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Series 24 Group Share > FC Chapter 3 > Flashcards

FC Chapter 3 Flashcards

1
Q

True or False: If a BD holds a customer’s stock in street name, the BD may vote on behalf of the customer.

A

False. Without permission, BDs holding a customer’s stock in street name may not vote on behalf of the customer.

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2
Q

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.

A

False. One BD may be used during normal hours, and a different BD may be used in after-hours trading.

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3
Q

According to Regulation M-A, what information (in plain English) must be provided in a summary term sheet?

A

Material features and a brief description of the transaction, as well as a summary of disclosures

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4
Q

List the types of issuers who are ineligible to use a free writing prospectus.

A

Penny stock issuers, issuers involved in a bankruptcy within the last three years, and blank-check (shell) companies

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5
Q

Schedule ____ must be filed with the SEC within ____ days if a person acquires more than __% of a company’s stock.

A

Schedule 13D must be filed with the SEC within 10 days if a person acquires more than 5% of a company’s stock.

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6
Q

What does the Hart-Scott-Rodino Act require?

A

The filing of notification reports regarding large merger and acquistion (M&A) transactions

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7
Q

True or False: Road shows may be delivered to a group of investors or one-on-one.

A

True

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8
Q

Who is required to file Form 13F?

A

A mutual fund manager who exercises investment discretion over at least $100 million in equity securities

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9
Q

Define prearranged trade.

A

An offer to sell a security with an agreement to buy it back at the same or an advanced price

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10
Q

Define graphic communication.

A

Communication made using electronic media (e.g., audio / videotapes, e-mail, CDs, text messages, and webcasts)

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11
Q

True or False: Written communications only encompass materials in written, physical form.

A

False. Written communication includes anything written, printed, or broadcast on TV or radio, and graphic communication.

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12
Q

When must a reporting company file a Form 10-Q with the SEC?

A

At the end of the first three fiscal quarters of each year (fourth quarter included in annual report)

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13
Q

What is the maximum civil penalty that the SEC may impose under the Insider Trading Act?

A

Treble damages (three times the profit made/loss avoided) and disgorgement of any profit

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14
Q

True or False: Schedule 13D must be filed with the issuer, SEC, and the exchange on which the stock trades.

A

True

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15
Q

True or False: A fairness opinion must disclose any extra payment a BD will receive based on completion of an M&A deal.

A

True

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16
Q

What is the primary purpose of a fairness opinion?

A

To judge whether the transaction price is fair within a reasonable range of prices

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17
Q

Define short-swing profit.

A

A profit earned on stock held less than six months

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18
Q

A corporate officer informs his son of an upcoming earnings report and the son effects trades. Is this a violation?

A

Yes. Both parties, the tipper (officer) and the tippee (the son), have violated the Insider Trading Act.

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19
Q

Three months ago, an insider acquired stock at $12. If she sells the shares today at $15, may she keep the profit?

A

No. Under the short-swing profit rule, an insider may not keep a profit earned on stock held less than six months.

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20
Q

How many times is a quarterly Form 10-Q filed each year

A

Three times per year since the fourth quarter is included in the annual report.

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21
Q

After filing notice of an impending M&A deal, it may not be completed until how many days have elapsed?

A

30 days

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22
Q

True or False: Only individuals who acquire more than 5% of a company’s stock are required to file Schedule 13D.

A

False. Any person, or group acting in concert, must file Schedule 13D.

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23
Q

Issuers/affiliates repurchasing their own shares may not buy the shares in the last ____ minutes of the trading day.

A

Issuers/affiliates repurchasing their own shares may not buy the shares in the last 30 minutes of the trading day.

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24
Q

True or False: The Hart-Scott-Rodino Act deals with corporate governance of listed securities.

A

False. The Hart-Scott-Rodino Act is an anti-trust rule that applies to large M&A transactions.

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25
Q

What is the size of companies test used for determining whether an M&A transaction is reportable under the HSR Act?

A

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

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26
Q

Define an insider.

A

Officers, directors, partners, greater than 10% owners, and immediate family members of all listed

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27
Q

When an issuer or an affiliate is repurchasing its own shares, how many BDs may it use in one day?

