Regulations - Sec Exchange Act of 1934
An officer of a company has been invited by a large mutual fund company to give a talk to the fund company's analysts about its business plans and prospects. At the talk, the officer inadvertently discloses material information that could affect the stock's price. Which statements are TRUE? I A public announcement of the news must be made within 24 hours II A public announcement of the news must be made within 10 business days III The company must file an 8K with the SEC disclosing the information to avoid insider trading liability IV The company must file a 10K with the SEC disclosing the information to avoid insider trading liability A. I or III B. I or IV C. II or III D. II or IV
The best answer is A. 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). A 10K is the corporation's annual audited financial statements and has nothing to do with Regulation FD.
All of the following publicly held issuers must report to the SEC under the Securities Exchange Act of 1934 EXCEPT: A. Municipalities B. Unit investment trusts C. Mutual funds D. Corporations
The best answer is A. Only corporations and investment companies (which are either corporations or trusts) file annual (10K) and quarterly (10Q) reports with the SEC. Municipal and federal issuers are exempt from the Securities Exchange Act of 1934.
Under Rule 10b-5-1, pre-arranged trading plans by insiders are: I permitted only if the provisions cannot be altered during the plan's life II permitted only if the provisions can be altered during the plan's life III given a safe harbor to officers and directors against an "insider trading" prosecution if the plan is followed IV given a right of rescission for any trades that are deemed to be a violation of the insider trading rules A. I and III B. I and IV C. II and III D. II and IV
The best answer is A. We all know that insiders are prohibited from trading based on material non-public information. In 2000, the SEC issued a "safe-harbor" rule that permits statutory insiders (officers, directors and 10% shareholders) to set up a written plan for trading that company's securities. Such a written plan specifies the future date with amount on which securities are to be bought and sold; or specifies the algorithm to be used for determining the amount and date of future purchases or sales. Once the plan is in force, the "insider" cannot have any further influence on trades effected under the plan. As long as the insider adheres to such a written trading plan, that person is given a "safe harbor" from being accused of using "inside information" as the basis for the trades that occur based on adhering to the plan.
Under Regulation M, the maximum restricted period for trading a subject security by a syndicate member that is NOT a market maker is: A. 1 day B. 5 days C. 10 days D. 20 days
The best answer is B. During the cooling off period for "add-on" offerings, Regulation M places restrictions on syndicate members that are not market makers from trading that issuer's securities. The idea is that the syndicate members will not attempt to bid up the price of the issuer's outstanding shares, in order to be able to raise the POP of the additional issue. The rule states that: If the security is actively traded (average daily trading volume of $1,000,000 or more and public float of at least $150,000,000), there are no restrictions placed on market makers trading the issue prior to the distribution. The idea here is that this issue is too big for the price to be manipulated. This is called a "Tier 1" issue. If the security has an average daily trading volume of $100,000 and a public float of at least $25,000,000, the restricted period is the business day prior to the effective date. This is called a "Tier 2" issue. Any other security not meeting these minimums is a "Tier 3" issue and is subject to a restricted period of 5 business days prior to the effective date.
An issuer making a tender offer for its non-convertible bonds and later increases the price being offered by 10%. Which statement is TRUE? A. The increase in the tender price has no effect on the life of the offer B. The increase in the tender price increases the life of the offer by another 5 business days C. The increase in the tender price increases the life of the offer by another 10 business days D. The increase in the tender price increases the life of the offer by another 20 business days
The best answer is B. An issuer would consider tendering for its outstanding bonds when it has debt outstanding that is not callable, but it has excess funds that it believes would be best used to reduce the amount of debt outstanding. A tender offer is made to the bondholders, who have the choice of tendering or not. Unlike stock tender offers, where the initial offer must be held out for 20 business days, here the initial life of the offer is only 5 business days. (The life is shorter because this tender offer is being made by the issuer, not an outsider.) Unlike stock tender offers, where there is typically a contingency that a minimum number of shares be tendered, these are "any and all offers" - so if a bondholder tenders, he or she will receive the tender price for the bonds. If the issuer does not get enough bonds tendered, the issuer can "sweeten" the offer. This extends the offer by another 5 business days, and the sweetened price is given to all bonds tendered. (While the initial offer specifies a price to be paid, or a price based on a spread to a benchmark debt security, the actual price paid on the tendered bonds is not set until that last business day of the offer).
