Equity Securities Flashcards
Common stock can be classified how
authorized
issued
outstanding
treasury
What is auth stock
max amount that CAN be issued
Are auth stock counted toward the comps total capitalization
no
Why might a comp keep unissued stock
to raise later
paying stock dividends
exchanging com stock for outstanding convertible bonds or preffered stock
What is outstanding stock
Issued stock - treasury stock
(amount of stock held by investors)
What is issued stock
All shares the company has issued
What is treasury stock
outstanding stock that was bought back by the comp
What is market cap
outstanding X current market value
What is a penny stock
unlisted
less than 5$/share
Are Penny stocks are considered
speculative
highly speculative
highly speculative
What does the SEC require before purchasing a penny stock from a cold call
risk disclosure doc
What ongoing things does the BD have to do for a penny stock owner
provide monthly statement about the market value, # of shares, and issuers name
What’s the first thing a BD must do during a solicitation for a penny stock to the customer
determine sutability based on their finances and objectives
What does a BD disclose and what does the customer sign when they are buying a penny stock during a cold call
of shares
they must disclose:
stock name
number of shares to be purchased
current quotation
commission for him and the firm
They must sign the suitability statement
Established customers are exempt from what when buying a penny stock during cold calls
suitability statement
What makes an established customer for penny stocks
held acc with the BD for a least a year with a deposit
OR
has made 3 or more penny stock purchases of diff issuers on diff days
Unsolicited transactions for penny stock dont have to follow what
the suitability and disclosure rules
What are the three types of dividends from com stock
cash
stock
product
When are cash dividends on common stock usu dist
quarterly
For cash dividends on com stock, what are the two ways they are delivered to the shareholder
by check if the shares are paper certs
direct dep if held in street name
Where do stock dividends of com stock come from
auth or treasury stock
Consideration for stock dividends of com stock
cost per share drops so tax implications when sold
Are stock dividends taxable
no
Cash dividends of com stock may be taxed as
unqual or qual
unqual is the investors norm income tax rate
qual is based on IRS tax code and the invs income bracket (usu cheaper)
What are the 4 dates of divi disbursements
declaration
ex-dividend
record
payable
Acronym for divi disbursement
DERP
Which in DERP is set by Regs
Ex-dividend
If you wanna vote but cant make it, then what
an absentee ballot/proxy is set up
hat are the voting types of com stock and define thme
Statutory- 1 vote/share per ballot (can use all shares per ballot)
Cummulative- votes must be split between ballots
Cummulative voting benefits who
the small investor
Com stock holders have what rights
limited access to the books
meeting minutes
list of other stock holders if reasonable
audited financial statements
Whats the risk of com stock at dissolution
lowest priority
what are some diffs of pref stock vs com
fixed rate of return represented by an annual divi
no voting or preemptive rights
What are preemptive rights and who has them
right to purchase newly issued stock before the public to keep % ownership in the comp
com stock
Does pref stock typically have more growth potential than com stock
no
what are the benefits of pref stock vs com
first dibs on divi’s
priority at dissolution
what are some risks of pref stock
inflation may impact the PP of the fixed income
Interest rate risk (rates rise, the value of the pref stock falls)
Decrease or cease of divi’s
If divi’s stop for pref stock, what might happen in the back ground
payments are accruing
What are the types of pref stock
straight
cumulative
callable
convertible
adjustable rate
participating
What is straight pref stock
doesn’t accumulate if divi’s are missed
what is cummulative pref stock
Ceased or decreased divi’s accrue
what is callable pref stocks
comp can buy back at stated prices at specified date
Its like a refi
What is convertible pref stock
can exchange pref stock for a fixed number of com stock
What are the advantages of convertible pref stock
if the comp is doing well, they can convert into com stock to enjoy the ride
the value of convert pref stock is linked to what and what does that mean
com stock bec its assumed it will be converted in the future
it means once the price of the com stock hits the same price as the pref, the pref tracks the com stock
What are adjustable rate pref stocks
the rate of return is usu linked to a benchmark like T bills or money market rates
What are participating pref stocks
allowed to get extra divi’s from profits AFTER all divi’s and interest are paid
So it might be described like:
6% preferred participating to 9%
What type of pref stock would be the worst to recommend someone wanting fixed income
adjustable rate pref
What an American Depositary Receipt
allows investors to purchase foreign stock where one ADR may represent one or more shares in the foreign company
What are the advs and risks of ADRs
Most listed on US exchanges
taxes from the foreign country are credits toward taxes in US
political risks of that country
currency exchange rate risk
Broadly what does rule 144 Restricted stock and control persons do
regs nonstandard offerings
has restrictions on reselling and on control persons
How long is the holding restriction for restricted stocks and what will show on the certification of shares
6 mo
a warning about the holding period
Whats another name for restricted stock
legended
What must the issuer of restricted stock do before the restricted stock can be sold
lift the restriction
Are the buyers of previously restricted stock subject to Rule 144
no
What is a control person for restricted stock
10% or more owners
What is a rule with family members about control persons
if the combined ownership of the family is >10% than everyone is control person
What must a control person do to sell their shares and what are the limitations
sign form 144
They can sell the greater of either 1% of the outstanding shares of the comp or the average weekly trading volume of the last 4 weeks over the nxt 90 days
Other than maintaining ownership %, how can you benefit from Preemptive rights
to buy the new issue at below market value
sell the rights to profit from the current and market value diff
How many preemptive rights does some have
one per share
What is a warrant
like a right but allows to purchase at future date usu at a specified higher price
What is the goal of owning a warrant
that the market price is higher than the warrant price by the time you can exercise the warrant
Does the total value of a postion change with forward or reverse splits
no
What is a forward split
splits the shares
What are the tax implications for splits
your cost basis drops
Is a stock divi or split a taxable event
no
What is a merger
two or more comps combine
old shareholders are issued new stock
operations and assets are combined
What is an acquisition
the operations and assets of the bought company are taken over
What is a tender offer
the company offers to buy a sec directly from the owner without using the secondary market
like a comp buying back its own debt or
buying shares of another company
Buybacks and tender offers are usu what because why
taxable event bec they usu cash
actions like issuing
cash divi
stock divi
rights or warrants
OR
doing a split require what due to regulations
the issuer to give notice
What needs to be included in the notice of corp actions like divi’s, splits , right, or warrants
Title of the security
date of declaration
Date of record
date of distribution
Details depending on which one
When should a notice be given for corp actions like divi’s, splits , right, or warrants
10 days before record
What are the rules for proxy solicitations
company needs to provide info of the ballot to the shareholder
SEC needs to review that info before send the proxy
If in a proxy contest:
participants must be registered with SEC
anyone who provide the shareholder with unsolicited advice is considered a participant
Whats a member BDs role in proxies and important material
to act as a forwarding agent to between the corp/proxy and the shareholder
if proxy sent but how to vote was not indicated, BD must vote based on issuers management recommendations
If a proxy is not received by the 10th day before the meeting, then what for the BD
vote for the customer as they see fit for minor issues
no vote on major issues
