Chapter 6.2

Question 1

Securities Exchange Act of 1934

Answer 1

Provided for the establishment of the Securities and Exchange Commission(SEC).

• Requires the registration of stock exchanges and B/D’s
• Prohibits fraudulent, deceptive, and manipulative practices of contrivance such as wash sales, matched orders, and misleading statements. Painting the tape is the manipulative practice of executing trades to give the appearance of an actively traded security thereby generating buying interest.
• Requires the periodic disclosure of information about a listed security.
• Requires publicly-held corporations to provide annual reports to their shareholders.
• Establishes credit regulation for securities transactions(Reg T).
• Regulates insider trading.

**The 1934 Act does not prevent fraud in the sale of new issues and does not provide for the registration of new securities issues. This is covered by the securities act of 1933.

Question 2

Anti-fraud provisions

Answer 2

Any transactions which originate in the U.S. are subject to the anti-fraud provisions of the Securities act of 1934. Under the anti-fraud provisions of the securities law, the SEC is allowed to:

• Impose monetary penalties
• Freeze assets of parties involved
• File for criminal indictments

Question 3

Corporate Actions

Answer 3

An issuer is required to give notice to shareholders regarding stock splits, rights or subscription offerings, and dividends but is not required to give notice regarding interest payments.

Question 4

Dividend Distribution

Answer 4

SEC rules require an issuer to give notice to FINRA no later than 10 days prior to the record date of a dividend or distribution, a stock split, rights or subscription offering. Information required to be filed includes the name of the security, declared date, record date, and the payable date. The ex-date is NOT required to be filed since the ex-date is set by FINRA.

**If the issuer were a party of a proposed merger, FINRA would not be notified.

Question 5

Individual ownership of outstanding securities

Answer 5

Any individual who owns 5% or more of any class of listed equity security must notify the issuing corporation, exchange, and the SEC within 10 days from the date of acquisition of the shares.
-The shareholder must file Form Schedule 13D, a beneficial ownership report, with the SEC.

Question 6

Corporate filings mandated by the Act of 1934: Form 10-C Reports by NASDAQ securities.

Answer 6

Filed with the SEC and FINRA by companies whose securities are quoted on the NASDAQ. It must be filed not later than 10 days after any one of the following changes occurs:

• When there is a change in the corporate name
• When there are changes in the number of shares outstanding of 5% or more than last reported

Question 7

Corporate filings mandated by the Act of 1934: Form 8-K Material events and corporate changes deemed important to shareholders and the SEC

Answer 7

Publicly held corporations must file form 8-K with the SEC whenever there is a material event that could affect the company’s financial situation or the value of the company to shareholders. From 8-K must be filed within 4 business days of the occurrence of:

• Changes in the control of the corporation
• The acquisition or disposition of a significant amount of assets
• The corporation becoming the subject of bankruptcy or receivership
• Changes in the corporation’s certifying accountant
• Any resignations by any member of the corporation’s board of directors.

Question 8

Corporate filings mandated by the Act of 1934: 10-Q quarterly report form

Answer 8

A comprehensive report of a company’s performance that must be submitted quarterly by all public companies within 35 days of the end of the company’s first 3 fiscal quarters to the SEC. Firms are required to disclose relevant information regarding their financial position.

Question 9

Corporate filings mandated by the Act of 1934 - Form 10-C Reports by NASDAQ securities.

Answer 9

A comprehensive summary report of a company’s performance that must be submitted annually to the SEC within 90 days of the end of the company’s fiscal year. Typically, the 10-K contains much more detail than the annual shareholder’s report.

**A 10k can never contain “projections”

Question 10

Institutional Investment Managers that exercise discretion over $100 Million

Answer 10

Must file a Schedule Form 13F with the SEC through the SEC’s EDGAR website.

Question 11

Regularly Released Factual Business Information

Answer 11

This rule applies to communications to the public by SEC reporting companies that are not considered to be an offer to sell or associated with any offering.

Question 12

Factual Business Information

Answer 12

Information released or disseminated such as:

• Factual information about the issuer, it’s business, or financial developments
• Advertisements about the issuers products or services
• Dividend Notices

Question 13

Forward Looking Information

Answer 13

Information released or disseminated such as:

• Projections of the issuer’s revenues, income, earnings per share, capital expenditures, dividends, and capital structure
• Statements about the issuer’s management plans and objectives for future operations
• Statements about the issuer’s future economic performance

**Because forward looking statements contain projections, issuers have adopted a “forward looking statement” clause in these communications.