Margins on government and municipal securities are set by (the): A. MSRB B. FINRA C. FRB D. SEC
The best answer is B. Because municipals and governments are exempt, the Federal Reserve has no power to set margins. However, FINRA sets minimum maintenance margins for these securities that member firms must meet.
Fines assessed for convictions involving violations of insider trading laws are paid to the: A. Internal Revenue Service B. Department of Treasury C. Securities and Exchange Commission D. Department of Justice
The best answer is B. Fines assessed for insider trading convictions are paid to the Department of Treasury. The fines are not paid to the SEC. If they were, then the SEC might be tempted to "go crazy" prosecuting insider trading cases to pump up its operating budget (raises for everyone!)
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
The best answer is B. Investors who accumulate a 5% or greater position in the common stock of one registered issuer are required to file a 13D notice with the SEC within 10 business days of date that the 5% threshold was passed. This information is made public (and is of great interest to the management of the company, since the new large stockholder will probably want a say in how the company is being run!). Choice A would require the filing of an 8K by the corporation. Choice C would require the filing of a 10K by the corporation. Choice D would require the filing of a Form 144 by the seller.
Which of the following usually acts as the stabilizing market maker? A. Issuer B. Managing underwriter C. Any member of the syndicate D. Any member of the selling group
The best answer is B. Only 1 stabilizing bid is permitted at any time, typically placed by the manager of the syndicate.
A corporate executive holds a meeting with a select group of research analysts and gives information about the company's expected revenue and income for the upcoming quarter. If the analysts use the information to make recommendations, which statements are TRUE under Regulation FD? I The corporate officer is considered to be a tipper II The corporate officer is considered to be a tippee III Each analyst is considered to be a tipper IV Each analyst is considered to be a tippee A. I and III B. I and IV C. II and III D. II and IV
The best answer is B. Regulation FD (Fair Disclosure), passed in 2000, is basically an elaboration of the insider trading rules. It prohibits issuers from making selective disclosure of non-public information to research analysts, mutual fund managers, and other industry professionals, unless at the same time, the information is broadly disseminated to the public. If such selective disclosure is made and trades result, the corporate officers giving the information become "tippers" and the recipients become "tippees."
The Securities Exchange Act of 1934 regulates which of the following? I Futures transactions II Securities transactions III Futures brokers IV Securities brokers A. I and III only B. II and IV only C. III and IV only D. I, II, III, IV
The best answer is B. The Securities Exchange Act of 1934 does not regulate futures transactions or futures brokers. These are not defined as securities, and this market place is regulated by the CFTC - the Commodities Futures Trading Commission. The Securities Exchange Act of 1934 regulates securities transactions and securities brokers.
Broker-dealers are required to report their computed Net Capital to customers: A. monthly B. quarterly C. semi-annually D. annually
The best answer is C. Broker-dealers must send their customers a semi-annual balance sheet and Net Capital computation.
A customer is long 1,000 shares of ABCD stock and has gone "short against the box" 400 shares of ABCD stock. If there is a tender offer for the shares of ABCD Corporation, the customer: A. cannot tender any shares B. can tender 400 shares C. can tender 600 shares D. can tender 1,000 shares
The best answer is C. A customer is only considered to be "long" to the extent of his or her "net" long position in a security. This customer is long 1,000 shares of ABCD and short 400 shares of ABCD, for a net long position of 600 shares. This is the amount that can be tendered (remember that the customer must replace the 400 shares borrowed to sell short, leaving him or her with the remaining 600 shares out of the 1,000 owned.)
