement of the penny stock cold calling rules
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An established customer is one who has effected a nonpenny securities transaction or made a deposit of funds or securities into his account at least one year prior to the proposed penny stock trade or has made 3 purchases of penny stocks on three separate days involving three separate issues. Established customers are exempt from the suitability statement but are subject to disclosure rules
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The bank secrecy act the US Treasury Department as the lead agency for developing regulations for money laundering. What are the three basic stages of money laundering
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Placement, the first stage, when funds or assets are moved into the laundry; Layering, this is done through a series of layers of transaction; Integration the final stage, illegal funds are commingled with the gentleman
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Money laundering regulations require that
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Currency transactions deposit on a single day of more than $10,000 be reported to the IRS on Form FinCEN 112 and broker dealers must file suspicious activity reports on financial behavior which is suspicious
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What are three rules mandated by the SEC under Regulation NMS(national market system)
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The order protection rule, limit up limit down( LULD) minimum increments pricing rule
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What is the order protection rule
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Prohibit a trade through, which is a trade taking place for a customer order at a price that not does not represent the best price available at the time, or trading through a customer limit that represents the best price available in order to execute an order in another market
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What is LULD, limit up limit down rule
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It is designed to address severe and sudden price movements. It utilizes specified price bands, (expressed as percentages depending on the current price of the stock), which prevents trades in stock from occurring outside of those bands and employs trading pauses for prolonged price movements. To account for the increased volatility doing market opening and closing, the percentage parameters governing the price bands are doubled during those times
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What is considered a penny stock
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A stock that is less than $5 per share. A penny stock is a non NASDAQ (bulletin board or OTC pink), stock. If a stock is listed on an exchange or is on NASDAQ, it is not a penny stock regardless of the price
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What is the minimum increments pricing rule
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For stock price at $1 per share or greater, the minimum increment is one penny. Subpenny pricing is permitted for stocks under $1
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What are the three ways states have to blue sky or register securities
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Coordination, filing notification and qualification
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What is the coordination method
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The issuer files with the state at the same time it files with sec. Coordination can only be used for IPOs
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What is the filing notification method
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If an issuer has met financial criteria and has filed previously in a state, its may notify the state that it is about to sell securities. If this state does not reply the registration is effective on the fifth business day after the filing
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What is the qualification method
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Hardest and most difficult way of registering securities in a state. Issuer must respond to requirements of the state
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Layering involves
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wire transfer funds to multiple jurisdictions, depositing cash overseas, and reselling assets in multiple jurisdictions. The key to successful layering is the crossing of several legal and governmental jurisdictions. This allows launderers to take advantage of the degrees of regulation and the bureaucracy of different governmental cooperation laws
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Who must be registered in order to sell a security in a state
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The broker dealer, the registered representatives, and the security itself must be registered in that state. Registering an issue in a state is known as blue skying the issue
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Who is an insider
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The Securities Act of 1934 defines an insider as an officer, director, or stockholder owning more than 10% of a company's outstanding voting equity. The definition also include anyone else who has or could have access to insider information, such as a media family members. Any professional who takes part in preparing the registration statement is a insider.
