Chapter 3 - Primary and Secondary Markets Flashcards
Securities Act of 1933
Regulates primary market/new issues
Must provide prospectus
New issues no longer marginable
Securities Act of 1934
Regulates secondary markets
Form S-1
Registration Statement to file a new issue
20-Day cooling off period
After S-1 is filed, SEC takes 20 days to review. No sales activities can occur.
Preliminary Prospectus
This can be circulated during cooling off period & interested customers can be recorded.
On Effective Date…
Issue can now be sold/solicited. Prospect must be deliver to each purchaser at or before completion of sale.
Prospectus must be delivered (electronically/access) for first 90 days if new issue,40 days for add-on, and 25 days if issue is on an exchange or NASDAQ
Misstatements and omissions
is fraud under 1933 Act for all involved - due diligence must be performed.
Exempt Issues
US Govt issues, Life/Annuities, Bank issues, Non-profit issues, ICC issues
Exempt Transactions
Rule 144, Rule 144A, Rule 147, Reg A, Reg D, Reg S
Rule 147 (intrastate offering)
Intrastate offering transactions are exempt. Issuer must legally be resident. Partnerships, all partners must be residents. cannot sell to non-resident (another state or another country)
Rule 147A
Exempt if only selling to the one state where business is principally located
Reg D (private placement)
can have max 25 non-accredited investors (but must ensure sophisticated)
no limit on dollar amount or units sold
must provide offering circular
Rule 506 offering advertising
If non-accredited investors are excluded, then the offering can be advertised.
Reg A
Two tiers to allow smaller companies to raise capital; 20 review period, offering circular
Tier 1: Under $20 million (no audited financial statements), subject to blue sky
Tier 2: $20-$75 million, (audited financial statements), federally covered
Reg A “test the waters”
can promote issue during 20-day review, solicitation materials must be provided in initial filing.
Tier 2 purchase limit
non-accredited investors cannot purchase tier 2 over 10% of annual income/net worth
Rule 144 (selling restricted/control stock)
Rules to sell restricted (or control) stock:
File form 144, max once/quarter
securities must be held fully paid for 6 months (unless control)
can sell greater of: 1% outstanding shares or preceding 4 weeks trading volume
Small sell Rule 144 exemption
if it is less than 5000 shares with less than $50,000 value then filing requirements are waived, still quarterly max
B/D & 144 trades
Must act as agent unless bona fide market maker
Cannot solicit, but can recontact an interested customer within 10 business days, or interested B/D within two months
Rule 144A
defined QIBs ($100 million of discretionary assets) and they can purchase unregistered securities directly from issuers & B/Ds. Minimum $500,000 blocks. Can only trade in PORTAL market
Reg S
For issues to non-US residents (foreigners or US citizens living abroad)
Rule 415
For securities an issuer expects to sell over next 3 years. No cooling off period, must be public for a year and have $75 million float
Rule 415 Seasoned vs unseasoned
Seasoned can do primary offerings. Unseasoned can do secondary offerings (PIPE)
Rule 405 (shelf reg for big issuers)
defines WKSIs: $700 million market cap or $1 billion non-convertible senior securities.
Lasts for 3 yrs & use of FWP permitted