Chapter 2 Flashcards
Which securities Act is known as the “Paper” or “Primary” Act?
The Securities Act of 1933
How long is the cooling-off period that the SEC requires for companies that intend to sell securities to the public?
The SEC requires a 20 day cooling off period to give them time to review the prospectus, etc. so no one is able to sell them.
Which market does the Securities Act of 1933 deal with ?
The primary or IPO market.
The Securities Act of 1934 is known as the…?
People and places Act
The secondary market is directed by which Act?
The Securities Act of 1934
The Securities Act (1934) regulates the activities of what?
Broker/dealers, associated persons, and establishing fair and orderly markets
What is a key attribute of a security?
The unpredictability of investment return
Define underwriter
An underwriter is any entity or person that has purchased securities securities from an issuer (IPO) with the intent to resell them.
Define “sale”
A sale denotes a contract, or disposition of a security for value.
Define “dealer”
A dealer is any person(entity) who is engaged either full or part-time, directly or indirectly in the business of offering, buying, selling or trading in securities issued by another person(entity).
Name a few “accredited investors”
Any bank, any broker/dealer, any insurance company, any employee benefit plan with assets in excess of $5 million, any director, partner or officer of the issuer of the securities being offered or sold, any corporation, or trust, formed for the purpose of making this investment with assets in excess of $5 million, and any natural person with individual or joint net worth in excess of $1 million not including primary residence or had an annual primary income of $200k in each of the 2 most recent years or $300k joint income and have the reasonable expectation of reaching the same.
The Investment Company Act of 1940 provides for SEC regulation of what?
Investment companies and their activities, designed to protect investors from unfair dealings, regulate borrowing by investment company management, and provide investors with current information.
Ethical sales practices are governed by which Act?
The Securities Exchange Act of 1934.
The rules of the Investment Company Act of 1940 governs what?
The activities of face amount certificate companies, management companies, and unit investment trusts.
Define “affiliated person”
Any person(entity) who directly or indirectly owns, controls or holds with power to vote, 5% or more of the outstanding voting securities of a company; or anyofficer, director, partner, or employee; or an investment advisor or member of the advisory board of an investment company.
Define “interested person”
Includes those defined as an affiliated person plus a member of an affiliate’s family, person who has been a legal counsel for the last 2 fiscal years, broker/dealer with a business relationship during the last 2 years; or anyone the SEC says is an interested person.
The definition of an investment company does not include…?
…a holding company or variable annuity.
Explain “principal underwriter”
Is the funds chief salesperson, responsible for the distribution of the investment company’s shares.
What is a “redeemable security”?
It is any security which the holder upon presentation to the issuer is entitled to receive his proportionate share of the issuer’s current net assets.
The definition of redeemable security includes…
…mutual funds, variable annuities, and uit investment trusts
Define face amount certificate
It is a contract between an investor and an issuer in which the issuer guarantees payment of a stated or fixed sum to the investor on a set date in the future.
Explain a fixed UIT
It purchases a portfolio of bonds and terminate when the bonds in the portfolio mature.
A nonfixed UIT purchases what?
Shares of an underlying mutual fund
Closed end investment companies sell what?
Individual common or preferred stocks and bonds.
Open end investment companies sell…
… mutual funds.
The POP is sometimes known as the…
…ask price
The NAV is sometimes called the…
…bid price
What is the 75-5-10 test used for?
The test used to determine if a company is diversified or nondiversified.
Explain the 75-5-10 test.
A company is considered diversified if at least 75% of the value of its total assets are invested so that securities of any one issuer are not greater than 5% of the total assets and not more than 10% of the outstanding voting securities of any issue are held. No restrictions on the other 25%.
After filing as an investment company under the Act of 1940 a company must also register with the SEC any securities it intends to sell. This takes place under…
…The Securities Act of 1933.