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Under SIPC, when a trustee is appointed, customer claims are filed with the
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Court appointed trustee
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What are some money laundering red flags
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Lack of concern regarding risk, commissions and other costs, & a large number of wire transfers 2, or journal entries between, unrelated third parties
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At a social gathering a registered representative overheard a rumor about an NYSE listed company. Under exchange rules, the representative should
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Report the rumour to the branch manager. Rumors concerning NYSE must be reported to the exchange, which is ordinarily done through the branch manager
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Who can hand down Civil penalties for violations of the securities fraud Enforcement Act of 1988 and what are the penalties
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Civil penalties for violations of the Act may be handed down by the court system. All broker dealers are required to have written procedures concerning the misuse of inside information. Maximum penalty under the Act or three times the profit made or loss avoided or $5 million dollars whichever is greater and up to 20 years in prison
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What would be included in a penny stock risk disclosure statement
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The disclosure must include the risk of penny stock investing, the rights of the investors, the responsibilities of the broker dealer, and the definition of a penny stock
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The current market price of XYZ stock is 6.12 bid offered at 6. 18 the customer wants to bid 6.125 for 100 shares. How should the buy order tickets read
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6.12 bid. Under the minimum increments pricing rule of regulation NMS only stocks below $1 can trade in subpenny prices. Note that because the customer did not want to pay more than 6.125, rounding the order up to 6.13 would not be permitted
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If a company goes on strike, what must a corporation do
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The event would require public disclosure and a corporation must file a report with the SEC. A strike materially impairs the ability of the company to perform. Therefore it is a significant event requiring public disclosure
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How much can whistleblowers get paid
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Awards to whistleblowers may be paid in connection with original information concerning any violation of securities law including but not limited to violation of the insider trading securities fraud Enforcement Act. Those awarded may be paid a percentage of the amount collected
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At a social gathering an officer of a publicly traded company confides to his neighbor, a representative, that his company will announce a major acquisition in the coming week, what insider trading rules have been violated
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None. Simply giving someone material, non-public information is not a violation. However if the information is used to trade for profit or to avoid a loss, both the tipper and the tippee would have violated the law
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How often does FINRA require broker dealers to conduct anti-money laundering training
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On an ongoing basis
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Prior to investing in a penny stock transaction for a new customer the registered representative must
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Provide disclosure information to all penny stock buyers which customers must sign. In addition they must determine suitability based on financial information, investor experience, and objectives supplied by the buyer. If an investor is not considered an established customer, they must find a suitability statement as well
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What is an Suspicious Activity Report, SAR, and at what dollar amount should it be reported
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Suspicious activity report. Broker dealers are required to file suspicious activity report involving transactions of $5000 or more when financial behavior appears commercially electrical answers no apparent purpose. A CTR, currency transaction report, would be triggered for transactions totally $10,000 or more within a single day
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The Sarbanes Oxley Act legislation was established to enhance standards for
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Market makers in us exchange listed securities, boards of directors of us publicly traded companies, public accounting firms, block traders in stock of us exchange listed securities. It was enacted in response to a number of major corporate and accounting scandals.
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The order protection the rule which prohibits trading through and the minimum increments pricing rule was enacted under a broad sleeping sec regulation design to bring trading and reporting uniformity to securities markets. This regulation is known as
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Regulation in NMS, national market system
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What legislative act exclusively regulates debt securities
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The trust indenture act of 1939. Investors in corporate bonds should the issuing company before.
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Under federal law, stock cannot be tendered from what type of account
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Short margin account. Under the short tender rule, shareholders can only tender stock to the extent of their stock net long position.
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What legislation established enhanced standards for all public company boards of directors, management and hoping accounting firm
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The sarbanes-oxley act of 2002
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A cash or currency transaction totally more than 10,000 on a single business day must be reported on
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FinCen form 112
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What's laws address state laws covering the sale of new issues and the revocation of the broker /dealer registration
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Blue sky laws
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The SEC is permitted to pay bounties to informants in insider trading cases in the amount of
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10% of the civil penalty assessed against violators may be paid to informants
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What legislation mandates the creation of a Chinese wall
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Insider trading act
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What are some examples of exempt securities that do not have to register with the SEC
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Intrastate offerings rule 147, SBIC , farmers cooperatives, commercial paper, domestic banks and Trust Company
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Regarding interstate sales, what is the 9-month test
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For a period of 9 months from the date of the last sale by the issuer, all resales may be made only to persons residing within the same state. If less, it loses its exempt
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The nature of any control relationship or conflict of interest must be disclosed to which customers in what transactions
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All. Primary new issue and secondary transactions and when acting as an agent or principal
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What interest rate is not market driven
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The discount rate. It is set by vote of the Federal Reserve Board
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