Regulations: Securities Exchange Act of 1934

A corporate issuer is obligated to file an 8K report of significant events within how many business days of the event?

4 days

Rule 105 of Regulation M, covering transactions that occur in the secondary market during the 20-day cooling off period for "add on" securities offerings, requires that any short sales of the issue that occur

5 business days prior to the effective date cannot be covered by purchasing the issue from the syndicate

Under Regulation M, the maximum restricted period for trading a subject security by a syndicate member that is NOT a market maker is

5 days

An investor must file a 13D report with the SEC if a

5% or greater common stock holding is purchased of one issuer

Which of the following describes a "Chinese Wall" as used in the securities industry?

A separation of investment banking and trading functions within a broker-dealer to stop the potential flow of inside information

Short Swing profits

A short swing profit is a profit achieved within a 6-month time frame These legitimate trading profits must be paid back to the issuer

Which statements are TRUE about stabilizing bids?

A stabilizing bid is placed by the syndicate manager Only 1 stabilizing bid is permitted at any time

Which statements are TRUE about the "penny stock rule"?

Before a new customer can trade penny stock a suitability determination must be completed, signed and returned Suitability statements are required for new customers who wish to purchase OTC equity securities valued at under $5 that are not included on NASDAQ Suitability statements are not required for customer purchases of NASDAQ listed and exchange listed securities Suitability statements are not required for customers who have either had cash or securities in custody of that firm for at least 1 year; or for customers who have bought 3 or more "penny stock" issues previously from that firm

Which of the following must be sent to customers of broker-dealers semi-annually?

Broker-dealer balance sheet Broker-dealer subordinated loan amounts Broker-dealer net capital computation

Municipal issuers are exempt from the provisions of the Securities Acts, as are all other governmental issuers. The SEC has authority over corporate issuers, and requires financial reports from corporations

Broker-dealers, including municipal broker-dealers, are registered through FINRA under SEC oversight; and their financial reports are filed with both FINRA and the SEC

The futures markets are regulated by the CFTC

Commodities Futures Trading Commission

Fines assessed for convictions involving violations of insider trading laws are paid to the

Department of Treasury

When is a foreign broker-dealer permitted to solicit U.S. based clients?

If the foreign broker-dealer establishes an SEC-registered U.S. subsidiary If the foreign broker-dealer only deals with major institutional investors

Rule 10b-18 purchases, as they are known

Must be effected through 1 broker/dealer on any given day Cannot be the opening transaction Cannot be executed within 10 minutes of market close if the security is "actively traded," otherwise it cannot be executed within 30 minutes of market close Must be effected at prices no higher than the current market Cannot exceed 25% of the trading volume in the security that day

Which of the following statements are TRUE regarding trading of that company's stock by an officer of a publicly traded company?

Officers are not allowed to sell their own company's stock short Officers are allowed to retain any profits obtained from gains on stock positions which have been held for 1 year

Under Regulation M, which statement is TRUE regarding stabilizing bids entered by market makers?

Only the syndicate manager placed a stabilizing bid There is no time limitation on the period that a stabilizing bid can be maintained A stabilizing bid cannot be placed unless a "Notice of Stabilization" is included in the prospectus

A registered representative solicits a new customer to purchase a "penny stock." Prior to effecting the transaction, which procedure is required?

Prepare and have the customer sign a suitability statement This rule is expected to curb unethical sales practices of so-called "penny stocks."

During a tender offer, which of the following activities are prohibited?

