SIE Regulations
Tender Offer Rules
-must be kept open for 20 bus days -if amended must remain open for 10 bus days from amendment -cannot purchase same security or convertible in the open market for the duration of the tender -subject company must notify and advise share holders w/in 10 bus days the maker of the offer is considered an insider and can only buy the stock via the offer (not open market)
When is the prospectus delivery date for exchange listed and NASDAQ issues?
25 days
Securities Act of 1934
A law governing the SECONDARY trading of securities in the US; established the SEC (Securities and Exchange Commission).
When is a new issue allowed to be bought "on margin"?
Any purchaser must pay in full - new issues are not marginable until they have "seasoned" in the marketplace for 30 days.
Futures markets are regulated by
CFTC CFTC - Commodities Futures Trading Commission
What FINRA rules are approved by the SEC?
Dealer-Dealer Practices; Dealer-Customer Practices; Dealer-Dealer Dispute Resolution Procedures; Dealer-Customer Dispute Resolution Procedures.
Listed issues are trades in the
First Third Fourth Markets NOT the Second Market
Securities Exchange Act of 1934 does NOT APPLY to what markets?
Futures
Who/What is EXEMPT from Securities Act of 1933?
Gov't Gov't agencies Munis Foreign Gov Obligations Also: bank issues insurance company offerings common carrier issues public utility issues non-profit/charity issues banker's acceptances and commercial paper small business investment company issues
Rule 144 holding period for restricted securites
If the company reports under the 1934 Securities Act requirements, you must hold them for 6 months . If the company does not report under 1934, you must hold for one year.
The Securities and Exchange Act of 1934 is
MISSPERMS Manipulation Insiders SEC created Short sale rules Proxy rules Exchanges Reports Margin Stabilization
What did the Securities and Exchange Act of 1934 create?
SEC responsibility for overseeing the activities of the securities markets, and for preventing manipulation and fraud in the securities markets
Rule 145 applies to
SEC Rule 145 requires issuers to file registration statements with the SEC when publicly traded securities are created due to such actions as a: Merger; Divestiture; Spin off
Is restricted stock exempt from the Securities Act of 1933?
Yes. Never sold in public markets unless registered May only be sold through private transaction (or 144 exemption) Form D filed with SEC 15 days AFTER first sale
8k report
a corporate filing made with the SEC for any unusual events that occur: declares bankruptcy; declares a merger; declares a divestiture; changes the composition of the Board of Directors
PPM (Private Placement Memorandum)
aka offering memorandum aka offering circular provides full disclosure for private placement (exempt transactions)
Rule 144 transactions
allows holder of "restricted" (non-registered) to sell publicly... but ONLY if: issuer has registered shares outstanding and is current with all SEC filings files Form 144 (notice of intention to sell at or prior to sale date) securities have been held for 6 months - and fully paid
Regulation A
an SEC regulation that exempts public issues of less than $5 million from most registration requirements easier for start up companies to raise $$ simple and filed then a 20 day review at the end of the 20 days, if no problem, issue can be sold allows issuer to "test the waters" - CAN give out promotional material.... (this is against the rules for regular registered issues)
Listed issues cannot
be manipulated
FINRA regulates and oversees
broker-dealers and member firms
13 D notice
file if anyone accumulates %5 or greater holding in a listed company's stock
Private placement offerings can be advertised if
it excludes any non-accredited investor
stabilization
the only legal form of market manipulation
registered primary distribution
where the proceeds of the issue go to the issuer
What is defined as an "insider"?
"insider" as an officer, director, or 10% shareholder of the issuer
What is the maximum sale for Rule 144 transaction?
1% of the outstanding shares OR weekly average of last 4 weeks trading volume whichever is GREATER
When should an 8K report be filed?
4 business days of the event
How many times a year can a seller file Form 144?
