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Series 24 > Chapter 3 > Flashcards

Chapter 3 Flashcards

1
Q

The Securities Exchange Act of 1934

A
  • requires registration of stock exchanges and broker-dealers
  • prohibitis fraudulent, deceptive, manipulative practices of contrivance such as wash sales, matched orders, and misleading statements.
  • requires periodic disclosure of info ab listed security
  • requires public corps to provide annual reports to shareholders
  • establishes credit regulation
  • regulates insider trading

DOESNT PREVENT FRAUD IN NEW ISSUES- THAT’S THE 33 ACT

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2
Q

Under the Anti-fraud provision of the 34 act, the SEC is allowed to:

A
  • impose monetary penalties
  • freeze assets of parties involved
  • file for criminal indictments
  • transactions which ORIGINATE IN U.S.
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3
Q

SEC requires issuer to give notice to FINRA when and with what information when it comes to a dividend or distribution, stock split, or rights or subscription offering?

A
  • no later than 10 days prior to record date of distributions
  • information required: name of security, declared date, record date, payable date.

ex-date NOT required. ex-date set by FINRA.
proposed merger- no finra

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4
Q

Individual ownership of securities under act of 34

A
  • individual owns 5% or more must notify issuing corp, exchange, and SEC within 10 days of acquisition.
  • must file form schedule 13D with SEC.
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5
Q

Passive investors under act of 34

A
  • shareholders who have ownership of more than 5% of securities.
  • passive investors permitted to use short form schedule 13G for filing within 10 calendar days after acquiring ownership of more than 5%.
  • PROMPT amendments are required every time passive investor acquires more than an additional 5%.
  • will lose eligibility for schedule 13G when passive investor gains more than 20%
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6
Q

Form 10-C Reports by NASDAQ Securities by act of 34:

A
  • filed with SEC and FINRA by companies whose securities are quoted on NASDAQ.
  • Must be filed no later than 10 DAYS after one of the following CHANGES occurs:
  • when there is a change in corporate name
  • when there are changes in number of shares outstanding of 5% or more
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7
Q

Form 8k under act of 34

A
  • must be filed whenever there is a MATERIAL EVENT that could affect company’s financial situation or value of company to shareholders
  • must be filed within 4 DAYS of occurrence
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8
Q

10-Q Quarterly report form under act of 34

A

report of company’s performance submitted quarterly by all public companies at the end of first 3 fiscal quarters to the SEC. required to disclose relevant info about financial position

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9
Q

10-Q Filing requirements are

A
  • 40 days after end of fiscal quarter for large accelerated filers
  • 45 days after end of fiscal quarter for all other registrants
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10
Q

10-K Audit report form

A
  • comprehensive report of performance submitted annually to SEC within 90 days of company’s fiscal year. much more detail than annual shareholder’s report

NO PROJECTIONS EVER

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11
Q

Schedule Form 13F

A
  • Institutional Investment Managers that exercise discretion over $100M or more must file this form w SEC through EDGAR
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12
Q

Regularly Released Factual Business Information: SEC Rule 168

A
  • applies to communications to the public by SEC companies that are NOT considered to be an offer to sell or associated with an offering
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13
Q

Factual Business information

A
  • factual info about issuer, its business, or financial developments
  • advertisements about issuer’s products or services
  • dividend notices
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14
Q

SEC Rule 15c3-3 Customer Protection Rule

A
  • ensures funds held by broker are kept in safe areas of business related to servicing customers, or that funds are deposited in a reserve bank account
  • requires BD to promptly obtain possession of all fully paid securities and excess margin securities carried by BD and require them to act within designated time frames where possession or control has not been established.
  • daily basis- BD must determine which securities are in/not in its possession or control
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15
Q

SEC Rule 17a-5 Disclosure of Broker-Dealer’s Financial Condition to customers

A
  • audited financial statements must be sent to customers within 105 days after report done
  • unaudited statements sent within 65 days following 6 months of date of annual audited financial statement
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16
Q

Regulation S-P

A

Privacy rules: require financial institutions to provide notices to consumers ab the institutions privacy policy and practice.

17
Q

Sarbanes-Oxley Act of 2002

A
  • also known as corporate responsibility act
  • requires that CEOs or principal executive officers and CFOs or principal financial officers certify financial reports (including form 10-q and 10-k).
  • They would also be required to forfeit profits and bonuses from corporate earnings due to securities fraud
18
Q

4 additional Sarbanes-Oxley Act of 2002 guidelines

A
  • prohibits executives from selling stock during blackout periods
  • requires insiders to report stock trades within 2 business days
  • prohibits company loans to executives or directors
  • requires immediate disclosure of material changes in company’s financial condition
19
Q

Hart-Scott-Rodino Act of 1976

A
  • established federal pre-merger notification program that provides the FTC and DOJ with info about large mergers and acquisitions before they occur.
20
Q

