Federal Securities Regulations Flashcards
Security
An investment contract is a security if it:
- involves the investment of money
- in a common enterprise
- with the expectation of profits
- that results solely from the efforts of others
Security examples
Stock Bond Debenture Right or warrant Note Option Limited Partnership interest Certificate of interest in profit sharing arrangement
Issuer
Person who issues or proposes to issue security
Underwriter
Person who purchases with a view to sell (does not include brokerage firm earning a commission on a retail sale)
Prospectus
Notice, Circular, Letter or communication written or broadcast by radio or TV that offers a security for sale or confirms the purchase of a security
Tombstone advertisement
ID's: Security Price Underwriters NOT A PROSPECTUS
Sale of a security does not include
- preliminary negotiations or agreements between issuer and underwriter
- gift of securities
Securities exempt from registration
- US Gov’t issues (Fed, State, Local)
- Bank issues (not bank holding companies)
- Commercial paper (ST <270 days/9 mos)
- Railroad equipment trust
- Regulated public utilities
- Intrastate offerings under Rule 147
Rule 147 (80-80-80)
1+47 (states) 80% Revenue generated in state 80% of proceeds used in state 80% of assets must be in state 100% of purchasers must be residents of the state
Exempt transaction - Regulation D
Private Placement Exemption
Sold privately - not to public doesn’t have to register
Only to accredited investors and 35 non-accredited
Must file form D within 15 days of sale
Rule 501 Accredited Investor
- Institutional investors
- EE benefit plans >5M assets
- Insider of issuer
- Net worth of $1M (not including home)
- Single inc. $200K/Joint inc. $300K for last 2 yrs and expected to cont this year
Requirements of non-exempt securities
- File registration stmt. Full Disclosure
- issue prospectus (cannot be highlighted or altered in any way)
Preliminary Prospectus (red herring)
- No price
- No effective date
- no orders or deposits before effective date
Cooling off period new issue
min of 20 days
can use red herring
Rule 482 - omitting prospectus
Allows mutual fund to advertise without prospectus
tombstone ad
Must say that prospectus is available; only for information
Securities exempted from SEC registration
- Government issues (Fed, State, local)
- Short-term commercial paper (less than 270 days) if issuer uses proceeds to increase working capital
- Issued by charitable org, religious, not for profit
- Issue by railroad equipment trust
- Issue by a federal or state bank (does not apply to holding co’s)
Rule 147 Issue
An exempt security under federal law, but probably has to register with the state:
- Issue offered only to residents of a single state where the issuer resides in that state and is doing business in that state
- Must be only in that state for 9 months
Rule 147 80-80-80
80% of issuers gross revenue must be from that state
80% of proceeds must be used for business within the state
80% of issuers assets must be in that state
Exempted transactions
- transactions by persons other than issuer/dealer/underwriter
- transactions by an issuer that do not involve a public offering
Securities Act of 1934
Created the SEC
People and places act
regulates BD’s and exchanges
Credit in Security Industry (Reg T)
Federal reserve sets the margin requirements
(50%)
No credit on new issues and options (mutual funds)
Control person of company
Officer
Director
> 10% shareholder
immediate family of above
Discretionary account
Client gives BD ability to make decisions about:
-Asset - what security
-Action - buy or sell
-Amount - how much to buy/sell
MUST HAVE WRITTEN DISCRETIONARY ACCOUNT IN HAND
do not need discretionary agreement if ONLY time and price is discretionary.
Form 13F
Filed by institutional investment mgrs w/ >$100M in certain equity securities
Quarterly filed
(to make sure no one gets too much of certain security)