Which of the following statements are TRUE about listed securities? I Under Regulation T, all listed securities are marginable II Listed securities are subject to Regulation SHO III Listed securities trade in the Second Market IV Listed companies must be registered with, and report their results to, the SEC A. I and II only B. II and III only C. I, II, IV D. I, II, III, IV
The best answer is C. Listed securities (those listed on an exchange) are marginable under Regulation T. 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. Listed securities trade in the first (exchanges), third (OTC trading of exchange listed securities) and fourth (direct trades between institutions via ECNs) markets. The second market is trading of unlisted securities over-the-counter. These are OTCBB and Pink Sheet issues. Listed companies must register with, and report their results to, the SEC.
The provisions of the Securities Exchange Act of 1934 apply to all of the following activities EXCEPT: A. trading of corporate bonds B. trading of municipal bonds C. issuance of municipal bonds D. issuance of corporate financial statements
The best answer is C. The Securities Exchange Act of 1934 relates to the secondary (trading) market; it does not cover the issuance of securities. Trading of both corporate and municipal bonds is covered under the "anti-fraud" provisions of the Act. Corporate financial reporting standards and public disclosure of financial reports is another part of the '34 Act.
An individual who made a profit of $1,000,000 from insider trading would be subject to a civil penalty of: A. $1,000,000 B. $2,000,000 C. $3,000,000 D. $4,000,000
The best answer is C. 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."
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: I can continue to act as a market maker II must resign as a market maker III can act as a passive market maker IV can act as an active market maker A. I or III B. I or IV C. II or III D. II or IV
The best answer is C. Rule 103 of Regulation M covers the situation where a firm in the underwriting group for an add-on securities offering also happens to be a market maker in the stock. 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. This, in turn, would push up the POP when it is set just prior to the effective date, which would increase the underwriters' spread. To stop this, 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 - meaning that it cannot buy the stock at a price higher than the current high bid.
Which of the following can be a stabilizing bid for a new issue that has a Public Offering Price of $30 per share? I $29.75 II $29.88 III $30.00 IV $30.13 A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
The best answer is C. Stabilizing bids can only be entered at or below the public offering price, never above. If the bid were allowed to be placed above the public offering price, it would make the issue instantly "hot" and this is prohibited.
A detailed suitability determination must be completed by the registered representative and signed by the customer before confirmation of sale of a(n): A. NASDAQ security B. NYSE listed security C. Pink sheet security under $5 D. CBOE listed option
The best answer is C. The "penny stock rule" (Rules 15g-1 through 15g-6) requires that new customers who receive a recommendation and purchase non-exchange listed securities (meaning OTCBB or Pink Sheet issues) priced under $5 per share sign and return a suitability statement before sale can be confirmed. This rule is intended to stop "boiler room" high pressure phone sales of speculative penny stocks.
The Securities and Exchange Commission is empowered to administrate which of the following Acts? I Securities Act of 1933 II Securities Exchange Act of 1934 III Trust Indenture Act of 1939 IV Uniform Securities Act A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
The best answer is C. The SEC administrates the Securities Act of 1933; the Securities Exchange Act of 1934; the Trust Indenture Act of 1939; and the Investment Company Act of 1940. The Uniform Securities Act is more commonly known as the "Blue Sky" state law, and is adopted "state by state." The SEC, a Federal agency, has no jurisdiction over activities within each state and does not administrate this Act.
Stabilization rules for new issues are: A. set by FINRA B. covered under the Securities Act of 1933 C. covered under the Securities Exchange Act of 1934 D. covered under the Securities Investor Protection Act of 1970
The best answer is C. The Securities Exchange Act of 1934 prohibits market manipulation - with one exception. Stabilization of new issues is permitted as long as the stabilizing trades (which take place in the secondary market) conform to the requirements of the 1934 Act.