A

Issuers or affiliates may use only one BD a day when repurchasing its own stock.

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28
Q

True or False: Painting the Tape violates the anti-manipulation provisions of the Securities Exchange Act of 1934.

A

True

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29
Q

What is the general purpose of Regulation M-A?

A

To relax the communication restrictions between BDs and investors prior to a company’s filing of offering statements

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30
Q

While waiting for her train, an RR overhears a rumor of an impending corporate takeover. What should she do?

A

Tips and unverified rumors must be reported to the firm’s legal/compliance department.

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31
Q

True or False: For insider trading violations, the SEC may file criminal charges against an individual.

A

False. The SEC may only file civil charges that may result in civil penalties.

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32
Q

For what offerings may live, electronic road shows be retransmitted using graphic communication?

A

IPOs only

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33
Q

According to Rule 10b-18, how many BDs may an issuer use to purchase its own common stock during normal market hours?

A

One

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34
Q

When must insiders report their transactions?

A

Within 2 business days of the trade

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35
Q

True or False: According to the Insider Trading Act, both the tipper and tippee may be held liable for a violation.

A

true

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36
Q

True or False: Regulation M-A applies to cash or stock tender offers.

A

True

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37
Q

True or False: A person who owns 11% of a company’s common stock is defined as an insider.

A

True. Insider status is determined by having ownership greater than 10%.

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38
Q

What time limit exists for issuers/affiliates of actively-traded securities that are repurchasing their own security?

A

They may not purchase their security within the last 10 minutes of the trading day

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39
Q

What type of issuer may use a free writing prospectus after filing its registration statement with the SEC?

A

A seasoned issuer

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40
Q

Describe the purpose of a road show.

A

To acquaint investors and BDs with information on a prospective public offering

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41
Q

True or False: A market maker’s quote represents the maximum number of shares it will buy or sell.

A

False. A market maker may buy or sell more shares than its bid and offer displays.

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42
Q

“For insider trading violations, the SEC can sue for treble damages.” What does that statement mean?

A

The SEC can sue for three times the damage (profit made or loss avoided).

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43
Q

Is it acceptable for two market makers to trade a stock repeatedly to increase demand and the appearance of trading?

A

No. This is considered Painting the Tape.

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44
Q

Under Sarbanes-Oxley, how often must a company file reports detailing internal controls over financial reporting?

A

Annually

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45
Q

True or False: The amount of compensation received by the party writing the fairness opinion must be disclosed.

A

False. The fact that the writer will be compensated must be disclosed, but not the amount of compensation.

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46
Q

Who certifies the accuracy of the information contained in a company’s annual and quarterly financial reports (10K/10Q)?

A

The firm’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO). The term principal officer may also be used.

47
Q

If an investor acquires 6% of a reporting company’s preferred stock, is Schedule 13D required to be filed?

A

Yes. Filing is required when a person acquires more than 5% of any class of equity security (including preferred stock).

48
Q

Transactions valued at greater than $______ million must file a notice under the Hart-Scott-Rodino Act.

A

Transactions valued at greater than $272.8 million must file a notice under the Hart-Scott-Rodino Act.

49
Q

Under Sarbanes-Oxley, what is the CEO/CFO of a company required to prohibit?

A

Personal loans to corporate officers from the issuer

50
Q

True or False: Using nonpublic information to avoid a loss would NOT be a violation of the Insider Trading Act.

A

False. Using inside information to make a profit or avoid a loss is prohibited.

51
Q

True or False: A fairness opinion must be filed with, and approved by, FINRA.

A

False

52
Q

True or False: To promote balanced views, the fairness committee must include members from outside the deal team.

A

True

53
Q

Live, electronic road shows retransmitted using graphic communication meet the definition of _____ communication.

A

Live, electronic road shows retransmitted using graphic communication meet the definition of oral communication.

54
Q

True or False: Under the Hart-Scott-Rodino Act, a merger may not be completed until 30 days after notification.

A

True

55
Q

What is the maximum criminal penalty for an individual convicted of insider trading?

A

$5 million fine, and/or up to 20 years in prison

56
Q

Under Sarbanes-Oxley, what must be included in senior management’s annual report?