Main provisions of the Hart-Scott-Rodino Act of 1976

A
  • 30 day wait period: after filings, they must wait 30 days while govt. agencies review. govt has option of extending, and it may be terminated prior to end of 30 days if requested. It is unlawful to close transaction until waiting period has been satisfied
  • Filing only required if size exceeds 84.4 Mil in 2018, 90 mil in 2019
21
Q

Regulation FD (Fair disclosure)

A
  • Meant to halt selective disclosures of non-public info by issuers to analysts and institutional investors.
  • if intentionally disclose material non-public info, issuer must simultaneously (not later than 24 hours later or next day trading start) make public disclosure
  • can be done through form 8-K or by disseminating the info through public conference calls or press releases
  • unintentional: must make public disclosure promptly
22
Q

Trust indenture act of 1939

A
  • regulates corporate bonds
  • requires indenture or deed of trust which specifies rights and duties of everyone involved
  • does NOT regulate: govt issues, munis, private placement, or UITs
23
Q

Exemption of Foreign Broker Dealers (SEC Rule 15a-6)

A
  • SEC permits foreign BDs to conduct securities business with US customers and does not require that they register
  • if they choose not to register, activities in US will be restricted.
24
Q

Restrictions or limitations imposed on foreign broker dealers through SEC Rule 15a-6 exemption of foreign broker dealers

A
  • can visit US clients, must be accompanies by US registered person
  • can effect securities transactions with US institutional clients, but must go through registered US BD, records must be maintained
  • securities business not subject to SEC restrictions if conducted outside of US
  • can send research reports, but cant follow up with clients to discuss. if clients want to place order, it must go through registered BD.
25
Q

Non-registered foreign finders (rule 2040(c))

A
  • member firm may pay transaction-related comp to non-registered foreign finders if the finders involvement is initial referral to member firm of non-us customers. Member firm has to comply with all conditions of the rule (foreign finders exemption)
26
Q

Conditions/Rules set forth in the non-registered foreign finders / foreign finders exemption rule (Rule 2040(c)):

A
  • member firm assured itself that finder is not required to register in US, not subject to disqualification, does not violate foreign law
  • finder is a foreign national or foreign entity
  • customers are foreign nationals, foreign entities.
  • customers receive descriptive document on what comp is being paid
  • customers provide written acknowledgement to firm of existence of compensation arrangement, info retained and made available for FINRA
  • confirmation of each transaction indicates that a referral or finders fee is being paid
27
Q

Under the Summary of SEC Books & Records Requirements, what must be kept available for 3 years?

A
  • the first two in a readiliy accessible location:
  • forms U-4 and U-5 applications for employment with a BD
  • Fingerprints
  • customer confirmations
  • copies of orders given or received on behalf of BD or customers
  • names/addresses of beneficial owners of all accounts
28
Q

Under the Summary of SEC Books & Records Requirements, what must be kept available for 4 years?

A
  • the first two in a readily accessible location

- customer complaints, maintained at office of supervisory jurisdiction

29
Q

Under the Summary of SEC Books & Records Requirements, what must be kept available for 5 years?

A
  • monetary instruments sales records which must be available upon request
30
Q

Under the Summary of SEC Books & Records Requirements, what must be kept available for LIFE?

A
  • articles of incorporation, articles of partnership, and supporting entity documents such as minutes and stock certificate books
31
Q

Under the Summary of SEC Books & Records Requirements, what must be kept available for 6 years?

A
  • blotters of original entry
  • customer and general ledgers
  • customer account information
  • securities records
32
Q

Securities can be registered in a state by what?

A
  • qualification, notification, or coordination

- states do NOT provide for indemnification

33
Q

According to the Uniform Securities Act regulations, ‘Agent’ are defined as:

A
  • individuals who act as finders for issuers and underwriters
  • individuals who effect buys and sells of securities for broker dealers
  • individuals who act as a broker in US govt securities
34
Q

Under the Uniform Securities Act, what is defined as a security?

A
  • voting trust certificates
  • investment contracts
  • certificates of interest in a profit sharing agreement
  • fixed annuity contracts NOT defined as a security
35
Q

A Sub-chapter S corp:

A
  • treated like a partnership, profits and losses passed through to shareholders and are taxed
  • S corp itself pays no income tax
  • limit is 100 shareholders
  • partnerships cannot be shareholders
  • husband and wife treated as a single shareholder
36
Q

C Corporation

A
  • business structure that provides limited liability for owners
  • C-corps pay federal and state income tax on earnings at company level
  • earnings that remain after taxes are paid at corporate level are distributed to shareholders as dividends, this income is subject to another round of taxation
  • C Corp earnings are subject to double taxation
  • S Corp earnings are only taxed ONCE

Series 24 (13 decks)

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