Corporate officers who wish to trade their own company's stock must comply with all of the following rules EXCEPT: A. filing change of holding reports with the SEC B. prohibitions on short sales of that company's stock C. purchase restrictions through the exercise of stock options D. trading is restricted to decisions based on publicly available information
The best answer is C. There is no restriction on corporate officers' buying their company's stock through the exercise of stock options. Many companies compensate their officers with stock option packages. Officers must report their trades to the SEC within 2 business days of the trade, since they are classed as "insiders;" insiders are prohibited from selling their company's stock short except for year-end "short against the box" trades; and insiders can only trade based on publicly available information.
The Chairman of XYZ Corporation, while playing golf with a neighbor, casually mentions that this quarter's earnings are likely to be lower than expected. Based on this information, the neighbor sells short XYZ stock the next day. Which statement is TRUE? A. Only the Chairman has violated insider trading rules B. Only the neighbor has violated insider trading rules C. Both the neighbor and the Chairman have violated insider trading rules D. Neither the Chairman nor the neighbor has violated insider trading rules.
The best answer is C. Under the Insider Trading Act of 1988, any person who uses material non-public information to trade in a company's stock for profit can be considered to be an "insider". In addition, the Act extends the definition of an insider to "controlling" persons - in this case, the provider of the information. A person who "communicates" material non-public information can be held liable under the Act unless "that person acted in good faith and did not directly or indirectly induce the act constituting the violation." Therefore, both the person trading on the inside information (the "tippee") and the communicator of the information (the "tipper") can be held liable under the Act
All of the following statements are true about a tender offer for common shares EXCEPT: A. The offer must remain open for at least 20 business days B. Each "sweetening" of the offer must extend the offer for an additional 10 business days C. During the life of the offer, the issuer can buy the stock in the market in addition to buying shares via the offer D. During the life of the offer, any subscribing investors' shares that are tendered are held in escrow pending the outcome of the offer
The best answer is C. When a tender offer is made for the common shares of an issuer, the maker of the offer is attempting to buy a majority stake in the company. To attract shareholders to tender, the maker usually prices the offer at a premium to the current market price. Such offers are typically contingent on a minimum number of shares being tendered. If the minimum number is not met, the maker might "sweeten" the offer by raising the tender price, or could simply cancel the offer and return the tendered shares to the subscribing shareholders. Note that an escrow agent is used to hold the tendered shares, pending the outcome of the offer. During the life of the offer, the maker of the offer and its agents are treated as "insiders," since they have information on how the tender offer is progressing that the general public does not know about. This means that, during the offer, they are prohibited from buying the stock in the market. The initial offer must be held out for a minimum of 20 business days under SEC rules. Each sweetening of the offer must extend the life of the offer by another 10 business days.
A short seller is prohibited from covering short sales with offered securities purchased from an underwriter participating in the offering if the short sale occurred how many days prior to the pricing of the offered securities? A. 1 B. 2 C. 5 D. 10
The best answer is C. SEC Regulation M (Rules 101-105) covers secondary market activities related to registered public offerings, and addresses such items as prohibitions or limits on syndicate members buying the stock in the secondary market during the 20-day cooling off period (this is for add-on offerings); stabilization rules (because stabilizing bids are placed in the secondary market); and also, under Rule 105, addresses a rather nasty market manipulation that occurred in secondary offerings. Prior to the adoption of this rule, a common trading practice was for overly aggressive independent traders to short that stock in the market - pushing the price down during the 20-day cooling off period. The fall in the market price would force the underwriters to lower the Public Offering Price of the issue. Thus, when registration became effective, the independent trading firms could buy the issue from the underwriters at the lower P.O.P., cover their short positions, and have a nice profit. The problem was, however, that this activity was clearly manipulative. The SEC took a dim view of this activity, and under Rule 105, prohibits broker-dealers from purchasing shares of stock from the underwriters at the offering price to cover short positions established within 5 business days of the effective date.