A

Its assessment of the effectiveness of internal controls and certification from the accounting firm auditing its records

57
Q

The criminal penalty for insider trading by an individual is a maximum of $_________ and/or ___ years in prison.

A

The criminal penalty for insider trading by an individual is a maximum of $5 million and/or 20 years in prison.

58
Q

The criminal penalty for insider trading by an individual is a maximum of $5 million and/or 20 years in prison.

A

To enhance corporate governance and strengthen corporate accountability

59
Q

True or False: A tender offer may be placed by the issuer or a third party and may be full or partial.

A

True

60
Q

True or False: Regulation M-A applies to going-public transactions.

A

False. Regulation M-A applies to going-private transactions.

61
Q

According to Sarbanes-Oxley, who is responsible for attesting to corporate financial reports?

A

The Chief Executive Officer (CEO) and Chief Financial Officer (CFO)

62
Q

For mergers and acquisitions exceeding $272.8 million, with whom must companies file notice?

A

The Federal Trade Commission (FTC) and the Antitrust Division of the Justice Department

63
Q

True or False: In a partial tender, a person may tender the subject company’s convertible bond without converting it.

A

True. If the tender is accepted, he would then be required to convert.

64
Q

What information is found in a company’s Form 10-K?

A

A list of officers/directors, its business line, risk factors, assets, and an overview of the past year’s results

65
Q

Define Painting the Tape (matched sales).

A

Heavy trading volume between market participants to create a misleading appearance of activity

66
Q

Regarding a proposed M&A transaction, when are the companies planning the transaction required to file notice?

A

Before the deal is completed

67
Q

The manager or co-manager of an IPO must satisfy a quiet period of _____ calendar days prior to publishing research.

A

The manager or co-manager of an IPO must satisfy a quiet period of 10 calendar days prior to publishing research.

68
Q

Issuers of nonactively traded securities may not purchase their own shares during the last ____ minutes of trading.

A

Issuers of nonactively traded securities may not purchase their own shares during the last 30 minutes of trading.

69
Q

What does it mean to be short against the box?

A

A client sells the security that he owns, but does not intend to deliver his long securities to effect delivery.

70
Q

According to Rule 10b-18, at what price may an issuer purchase its own shares?

A

At a price not exceeding the higher of the independent bid or the last transaction price

71
Q

If the SEC intends to suspend all trading, who must receive advance notification?

A

The President of the U.S., who must notify the SEC that he does not disapprove of the decision.

72
Q

Where may investors obtain information regarding SEC filings made by reporting companies?

A

On the SEC’s EDGAR website

73
Q

An _________ is any person who has possession of material non-public information.

A

An insider is any person who has possession of material non-public information.

74
Q

Must a relationship between the BD writing the fairness opinion and a party subject to the opinion be disclosed?

A

Yes. Any material relationship that has existed within the last two years must be disclosed.

75
Q

If the terms of a tender offer are changed, for how many additional days must the offer remain open?

A

For at least 10 business days from the change

76
Q

If a company announces that its CFO has resigned effective today, what form must be filed with the SEC?

A

Form 8-K. This form is filed for significant changes/events that may impact share price or financial condition.

77
Q

Individuals must register with the SEC within __________ of becoming an insider.

A

Individuals must register with the SEC within 10 days of becoming an insider.

78
Q

What other term may be used for a company’s Chief Executive Officer (CEO) or Chief Financial Officer (CFO)?

A

Principal Executive Officer (PEO) or Principal Financial Officer (PFO)

79
Q

True or False: Under Regulation M-A, a prospectus, proxy, or tender offer statement must be provided to investors.

A

TRUE

80
Q

If a mutual fund owns 7.5% of a company’s common stock, are all current fund shareholders required to file Schedule 13D?

A

No. The mutual fund must report its ownership, not the shareholder.

81
Q

What will a firm establish between departments to restrict the flow of potential insider information?

A

Information barriers

82
Q

When must a company file a Form 10-K with the SEC?

A

Annually

83
Q

Recorded road shows meet the definition of ________ communication.

A

Recorded road shows meet the definition of graphic communication.

84
Q

A bounty of up to ____% may be offered to a person who reports an insider trading violation.

