Regulations

To be defined as an "accredited investor" under Regulation D, a purchaser of a private placement offering must have a net worth (exclusive of residence) of:

1 mil

The Securities and Exchange Commission was created by:

the Securities Exchange Act of 1934

What is an accredited investor?

1. An individual with a net worth of $1m exclusive of residence. 2. An individual with annual income of $200k a year for the past 2 years; or a couple with a joint income of $300k; and a reasonable expectation of continuing to earn that level of income. 3. Person who is an officer or director of the issuer. 4. Financial institutions such as banks, insurance companies, mutual funds, with assets in excess of $5m. 5. Non-profit institutional investors such as pension plans and college endowment funds with assets in excess of $5m.

The maximum maturity on a banker's acceptance is:

270 days, because a longer maturity would cause the issue to be non-exempt

Under Act of 1933 new issues are not marginable until how many days after the effective date>

30 days

If an individual is found guilty of insider trading, the civil penalty imposed can be how many times the profit achieved or loss avoided?

3x & payments are made to the Department of Treasury

After 3 cold calls, a prospect asks to be placed on the firm's "Do Not Call" list. His name will remain on the list for:

5 years from the date of the request

Under Rule 144, no filing is required if the sale amount every 90 days does not exceed:

5,000 shares worth a maximum of $50,000

When a private equity firm makes an investment in a company that is publicly listed and trading on an exchange, this is known as a(n):

A PIPE transaction (Private Investment in Public Equity) is a way for a company that is already public to raise additional capital quickly, without having to take the time and expense of registering securities with the SEC.

An SEC "deficiency letter" indicates that there is not adequate disclosure in the registration documents to allow investors to make an informed decision. The deficiency must be cured before the SEC will allow the registration to be effective. Once the amendment is filed, the 20-day cooling off period starts counting again from the beginning. If the SEC finds that there is not adequate disclosure after the amendment is filed, it can issue subsequent deficiency letters. Thus, the registration for the issue may never "go effective."

An SEC "deficiency letter" indicates that there is not adequate disclosure in the registration documents to allow investors to make an informed decision. The deficiency must be cured before the SEC will allow the registration to be effective. Once the amendment is filed, the 20-day cooling off period starts counting again from the beginning. If the SEC finds that there is not adequate disclosure after the amendment is filed, it can issue subsequent deficiency letters. Thus, the registration for the issue may never "go effective."

Commercial paper is a(n):

Commercial paper is a money market instrument issued by corporations. It is an exempt security under the Securities Act of 1933 as long as its maturity does not exceed 270 days and can be sold without a prospectus.

Common carrier issues are:

Common carrier issues such as railway issues are exempt under the Securities Act of 1933 because they were regulated by the Interstate Commerce Commission (I.C.C.) before the Act was written; and Congress did not want to subject them to "double" regulation.

During the "cooling off" period, the only items that do not constitute an "offer" or "sale" are the sending of a preliminary prospectus and the acceptance of an indication of interest. Anything more, such as sending a research report, is considered to be an "offer," which is prohibited until the registration is effective.

During the "cooling off" period, the only items that do not constitute an "offer" or "sale" are the sending of a preliminary prospectus and the acceptance of an indication of interest. Anything more, such as sending a research report, is considered to be an "offer," which is prohibited until the registration is effective.

Margins on government and municipal securities are set by (the):

FINRA

Who determines if an OTC stock is marginable?

FRB

When the Securities and Exchange Commission sets the effective date for a new issue in registration, which statement is TRUE?

If the SEC sets the "effective date" for an issue in registration, this means that all proper documents have been filed with the SEC. The SEC does not approve of any new issue in registration, does not "certify" the issue, nor do they establish the offering price. Think of the SEC as a big filing cabinet - once the proper documents relating to a new issue offering are filed, the issue may be offered and sold to the public.

An information barrier must be put in place between:

Institutional Sales and Retail Sales

To offer a private placement, which statement is TRUE?

Private placements are exempt transactions under the Securities Act of 1933. No registration is required. The issuer must file a Form D with the SEC within 15 days of the offering to claim the exemption. The filing of Form D is not a registration. It simply notifies the SEC that the issue has been offered in compliance with the exemption

Private placements offered under Regulation D are not registered with the SEC (a big savings on time and money). They can only be sold to a maximum of 35 non-accredited investors and an unlimited number of accredited (wealthy) investors.

Private placements offered under Regulation D are not registered with the SEC (a big savings on time and money). They can only be sold to a maximum of 35 non-accredited investors and an unlimited number of accredited (wealthy) investors.