Which of the following can be considered to be "insiders" of ABC Corporation? I ABC Corporation's President II ABC Corporation's Treasurer III The outside counsel of ABC Corporation IV The independent auditor of ABC Corporation A. I only B. I and II C. III and IV D. I, II, III, IV
The best answer is D. An insider is defined as an officer, director, 10% shareholder or "affiliated person." The President and Treasurer of the corporation are both officers. Court decisions have extended the definition of an insider to include almost anyone who has "material non-public information" about the company. Because of this, a lawyer or accountant for the company can be considered to be an "insider."
If a publicly traded corporation declares bankruptcy: I a 10K report must be filed II an 8K report must be filed III the required report must be filed within 1 business day IV the required report must be filed within 4 business days A. I and III B. I and IV C. II and III D. II and IV
The best answer is D. Corporations are required to file 8K reports within 4 business days of significant events such as a declaration of bankruptcy, merger, change in the Board of Directors, etc. The 8K is filed with the SEC, and is a public document.
An information barrier must be put in place between: A. Human Resources and Retail Sales B. Compliance and Institutional Sales C. Human Resources and Compliance D. Institutional Sales and Retail Sales
The best answer is D. Information barriers are designed to stop the flow of information that, if obtained before public release and traded on, could result in insider trading violations and/or front running violations. To stop the flow of non-public information: Investment Banking must be walled off from Sales and Trading Departments; Research must be walled off from Sales and Trading Departments; Institutional Sales must be walled off from Retail Sales (to stop potential front running of big institutional orders). Human Resources and Compliance are not subject to information barriers to stop the flow of non-public information that could be traded on.
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: A. accept the order from the customer B. inform the company that the trade can only be executed on an up-bid C. reject the order and report the company to the SEC D. inform the company that this is a possible market manipulation under the Securities Exchange Act of 1934
The best answer is D. SEC Rule 10b-18 sets ground rules for issuers or affiliated persons who wish to buy their shares in the open market. If an issuer aggressively buys its stock in the market, or bids for its stock, it can manipulate the market price upwards. Bids and purchases that are made in compliance with Rule 10b-18 will not be considered manipulative activities under Rule 10b-5 ("catch-all" fraud rule). 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 (except for block purchases handled outside the normal flow of orders). Because the issuer is placing the order to buy its stock just prior to market close, it could be accused of trying to manipulate its closing price upwards. The client should be informed of this.
Which statements are TRUE about the "penny stock rule"? I Before confirmation of a trade in a "penny stock" can be made with a new customer, a suitability determination must be completed, signed and returned II Suitability statements are required for new customers who wish to purchase OTC equity securities valued at under $5 that are not included on NASDAQ III Suitability statements are not required for customer purchases of NASDAQ listed and exchange listed securities IV 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 A. I and II only B. III and IV only C. II, III, and IV only D. I, II, III, IV
The best answer is D. All of the statements are true about the "penny stock rule" (Rules 15g-1 through 15g-6). Before confirmation of a trade in a "penny stock" can be made, the customer must sign and return a suitability statement. Suitability statements are required for new customers who wish to purchase OTC equity securities valued at under $5 that are not included on NASDAQ or are not exchange listed (translated, these are OTCBB or Pink Sheet issues under $5). Therefore, suitability statements are not required for customer purchases of NASDAQ listed and exchange listed securities. In addition, suitability statements are not required for so called "established customers." These are customers who have either had cash or securities in custody of that broker-dealer for at least 1 year; or customers who have bought 3 or more "penny stock" issues previously from that broker-dealer.
A foreign broker-dealer that is not SEC registered is permitted to deal with clients in the United States: A. under no circumstances B. only if the clients are accredited investors C. only if the clients are sophisticated D. only if the clients are major institutional investors
The best answer is D. In order for a broker-dealer to solicit in the U.S., it must be registered with the SEC. For foreign broker-dealers, this means setting up an SEC-registered U.S. subsidiary. However, recognizing the increasingly global nature of the world's securities markets, the SEC adopted Rule 15a-6, which is intended to permit foreign broker-dealers to engage in limited activities in the U.S. without registering with the SEC. Under Rule 15a-6, foreign broker-dealers that are not SEC registered are permitted to: effect trades for U.S. persons that contact them on an unsolicited basis; solicit business from and provide research reports to Major Institutional Investors (an investor with at least $100 million of investments) and Institutional Investors (investment companies, insurance companies, banks, etc.) and conduct business with foreign nationals temporarily present in the U.S.