4 times per year every 90 days
When is the prospectus delivery date for secondary non-NASDAQ/non exchange listed issues
40 days
To avoid insider trading liability, the company can make immediate public disclosure or file an
8K report (special report of significant events)
When is a prospectus delivery date for primary non-NASDAQ/non-exchange listed
90 days
Restricted stock cannot be resold in the public market unless:
A registration statement is filed with the SEC and the issue is sold with a Prospectus; or Rule 144 is used for the resale.
Regulation S
A safe harbor by the SEC to sell securities outside of the US without publicly registering used by non-US subsidaries and only sold to non-US residents
13 D report
Document filed with the SEC by an individual who acquires 5 percent of a publicly held firm's stock must be done within 10 days of having the 5% takeover (stops sneaky takeovers)
short swing profit rule
During any 6-month period, a corporate insider who both buys and sells his corporation's stock is liable to the corporation for any profits made you have to pay back the legitimate trading profits
Are fixed annuities exempt or non-exempt from the Securities Act of 1933?
Exempt fixed annuities are considered to be a pure insurance product, and are not defined as securities - thus there is no registration requirement and Prospectus requirement for fixed annuities
Who sets its own minimum margins for both exempt and non-exempt issues?
FINRA
Omission or misstatement of material fact is considered
FRAUD
Who has no power to set margins on exempt securities (except gov't and municipals)?
Fed Reserve
Regulation U
Fed Reserve - controls the extension of credit on securities by banks
Regulation T
Federal Reserve - extension of credit on securities by BROKERS
Chinese Wall
Imaginary barrier between the investment banking, corporate finance, and research departments of a brokerage house and the sales and trading departments. Since the investment banking side has knowledge of impending deals such as takeovers and mergers, it would be unfair to the investing public if the sales and trading side of the firm had advance knowledge of such transactions.
Are investment companies exempt or non-exempt from the Securities Act of 1933?
Investment Companies formed under the Investment Company Act of 1940 are NON EXEMPT. The types of investment companies defined by the Investment Company Act of 1940 are: Face Amount Certificate Company; Unit Investment Trust; Management Company. The securities of these issuers must be registered with the SEC and sold with a Prospectus. Variable annuities are a type of unit investment trust, and thus are non-exempt. Open-end (Mutual) funds and Closed-End (Publicly Traded) funds are management companies that are non-exempt and their initial offering must be registered with the SEC and they must be sold with a Prospectus.
What happens after the 20 day cooling off period?
Issuer compliance registration is effective issue is sold
What representations are used in a Rule 144 transaction?
Issuer's Representation: that the issuer has registered shares with the SEC (gone public) and is current in its SEC filings; Seller's Representation: that the seller is selling in compliance with the Rule's provisions; Broker's Representation: that the broker acts as an agent selling the shares into the public market; and did not solicit orders to buy the shares
Short Tender Rule
MANIPULATION if an issuer makes a tender offer, investors can only tender their share if they have a net long position only "long" that stock if he or she: owns the stock and will deliver; owns a call option, warrant, or right, and has exercised and will deliver; or owns a convertible security, convertible into that stock; has given irrevocable instructions to convert; and will deliver.
Broker dealers can do what with customer margin securities?
Mix up with other margin securities rehypothecated to bank for a loan
Does the SEC have to approve or disapprove of an issue?
NO
Are ADRs exempt or non-exempt from the Securities Act of 1933?
NON EXEMPT American Depository Receipts are a vehicle for foreign companies to issue securities in the United States. ADRs are a non-exempt security that must be registered with the SEC and initially sold with a Prospectus
With private placement offerings, is there a limit on what is sold?
No. No dollar limit on the dollar amount sold
What regulation covers public utilities?
Public Utility Holding Act of 1935
Regulation D: Private Placements
Registration exemption for securities sold directly to Accredited Investors and no more than 35 Non-Accredited Investors all must know the risks/merits in advance purchaser must sign an Investment Letter Reg. D Road shows require pre-qualification of investors **if the purchaser doesn't fully know/want to evaluate the issue then a purchaser rep can be used (usually lawyer or accountant)
Main three rules of the securities Act of 1933
Registration with the SEC for non-exempt new issues; Offering non-exempt new issues under a Prospectus; Full payment for non-exempt new issues (no margin).