Purchase a call option in a cash account and tender 2 business days after trade date Tender shares held in an arbitrage account where the position is "short against the box"

The Securities Exchange Act of 1934 covers

Registration of exchanges Registration of broker-dealers Stabilization of new issues Registration of broker-dealer officers and sales employees and traders

Issuers that wish to give "earnings guidance" to research analysts must conform with the provisions of SEC

Regulation FD

If an officer of a company makes an accidental disclosure of material non-public information at a presentation to analysts

Regulation FD considers the officer to be a tipper and the analysts to be tippees. To avoid insider trading liability, the company can either make an immediate public disclosure of the information (defined as public disclosure within 24 hours of the inadvertent disclosure) or can file an 8K report (a special report of significant events with the SEC, which makes the information public)

Listed securities (those listed on an exchange) are marginable under

Regulation T

The Securities and Exchange Commission administers the following laws

Securities Act of 1933 Securities Exchange Act of 1934 Trust Indenture Act of 1939 Investment Company Act of 1940 Investment Advisers Act of 1940

A woman is the owner of 200,000 shares of XYZ stock. XYZ is a publicly traded company with 1,000,000 shares outstanding. Which of the following statements are TRUE?

She is considered an "insider" under the Securities Exchange Act of 1934 She is prohibited from selling XYZ stock short She must report trading activity to the SEC She must be registered with the SEC as a holder of more than 5% of the company's stock

Which of the following statements are TRUE regarding corporate reports sent to shareholders?

The 10K report consists of the annual financial statements The 10Q report consists of the quarterly financial statements

A registered representative solicits an order from a new customer to purchase a "penny stock" that is trading over-the-counter. What must be disclosed to the customer on the trade confirmation?

The compensation received by the representative and the broker-dealer in the transaction

Under the provisions of the Securities Exchange Act of 1934, which of the following must be registered?

The exchanges that trade securities Member firms Officers of member firms Sales employees of member firms

All of the following statements are true about an issuer making a tender offer for its non-convertible bonds

The initial life of the offer is 5 business days Any increase in the tender price increases the life of the offer by 5 business days The final price given to all bondholders is not determined until the last business day of the offer

Which statements are TRUE about an issuer making a tender offer for its non-convertible bonds?

The minimum life of the initial offer is 5 business days Each "sweetening" of the offer must extend the offer for another 5 business days

Which statements are TRUE about a tender offer for common shares?

The offer must remain open for at least 20 business days Each "sweetening" of the offer must extend the offer for an additional 10 business days

An officer of a listed company calls his registered representative and tells him to sell the maximum amount of that company's common shares in accordance with Rule 144. Prior to placing the order to sell, the registered representative calls five of his customers and tells them to sell that company's stock. Which statement is TRUE?

This action violates the Securities Exchange Act of 1934

The provisions of the Securities Exchange Act of 1934 apply to which of the following activities?

Trading rules for non-exempt securities Anti-fraud rules for exempt securities Anti-fraud rules for non-exempt securities

Under the "short tender rule,"

a person cannot tender borrowed shares (no tender offers on short margin accounts) To tender stock, the person must be in a "net long" position in that security

The Securities Exchange Act of 1934 regulates trading of

all non-exempt securities, including common stocks, preferred stocks, corporate bonds, options on securities, etc

The individuals who must be fingerprinted at a brokerage firm include

all salespersons, traders, officers, and anyone who handles cash, securities, or the books and records of original entry and their supervisors

An insider is defined as

an officer, director, 10% common shareholder or "affiliated person."

Stabilizing bids can only be entered

at or below the public offering price, never above

Rule 103 of Regulation M requires that a market maker in a stock that is also a syndicate member in an "add-on" offering of that issue, during the 20-day cooling off period

can either resign as a market maker or can act as a passive market maker

A 10K is the

corporation's annual audited financial statements and has nothing to do with Regulation FD

Stabilization rules for new issues are

covered under the Securities Exchange Act of 1934

8K reports must be filed if the issuer

declares bankruptcy declares a merger declares a divestiture changes the composition of the Board of Directors

The "penny stock" designation only applies to

equity securities which are not listed on an exchange or NASDAQ; and that are under $5 per share

the Securities Exchange Act of 1934 states that manipulation is

fraud under the Act, whether the manipulation involves either non-exempt or exempt securities.