The Securities Exchange Act of 1934 established "self regulatory organizations" (SROs) and empowered these organizations to: I set guidelines for fair dealing with the public II handle complaints against broker-dealers for securities law violations III take administrative action against broker-dealers that violate industry regulations IV establish arbitration procedures to settle intra-industry disputes A. I and II only B. I, II, III C. II, III, IV D. I, II, III, IV
The best answer is D. Originally, the exchanges, such as the NYSE and NASD (National Association of Securities Dealers) were both marketplaces and regulators of their member firms. This changed when FINRA was created in 2006. Each exchange now only regulates its trading operation, and FINRA regulates the broker-dealer member firms and is its own SRO (Self Regulatory Organization). FINRA sets guidelines for fair dealing with the public with its Conduct Rules; it handles complaints against broker-dealers for securities law violations under the Code of Procedure; it can take administrative action against broker-dealers that violate industry regulations; and it establishes arbitration procedures to settle intra-industry disputes.
The director of a public corporation wishes to sell stock of that company in compliance with Rule 144. Which statements are TRUE? I Registered control stock must be held for 6 months, fully paid, before it can be sold II Unregistered restricted stock must be held for 6 months, fully paid, before it can be sold III If the sale is for 5,000 shares or less, worth $50,000 or less, no SEC filing is required IV Any short swing profits (within 6 months) from trading the stock must be returned to the corporation A. I and II B. II and III C. I, III, IV D. II, III, IV
The best answer is D. Rule 144 requires that unregistered shares be held fully paid for 6 months before they can be sold under the rule. Registered shares held by officers can be sold without meeting the holding period requirement, but are subject to the other provisions of the rule. No filing is required if 5,000 shares or less, worth $50,000 or less, are sold every 3 months. Under the Securities Exchange Act of 1934, any short swing profits (achieved within a 6-month time frame) that officers derive from trading that company's stock must be repaid to the company.
Under the provisions of the Securities Exchange Act of 1934, all of the following must be registered EXCEPT: A. the exchanges that trade securities B. member firms C. sales employees of member firms D. customers of member firms
The best answer is D. The Securities Exchange Act of 1934 requires the registration of each securities exchange, so that it now becomes a "self-regulatory organization" (SRO), subject to SEC oversight. In addition, FINRA and the MSRB are SROs. The Act requires that member firms register with FINRA; that their officers register; and that their sales employees (you!) register. There is no requirement for customers to register (duh!).
Under Regulation M, which statement is TRUE regarding stabilizing bids entered by market makers? A. Stabilizing bids can only be maintained for 5 consecutive business days B. Stabilizing bids can only be maintained for 30 calendar days C. Stabilizing bids can only be maintained for 45 calendar days D. There is no time limitation on the period that a stabilizing bid can be maintained
The best answer is D. There is no time limitation on the period that a stabilizing bid can be maintained under Regulation M. However, stabilization must cease when the syndicate is broken by the manager.
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? A. There is no violation of FINRA rules B. There is no violation of Securities and Exchange Commission rules C. This action violates the Securities Act of 1933 D. This action violates the insider trading provisions of the Securities Exchange Act of 1934
The best answer is D. When the registered representative received the sell order from the officer, he is obligated to execute that order before acting on the information he has received. Once the order is executed, the Form 144 has been filed (it must be filed either at or prior to execution of the order) and the order is public information. At this point, he can trade for himself or his customers, and he is no longer considered to be an "insider." In effect, the registered representative is "front running" the officer by telling his other customers to sell before placing the officer's sell order. This is a violation of the Securities Exchange Act Rule 10b-5. This is not a violation of the Securities Act of 1933, which solely covers the registration and sale of new issues.