Who approves FINRA rules?
SEC
SROs (Self-Regulatory Organizations)
SEC approves the rules and regs of the SROs
The SEC administers which 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.
Regulation M
Stabilization of new issue prices in the aftermarket is permitted under Regulation M. The manager of the syndicate places the stabilizing bid on behalf of the syndicate. Only 1 stabilizing bid is permitted at any time. The bid cannot be placed until the effective date; this is the first date that trading starts in the aftermarket for an IPO. A stabilizing bid is not permitted during the 20-day cooling off period since there is no trading of the issue. Stabilization must cease when the syndicate is broken by the manager
Blue Sky Laws
State laws that regulate the offering and sale of securities for the protection of the public. Uniform Securities Act (USA) of 1956
What is on the final prospectus cover?
The Prospectus cover includes: Final Public Offering Price, Underwriter's Spread, and Net Proceeds to the issuer.
Tipper/Tippee
The act prohibits insiders trading on or communicating nonpublic information. Both tippers (the person who gives a tip) and tippees (the person who receives a tip) are liable, as is anyone who trades on information that he knows or should know is not public, or has control over the misuse of this information. No trade need be made for a violation to occur; even a personal benefit of a non financial nature could lead to liability under the rules.
What is the "effective date"
The date, declared by the Securities & Exchange Commission (SEC), on which shares can start trading. This usually refers to the date when shares become available for sale in an initial public offering. The effective date occurs approximately 20 days after the security is registered with the SEC, giving time for the SEC to review the registration.
Securities Act of 1933
The first major federal law regulating the securities industry. Focuses on the PRIMARY MARKET It requires firms issuing new stock in a public offering to file a registration statement with the SEC.
Control stock filing requirements
To sell control securities under Rule 144, a Form 144 must be filed with the SEC, which opens a 90-day window for the affiliate to sell up to the appropriate number of shares. (Rule 144) OR register them and sell with secondary distribution with prospectus etc. Stock is held by officer, director, 10% shareholder or their affiliate It's for people with large amounts of stock because selling too fast would depress the market price (No holding requirement like private placement stock)
Accredited Investor
Wealthy investor who meets requirements of the Securities and Exchange Commission as to minimum net worth (in excess of $1.0 million) or annual income (in excess of $200,000) $300,000 in come for a couple for at least 2 years institutional investor 5 million for institution person has to sign the accredited investor questionnaire
Listed issuers must report
annual financial results to the SEC with a 10k report quarterly results with a 10Q report any significant events with a 8K report
When must a prospectus be delivered?
at or prior to confirmation
Penny Stock Rule
brokers-dealers must pre-qualify new customers (including signing a Risk Disclosure Document (form 15g-2) must disclose mark up or mark down must send monthly statements if an established customer - then suitability determination isn't required established customer - already bought 3 penny stocks OR had cash/stocks held at the firm for at least 1 year made to shurt down "boiler room" sales of speculative penny stocks non-exchange listed, non-NASDAQ stock, under $5 thinly traded OTCBB or Pink sheets
Rule 10b-5 of 1934 Act
catch all fraud rule so can apply to lawyers, engineers, printers etc.
SROs have the power to
censure, suspend, expel and fine members for rule violations
Rule 145
corporate reorganization will require this (with majority approval) for: substitution of one security for another merger or consolidation transfer of assets Allows an exemption from filing for: stock splits stock dividend change in par value
What is the purpose of the Securities Exchange Act of 1934
curb manipulation and fraud in the secondary markets
effective date
date issue can be sold
ghost a trade
do the trade for an insider from the RRs own account considered an insider as well then misappropriation of information
The provisions of the Securities Exchange Act of 1934
does NOT apply to exempt securities BUT the fraud provisions apply to exempt and non-exempt
Rule 147 - Intrastate Offering Exemption
exempt from SEC/Act of 1933 because the Fed Gov't has no authority if it's only within a state 100% must be sold to state residents 80% of the sales and assets and proceeds in the state 6 month sale restriction - resales only for residents Form 147 has to be filed with SEC 10 business days before the sale must follow blue sky laws
What happens in the 20 day cooling off period?
