FC Chapter 3 Flashcards
True or False: If a BD holds a customer’s stock in street name, the BD may vote on behalf of the customer.
False. Without permission, BDs holding a customer’s stock in street name may not vote on behalf of the customer.
True or False: If a BD buys its own stock in after-hours trading, it must use the same BD it used during normal hours.
False. One BD may be used during normal hours, and a different BD may be used in after-hours trading.
According to Regulation M-A, what information (in plain English) must be provided in a summary term sheet?
Material features and a brief description of the transaction, as well as a summary of disclosures
List the types of issuers who are ineligible to use a free writing prospectus.
Penny stock issuers, issuers involved in a bankruptcy within the last three years, and blank-check (shell) companies
Schedule ____ must be filed with the SEC within ____ days if a person acquires more than __% of a company’s stock.
Schedule 13D must be filed with the SEC within 10 days if a person acquires more than 5% of a company’s stock.
What does the Hart-Scott-Rodino Act require?
The filing of notification reports regarding large merger and acquistion (M&A) transactions
True or False: Road shows may be delivered to a group of investors or one-on-one.
True
Who is required to file Form 13F?
A mutual fund manager who exercises investment discretion over at least $100 million in equity securities
Define prearranged trade.
An offer to sell a security with an agreement to buy it back at the same or an advanced price
Define graphic communication.
Communication made using electronic media (e.g., audio / videotapes, e-mail, CDs, text messages, and webcasts)
True or False: Written communications only encompass materials in written, physical form.
False. Written communication includes anything written, printed, or broadcast on TV or radio, and graphic communication.
When must a reporting company file a Form 10-Q with the SEC?
At the end of the first three fiscal quarters of each year (fourth quarter included in annual report)
What is the maximum civil penalty that the SEC may impose under the Insider Trading Act?
Treble damages (three times the profit made/loss avoided) and disgorgement of any profit
True or False: Schedule 13D must be filed with the issuer, SEC, and the exchange on which the stock trades.
True
True or False: A fairness opinion must disclose any extra payment a BD will receive based on completion of an M&A deal.
True
What is the primary purpose of a fairness opinion?
To judge whether the transaction price is fair within a reasonable range of prices
Define short-swing profit.
A profit earned on stock held less than six months
A corporate officer informs his son of an upcoming earnings report and the son effects trades. Is this a violation?
Yes. Both parties, the tipper (officer) and the tippee (the son), have violated the Insider Trading Act.
Three months ago, an insider acquired stock at $12. If she sells the shares today at $15, may she keep the profit?
No. Under the short-swing profit rule, an insider may not keep a profit earned on stock held less than six months.
How many times is a quarterly Form 10-Q filed each year
Three times per year since the fourth quarter is included in the annual report.
After filing notice of an impending M&A deal, it may not be completed until how many days have elapsed?
30 days
True or False: Only individuals who acquire more than 5% of a company’s stock are required to file Schedule 13D.
False. Any person, or group acting in concert, must file Schedule 13D.
Issuers/affiliates repurchasing their own shares may not buy the shares in the last ____ minutes of the trading day.
Issuers/affiliates repurchasing their own shares may not buy the shares in the last 30 minutes of the trading day.
True or False: The Hart-Scott-Rodino Act deals with corporate governance of listed securities.
False. The Hart-Scott-Rodino Act is an anti-trust rule that applies to large M&A transactions.
What is the size of companies test used for determining whether an M&A transaction is reportable under the HSR Act?
One company has assets or net sales of $136.4 million or more AND the other has assets or net sales of $13.6 million
Define an insider.
Officers, directors, partners, greater than 10% owners, and immediate family members of all listed
When an issuer or an affiliate is repurchasing its own shares, how many BDs may it use in one day?
Issuers or affiliates may use only one BD a day when repurchasing its own stock.
True or False: Painting the Tape violates the anti-manipulation provisions of the Securities Exchange Act of 1934.
True
What is the general purpose of Regulation M-A?
To relax the communication restrictions between BDs and investors prior to a company’s filing of offering statements
While waiting for her train, an RR overhears a rumor of an impending corporate takeover. What should she do?
Tips and unverified rumors must be reported to the firm’s legal/compliance department.
True or False: For insider trading violations, the SEC may file criminal charges against an individual.
False. The SEC may only file civil charges that may result in civil penalties.
For what offerings may live, electronic road shows be retransmitted using graphic communication?
IPOs only
According to Rule 10b-18, how many BDs may an issuer use to purchase its own common stock during normal market hours?
One
When must insiders report their transactions?
Within 2 business days of the trade
True or False: According to the Insider Trading Act, both the tipper and tippee may be held liable for a violation.
true
True or False: Regulation M-A applies to cash or stock tender offers.
True
True or False: A person who owns 11% of a company’s common stock is defined as an insider.
True. Insider status is determined by having ownership greater than 10%.