SEC Rule 10b-5-1

gives officers of publicly held companies a safe harbor from being charged with an insider trading violation if they establish a pre-arranged trading plan for that issuer's securities

All of the following are included in the 10K report filed by corporate issuers with the SE

income statement balance sheet Retained earnings statement

A registered representative receives an order from a corporate issuer to buy 100,000 shares of that issuer's stock in the market just before the market close. The registered representative should

inform the company that this is a possible market manipulation under the Securities Exchange Act of 1934

There is no requirement for a broker-dealer to disclose his

inventory positions to customers

"passive" market maker

meaning that it cannot buy the stock at a price higher than the current high bid Only time passive bid can be higher than independent bid is when part of customer's limit order

The Self Regulatory Organizations (SROs) are

membership organizations

Regarding margin rules, FINRA rules may be

more stringent than Federal Reserve rules, but cannot be less stringent Firm rules can be more stringent than FINRA rules, but cannot be less stringent

Rule 103 of Regulation M requires that a market maker in a stock that is also a syndicate member in an "add-on" offering of that issue, during the 20-day cooling off period

must resign as a market maker or can act as a passive market maker

Which of the following are provided to shareholders in the annual reports of registered corporations?

ncome StatementII Balance SheetIII Statement of Changes in Stockholders' EquityIV Sources and Uses of Cash Statement

The Securities Act of 1933 regulates the

new issue (primary) market

Pre-arranged trades by insiders are

permitted under Rule 10b-5-1

The Securities Exchange Act of 1934 is MOST concerned with

prevention of fraud in the secondary market

The Securities Exchange Act of 1934 relates to the secondary (trading) market; it does not cover

registration of new issues (this falls under the Act of 1933) it does not cover the issuance of securities

Insiders (officers, directors and 10% shareholders) are prohibited from

retaining any short swing profits achieved from trading that company's stock

Broker-dealers must send their customers a

semi-annual balance sheet and Net Capital computation There is NO requirement that the customer be sent the income statement of the broker-dealer

The definition of a "short swing" profit under the Securities Exchange Act of 1934 is a completed round turn trade effected at a profit within

six months by an insider

Rule 105 of Regulation M, covering transactions that occur in the secondary market during the 20-day cooling off period for "add on" securities offerings, requires that any short sales of the issue

that occur 5 business days prior to the effective date cannot be covered by purchasing the issue from the syndicate

Listed companies must register with, and report their results to

the SEC

The Securities and Exchange Commission was created by

the Securities Exchange Act of 1934

Bc of the worry the SEC requires that either

the market maker stop making a market until the effective date; or alternatively, the market maker must act as a "passive" market maker

Under the Exchange Act of 1934, Regulation SHO requires that before any equity security (either listed or unlisted) can be sold short

the member firm must affirmatively determine that the security can be borrowed and delivered on settlement This is called the "locate" requirement

Brokerage firms can hold fully paid customer securities as long as

the positions are segregated from other margin securities and are kept in safekeeping

If an individual is found guilty of insider trading, he or she must pay back

the profit achieved or loss avoided, and in addition must pay a penalty equal to 3 times that amount. This is called "treble damages."

All of the following actions require a filing with the SEC

the purchase of a 5% position in one company's stock an officer selling 1% of that company's stock a broker-dealer's net capital computation Corporation declaring bankruptcy Corporate proxy materials

The Securities Exchange Act of 1934 regulates all of the following markets

the secondary market (the trading market). the first market (trading of listed securities on an exchange) second market (over-the-counter trading of securities not listed on an exchange) third market (over-the-counter trading of securities listed on an exchange floor) fourth market (direct trading of securities between institutions on ECNs and ATSs).

If a person is convicted of insider trading

three times the amount of any profit achieved or loss avoided must be paid payments are made to the Department of Treasury

The second market is trading of

unlisted securities over-the-counter

The Federal Reserve Board decides

which non-exempt securities are marginable The Fed has decided that all listed securities are marginable and over-the-counter securities which it approves are marginable

The worry of the SEC is that the market maker, during the 20-day cooling off period

would be tempted to aggressively buy the stock to push up the market price