full and fair disclosure nothing can be sold can distribute preliminary prospectus (red herring) no orders/sales ONLY INDICATIONS OF INTEREST
Safe Harbor Rule
insiders can make a plan for trading if there is a written plan in place before the insider can't have any further influence on trades
Dribble rule
investor with a large holding may not sell all of the shares at one time without filing he can "Dribble" the shares into the market without filing if an investor has 10% position, 1% can be sold every 90 days will take 900 days to sell it all
Each exchange regulates
it's trading venue
Rule 415 (Shelf Registration)
lets issuers register additional shares without having to go through the 20 day cooling off period registration is good for 3 years issuer gives a 2 day notice to the SEC can sell with a supplement to the original prospectus requirement is that the original issues have to be outstanding for at least 1 year and a minimum of $75MM (75 million)
due diligence
making sure the disclosure is adequate and truthful
Listed issues are
marginable under Reg T Subject to Reg SHO (short sales)
Who must be registered with FINRA?
member firm officer of a member firm sales employee and trader of a member firm
Securities Exchange Act of 1934 requires what minimum for broker-dealers?
minimum net capital net capital is the "liquid net worth" of the firm must be sent to customers semi-annually (balance sheet and computed net capital)
Securities Act of 1933 applies to
non-exempt issues
What is needed per the Securities Act of 1933 before sales can happen?
prospectus registration statement with SEC 20 day cooling off period
What are common carrier issues? What regulation covers them?
railroads trucking companies etc. Interstate Commerce
The Securities Exchange Act of 1934 regulates
secondary market first second third fourth First Market: Trading of listed securities on a stock 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; Fourth Market: Over-the-counter trading from institution to institution directly via ECNs and ATSs.
stabilitzing bid is placed....where?
secondary trading market - so it comes under the Securities Exchange Act of 1934
Broker dealers have to do what with fully paid customer securities?
segregate them and place in safe keeping
Regulation FD (Fair Disclosure)
sets limits on the common company practice of selective disclosure if this happens, then the tipper/tippee rule happens
Insiders are prohibited from selling their own stock... but they can go
short against the box (at year end) as long as they cover it within 20 days
lock-up period under Rule 147
the SEC "locks up" the issue in the State of issuance for 6 months - it can be resold to other State residents but cannot be resold out of that State for the 6 month period following the initial sale. Note that because these securities were never registered with the SEC, they cannot be publicly traded. The only way to resell them is in a "private securities transaction."
10Q Report
the quarterly unaudited financial statements of corporate issuers that are filed with the SEC, and which are a public record. Included in the 10Q are the corporation's balance sheet; income statement; retained earnings statement; and sources and uses of cash statement. Issuers file 3 10Qs and 1 10K per year
Rule 144A regulates:
the trading of restricted securities to institutional investors known as qualified institutional buyers (QIBs) must be at least $100MM trading of 144A units from QIBs to QIB is called PORTAL (owned by NASDAQ)
PIPE Transaction
the way a company (that already raised money) to raise more $$ quickly avoid expense and time of a formal registration available for accredited investors who will invest and then get discounted private placement *unregistered* stock company files shelf registration - can cash out over the next 3 years company can renew the shelf registration every 3 years
treble damages
three times the damages actually sustained if guilty of insider trading fines go to Dept of Treasury NOT SEC
Registered Secondary Distribution
where the proceeds of the issue go to selling shareholders. Registered secondary offerings are used by large shareholders to dispose of big blocks of stock that would otherwise have to be sold in very limited amounts under SEC Rule 144
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.); conduct business with foreign nationals temporarily present in the U.S.
Is electronic delivery of prospectuses allowed?
yes, as long as the firm knows the customer has access "access = delivery"