What time limit exists for issuers/affiliates of actively-traded securities that are repurchasing their own security?
They may not purchase their security within the last 10 minutes of the trading day
What type of issuer may use a free writing prospectus after filing its registration statement with the SEC?
A seasoned issuer
Describe the purpose of a road show.
To acquaint investors and BDs with information on a prospective public offering
True or False: A market maker’s quote represents the maximum number of shares it will buy or sell.
False. A market maker may buy or sell more shares than its bid and offer displays.
“For insider trading violations, the SEC can sue for treble damages.” What does that statement mean?
The SEC can sue for three times the damage (profit made or loss avoided).
Is it acceptable for two market makers to trade a stock repeatedly to increase demand and the appearance of trading?
No. This is considered Painting the Tape.
Under Sarbanes-Oxley, how often must a company file reports detailing internal controls over financial reporting?
Annually
True or False: The amount of compensation received by the party writing the fairness opinion must be disclosed.
False. The fact that the writer will be compensated must be disclosed, but not the amount of compensation.
Who certifies the accuracy of the information contained in a company’s annual and quarterly financial reports (10K/10Q)?
The firm’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO). The term principal officer may also be used.
If an investor acquires 6% of a reporting company’s preferred stock, is Schedule 13D required to be filed?
Yes. Filing is required when a person acquires more than 5% of any class of equity security (including preferred stock).
Transactions valued at greater than $______ million must file a notice under the Hart-Scott-Rodino Act.
Transactions valued at greater than $272.8 million must file a notice under the Hart-Scott-Rodino Act.
Under Sarbanes-Oxley, what is the CEO/CFO of a company required to prohibit?
Personal loans to corporate officers from the issuer
True or False: Using nonpublic information to avoid a loss would NOT be a violation of the Insider Trading Act.
False. Using inside information to make a profit or avoid a loss is prohibited.
True or False: A fairness opinion must be filed with, and approved by, FINRA.
False
True or False: To promote balanced views, the fairness committee must include members from outside the deal team.
True
Live, electronic road shows retransmitted using graphic communication meet the definition of _____ communication.
Live, electronic road shows retransmitted using graphic communication meet the definition of oral communication.
True or False: Under the Hart-Scott-Rodino Act, a merger may not be completed until 30 days after notification.
True
What is the maximum criminal penalty for an individual convicted of insider trading?
$5 million fine, and/or up to 20 years in prison
Under Sarbanes-Oxley, what must be included in senior management’s annual report?
Its assessment of the effectiveness of internal controls and certification from the accounting firm auditing its records
The criminal penalty for insider trading by an individual is a maximum of $_________ and/or ___ years in prison.
The criminal penalty for insider trading by an individual is a maximum of $5 million and/or 20 years in prison.
The criminal penalty for insider trading by an individual is a maximum of $5 million and/or 20 years in prison.
To enhance corporate governance and strengthen corporate accountability
True or False: A tender offer may be placed by the issuer or a third party and may be full or partial.
True
True or False: Regulation M-A applies to going-public transactions.
False. Regulation M-A applies to going-private transactions.
According to Sarbanes-Oxley, who is responsible for attesting to corporate financial reports?
The Chief Executive Officer (CEO) and Chief Financial Officer (CFO)
For mergers and acquisitions exceeding $272.8 million, with whom must companies file notice?
The Federal Trade Commission (FTC) and the Antitrust Division of the Justice Department
True or False: In a partial tender, a person may tender the subject company’s convertible bond without converting it.
True. If the tender is accepted, he would then be required to convert.
What information is found in a company’s Form 10-K?
A list of officers/directors, its business line, risk factors, assets, and an overview of the past year’s results
Define Painting the Tape (matched sales).
Heavy trading volume between market participants to create a misleading appearance of activity
Regarding a proposed M&A transaction, when are the companies planning the transaction required to file notice?
Before the deal is completed
The manager or co-manager of an IPO must satisfy a quiet period of _____ calendar days prior to publishing research.
The manager or co-manager of an IPO must satisfy a quiet period of 10 calendar days prior to publishing research.
Issuers of nonactively traded securities may not purchase their own shares during the last ____ minutes of trading.
Issuers of nonactively traded securities may not purchase their own shares during the last 30 minutes of trading.
What does it mean to be short against the box?
A client sells the security that he owns, but does not intend to deliver his long securities to effect delivery.
According to Rule 10b-18, at what price may an issuer purchase its own shares?
At a price not exceeding the higher of the independent bid or the last transaction price
If the SEC intends to suspend all trading, who must receive advance notification?
The President of the U.S., who must notify the SEC that he does not disapprove of the decision.
Where may investors obtain information regarding SEC filings made by reporting companies?
On the SEC’s EDGAR website
An _________ is any person who has possession of material non-public information.
An insider is any person who has possession of material non-public information.