A seller who has filed Form 144 can sell 1% of the outstanding shares or the weekly average of the last 4 weeks' trading volume whichever is greater. This amount can be sold how many times a year?

Rule 144 allows the sale of 1% of the issuer's outstanding shares or the weekly average of the preceding 4 weeks' trading volume (whichever is greater). This amount can be sold every 90 days (every 3 months), so a sale can occur 4 times per year.

"Qualified Institutional Buyers" are permitted to buy and trade large blocks of unregistered securities among themselves under:

Rule 144A should not be confused with SEC Rule 144. Rule 144A allows qualified institutional buyers ("QIBs") to buy and trade between themselves large blocks of privately placed issues. Thus, issuers can sell private placements to these QIBs, who can then trade the private placement issues among themselves. This market is not available to individuals. Do not confuse Rule 144A with Rule 144, which covers the sale of "restricted" and "control" stock in the open market.

A company has filed a registration statement with the SEC that uses a method that is only available to seasoned issuers. This registration statement is good for:

SEC Rule 415, the "shelf registration rule" allows "seasoned issuers" to file a blanket registration statement with the SEC, covering a period of 3 years, for any securities that the issuer may wish to sell. It is only available to "seasoned" companies that already have completed a registered IPO, that have been registered for 1 year, and that have a minimum market captialization of $75 million. If the seasoned issuer wishes to sell any securities during this 3 year period, it simply files a notification with the SEC that it is selling under that registration statement. This procedure avoids the "20-day cooling" off period, and allows seasoned issuers to enter the market quickly (such as when interest rates have dipped) to sell their securities. Review

An officer of an issuer has received restricted stock as part of her compensation package. If she wishes to sell some of the stock under Rule 144, which statement is TRUE?

The officer can sell the stock within 90 days and 6 months of purchase

Which statement is TRUE regarding the preliminary prospectus?

The preliminary prospectus may be sent to a potential customer prior to that customer expressing an indication of interest

Under Regulation D, purchasers of private placement offerings must be given full disclosure through a(n):

Under Regulation D, purchasers of private placements must be given full disclosure about the issue, even though no prospectus is required (the issue is exempt). Disclosure is accomplished by providing the purchaser with a copy of an "Offering Circular," which for smaller private placements is called the "Offering Memorandum." There is no registration statement for private placements because they are exempt - the exemption is claimed by filing a Form D with the SEC. Review

Under the Securities Act of 1933, new issues are not marginable until how many days have elapsed from the effective date?

Under the Securities Act of 1933, new issues are not marginable until 30 days have elapsed from the issue (effective) date.

Under Regulation D regarding private placements, how many accredited investors are allowed to invest in the offering?

Unlimited number. Only 35 non-accredited allowed

If the SEC sends a deficiency letter to the issuer regarding an issue in registration, then:

disclosure is not considered to be adequate

Under the "penny stock rule," an established customer who is exempt from the rule is defined as a person who has:

effected a securities transaction or made a deposit of funds or securities with that broker-dealer more than 1 year previously

The Regulatory Element component of the "Continuing Education" requirement must be completed:

every 3 years after the initial review

Under SEC rules, filing of the Form 144, required when selling restricted stock, is:

filed at, or prior to, the time that the sell order is placed

A 13D notice would be filed when a(n): A. corporation has a change in its Board of Directors B. investor accumulates a 5% or greater position in the common stock of an issuer C. corporation reports its annual results to the Securities and Exchange Commission D. investor wishes to sell shares of restricted stock in the public market

investor accumulates a 5% or greater position in the common stock of an issuer

A registered representative is employed by a broker-dealer that is a publicly traded company, listed on the New York Stock Exchange. Which statement is TRUE? The registered representative:

may accept unsolicited orders for his employer's stock; but cannot solicit orders for, nor recommend, buying that security

Banker's Acceptances are:

money market instruments exempt from the Securities Act of 1933

An officer of a company has acquired shares of that issuer in the open market. If the officer wishes to sell the shares, the officer must meet all of the following requirements EXCEPT:

the stock must be held for 6 months, fully paid;" Control stock," which is registered stock of a company bought in the open market by an officer or director of that company, is subject to all Rule 144 requirements when the officer or director wishes to sell, except for the 6-month holding period. The 6-month holding period is required for restricted stock, but not for control stock.

Which statement is TRUE about the use of a "red herring" preliminary prospectus? The preliminary prospectus may only be sent to customers:

who have expressed an indication of interest or who are likely purchasers, during the cooling off period