A

A bounty of up to 10% may be offered to a person who reports an insider trading violation.

85
Q

True or False: Regulation M-A applies to equity IPOs and new issues.

A

False

86
Q

In what forms may road shows be delivered?

A

Live or electronic

87
Q

When may road shows be conducted?

A

After filing the registration statement (before the effective date)

88
Q

According to the HSR Act, an M&A deal may not be completed until ____ days after notification.

A

According to the HSR Act, an M&A deal may not be completed until 30 days after notification.

89
Q

To what types of transactions do Regulation M-A provisions apply?

A

Cash or stock tender offers, mergers, acquisitions, or going-private transactions

90
Q

A person must register with the SEC within ____ days of becoming an insider by filing Form ___.

A

A person must register with the SEC within 10 days of becoming an insider by filing Form 3.

91
Q

What is the criminal penalty for insider trading by corporations?

A

$25 million per violation

92
Q

True or False: When an issuer repurchases its own shares, it may do so at the opening price during a trading day.

A

False

93
Q

If an insider trading violation occurs within a brokerage firm, what parties may be held liable?

A

The tipper, tippee, supervisor, and BD may be liable.

94
Q

What SEC form is used to report the restricted stock a corporate officer receives as compensation in his 401(k) plan?

A

Form 4

95
Q

What is the maximum criminal penalty for a corporation convicted of insider trading?

A

A $25 million fine

96
Q

Insiders must return short-swing profits, which are profits earned on stock that has been held for less than ___ months.

A

Insiders must return short-swing profits, which are profits earned on stock that has been held for less than six months.

97
Q

List some reasons for the filing of Form 8-K.

A

Change in company control, accountant, or fiscal year, or the resignation of a director

98
Q

Name two prohibitions that relate to being an insider.

A
  1. No shorting of the stock and 2. No keeping of short-swing profits
99
Q

What are treble damages?

A

The civil penalty for insider trading, which is three times the profit made or loss avoided

100
Q

Who has the authority to initiate criminal action related to insider trading?

A

The U.S. Department of Justice

101
Q

What are the volume limitations on an affiliate or issuer repurchasing its own security?

A

No more than 25% of the average daily trading volume (ADTV) over a 4-week period in one day

102
Q

Transactions valued at $___ million or less do not have to file a notice under the Hart-Scott-Rodino Act.

A

Transactions valued at $68.2 million or less do not have to file a notice under the Hart-Scott-Rodino Act.

103
Q

The SEC may suspend trading on an exchange for up to ____ days.

A

The SEC may suspend trading on an exchange for up to 90 days.

104
Q

What are the four guidelines that must be followed for an issuer to be allowed to purchase its own common stock?

A

1) One BD used, 2) time of purchase, 3) volume of daily purchase, and 4) price of purchase

105
Q

The SEC may suspend trading for up to ____ business days for an individual issue.

A

The SEC may suspend trading for up to 10 business days for an individual issue.

106
Q

According to Regulation M-A, where would a summary term sheet regarding an M&A deal be found?

A

On the first or second page of the disclosure document

107
Q

After attending a board meeting, Jim, the CEO of ABC Inc., sells 1,000 shares of ABC short. Is Jim’s action permitted?

A

No. Jim is prohibited from selling short the stock for which he is an insider.

108
Q

Define reporting company.

A

One that is SEC-registered, listed on an exchange, and has total assets exceeding $10 MM with 500 or more shareholders

109
Q

For SEC purposes, if an insider purchases or sells his stock, what form is filed and when is it filed?

A

Form 4 must be filed with the SEC within two business days of the trade.

110
Q

During the registration cooling-off period, what should an agent do if a client sends a check to purchase securities?

A

Return the check to the customer

111
Q

True or False: The primary purpose of a fairness opinion is to verify the credit rating of the newly merged entity.

A

False

112
Q

Issuers of actively traded securities may not purchase their own shares during the last ____ minutes of trading.

A

Issuers of actively traded securities may not purchase their own shares during the last 10 minutes of trading.

113
Q

True or False: A person who supervises an individual who has violated insider trading rules may also be penalized.

A

True

Series 24 Group Share (42 decks)

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