Must a relationship between the BD writing the fairness opinion and a party subject to the opinion be disclosed?
Yes. Any material relationship that has existed within the last two years must be disclosed.
If the terms of a tender offer are changed, for how many additional days must the offer remain open?
For at least 10 business days from the change
If a company announces that its CFO has resigned effective today, what form must be filed with the SEC?
Form 8-K. This form is filed for significant changes/events that may impact share price or financial condition.
Individuals must register with the SEC within __________ of becoming an insider.
Individuals must register with the SEC within 10 days of becoming an insider.
What other term may be used for a company’s Chief Executive Officer (CEO) or Chief Financial Officer (CFO)?
Principal Executive Officer (PEO) or Principal Financial Officer (PFO)
True or False: Under Regulation M-A, a prospectus, proxy, or tender offer statement must be provided to investors.
TRUE
If a mutual fund owns 7.5% of a company’s common stock, are all current fund shareholders required to file Schedule 13D?
No. The mutual fund must report its ownership, not the shareholder.
What will a firm establish between departments to restrict the flow of potential insider information?
Information barriers
When must a company file a Form 10-K with the SEC?
Annually
Recorded road shows meet the definition of ________ communication.
Recorded road shows meet the definition of graphic communication.
A bounty of up to ____% may be offered to a person who reports an insider trading violation.
A bounty of up to 10% may be offered to a person who reports an insider trading violation.
True or False: Regulation M-A applies to equity IPOs and new issues.
False
In what forms may road shows be delivered?
Live or electronic
When may road shows be conducted?
After filing the registration statement (before the effective date)
According to the HSR Act, an M&A deal may not be completed until ____ days after notification.
According to the HSR Act, an M&A deal may not be completed until 30 days after notification.
To what types of transactions do Regulation M-A provisions apply?
Cash or stock tender offers, mergers, acquisitions, or going-private transactions
A person must register with the SEC within ____ days of becoming an insider by filing Form ___.
A person must register with the SEC within 10 days of becoming an insider by filing Form 3.
What is the criminal penalty for insider trading by corporations?
$25 million per violation
True or False: When an issuer repurchases its own shares, it may do so at the opening price during a trading day.
False
If an insider trading violation occurs within a brokerage firm, what parties may be held liable?
The tipper, tippee, supervisor, and BD may be liable.
What SEC form is used to report the restricted stock a corporate officer receives as compensation in his 401(k) plan?
Form 4
What is the maximum criminal penalty for a corporation convicted of insider trading?
A $25 million fine
Insiders must return short-swing profits, which are profits earned on stock that has been held for less than ___ months.
Insiders must return short-swing profits, which are profits earned on stock that has been held for less than six months.
List some reasons for the filing of Form 8-K.
Change in company control, accountant, or fiscal year, or the resignation of a director
Name two prohibitions that relate to being an insider.
- No shorting of the stock and 2. No keeping of short-swing profits
What are treble damages?
The civil penalty for insider trading, which is three times the profit made or loss avoided
Who has the authority to initiate criminal action related to insider trading?
The U.S. Department of Justice
What are the volume limitations on an affiliate or issuer repurchasing its own security?
No more than 25% of the average daily trading volume (ADTV) over a 4-week period in one day
Transactions valued at $___ million or less do not have to file a notice under the Hart-Scott-Rodino Act.
Transactions valued at $68.2 million or less do not have to file a notice under the Hart-Scott-Rodino Act.
The SEC may suspend trading on an exchange for up to ____ days.
The SEC may suspend trading on an exchange for up to 90 days.
What are the four guidelines that must be followed for an issuer to be allowed to purchase its own common stock?
1) One BD used, 2) time of purchase, 3) volume of daily purchase, and 4) price of purchase
The SEC may suspend trading for up to ____ business days for an individual issue.
The SEC may suspend trading for up to 10 business days for an individual issue.
According to Regulation M-A, where would a summary term sheet regarding an M&A deal be found?
On the first or second page of the disclosure document
After attending a board meeting, Jim, the CEO of ABC Inc., sells 1,000 shares of ABC short. Is Jim’s action permitted?
No. Jim is prohibited from selling short the stock for which he is an insider.
Define reporting company.
One that is SEC-registered, listed on an exchange, and has total assets exceeding $10 MM with 500 or more shareholders
For SEC purposes, if an insider purchases or sells his stock, what form is filed and when is it filed?
Form 4 must be filed with the SEC within two business days of the trade.
During the registration cooling-off period, what should an agent do if a client sends a check to purchase securities?
Return the check to the customer
True or False: The primary purpose of a fairness opinion is to verify the credit rating of the newly merged entity.
False
Issuers of actively traded securities may not purchase their own shares during the last ____ minutes of trading.
Issuers of actively traded securities may not purchase their own shares during the last 10 minutes of trading.
True or False: A person who supervises an individual who has violated insider trading rules may also be penalized.
True
