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Series 79 > Laws/Regulation > Flashcards

Laws/Regulation Flashcards

Memorize law/regulations.

1
Q

Forms 10-K and 10-Q

A

Financial filings required of publicly traded firms with over $10 million in assets and 2,000 or more persons or over 500 non=accredited shareholders (there are three 10-Qs filed per year).

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2
Q

Form 8-K

A

Filed withing four business for any material event that could affect the issuer’s share price or financial condition.

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3
Q

Form 3

A

Filed within 10 calendar days to provide the SEC with notification of having achieved insider status. Insiders are defined as officers, directors, and owners of more than 10% of an issuer’s voting securities. (Insider reporting)

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4
Q

Form 4

A

Filed within two business days to provided the SEC with notification of any changes in an insider’s position

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5
Q

Schedule 13D

A

Filed by any person that acquires more than 5% of an issuer’s equity. It’s filed with the issuer, the SEC, and the exchange on which the stock trades withing 10 days. Schedule 13D is the best source of information for determining the identity of the most recent largest shareholders.

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6
Q

Schedule 13E-3

A

Filed when an issuer or affiliate of the issuer plans to go private. Shareholders are required to vote (proxy) and be provided with a summary term sheet. Schedule 13E-3 may be used for reverse stock splits or LBOs.

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7
Q

Schedule 13G

A

An alternative to 13D and is filed by an institutional investor that has no intention of exhibiting control over the issuer.

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8
Q

Schedule 13F

A

Filed quarterly by institutional investment managers that exercise investment discretion over at least $100 million in equity securities. It’s filed regardless of the SEC registration status of the filer.

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9
Q

Form 14A

A

Proxy statements (used when a vote is required by shareholders) - a definitive proxy is filed with the SEC on the same day is’t sent to shareholders. In some cases, a preliminary proxy must be filed with the SEC for prior review. The preliminary proxy statement must be filed with the SEC at least 10 days prior to the date that the definitive proxy is sent to shareholders. A definitive proxy must be sent to shareholders 20 days prior to the meeting.

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10
Q

Form S-1

A

A registration form which is used for most IPOs or for issuers that are not eligible for filing form S-3

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11
Q

Form S-3

A

Form S-3 is a short-form registration statement which is used by issuers that have been SEC reporting companies for at least 12 month and have a $75 million public float in voting and non-voting common equity.

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12
Q

Form S-4

A

Form used when new securities are being offered in connection with a merger. It’s required to be filed by the acquirer and proxy is required to be issued by the target. The target’s shareholders vote on the approval of a merger, while the acquirer’r shareholders vote on issuing shares to be used in the merger.

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13
Q

Schedule TO (Tender Offer)

A

A tender offer is a solicitation by the issuer or third party to purchase securities for a limited period. Filed by any person that makes a tender offer and becomes the owner of more than 5% of the company. Offer must be kept open for 20 business days, at least 10 business days from an amendments, and no open market transactions are permitted.

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14
Q

True or False: Sharesholders can tender shares only if they have a net long position on the shares

A

True (options must be exercised for the underlying stock to be included)

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15
Q

Schedule 14D-9

A

Filed by certain persons (issuer and/or other owners of the company) and includes recommendations or solicitations that relate to the tender offer. The target’s official stance on the offer.

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16
Q

Regulation FD

A

If material, non-public information is improperly disclosed, the information must be disseminated to the public. If the disclosure was intentional, the issuer must file a public statement immediately. If it was unintentional, the issuer must do so within 24 hours. Protects retail investors.

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17
Q

Trust Indenture Act of 1939

A

Requires a trustee that’s appointed by the issuer to act in the bondholder’s best interest; applies only to corporate debt

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18
Q

Rule 137

A

BDs may publish research reports when they are not acting as underwriters

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19
Q

Rule 138

A

BDs may publish research reports when they are acting as underwriters for another class of security

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20
Q

True or False: If the issuer’s common stock is under registration, a BD may comment on its non-convertible debt

A

True

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21
Q

Rule 139

A

If the issuer is a reporting company or WKSI, BDs may publish reports when they are acting as underwriters for the underlying security, but only if that are continuing their regular coverage.

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22
Q

Sarbanes-Oxley

A

Establishes disclosure and corporate governance rules for publicly traded companies and makes senior management more directly accountable for the company’s internal control system and its released of financial information to the public

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23
Q

Under Sarbanes-Oxley, which two officers must certify all financial information provided by/reported by the company?

A

The CEO and CFO (a.k.a., “signing officers”)

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24
Q

Rule 14d-10

A

In a tender offer, there is no preferential pricing. All shareholders must be offered the same price regardless of their ownership position. Provides an exception if the compensation is approved by the compensation committee of the target.

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25
Q

Hart-Scott-Rodino Anti-Trust Act (HSR Act)

A

federal antitrust act requires certain parties to file noticed with the FTC before a merger deal may be completed. Requires that the merger may not completed until 30 days after noticed is filed (15 days if the transaction is all cash). Also requires financial investors to file and comply with 30-day waiting period unless the purpose is for investment purpose only.

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26
Q

What securities are exempt from SEC registration?

A

U.S. government or agency securities, municipal bonds, short-term debt, commercial paper, commercial paper, securities issued by non-profit organizations

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27
Q

Regulation A (A+)

A

Exempt transaction for small business - offering limited to $50 million over 12 months, no more than $15 million (30% of the amount offered) may be on the behalf of selling shareholders

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28
Q

True or False: Under Regulation A/A+, testing the waters is allowed

A

True

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29
Q

What is the name of the registration document that is filed with the SEC under Regulation A/A+?

A

Offering circular

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30
Q

Rule 147

A

Intra-state exemption which is available to issuers that sell within one state - issuer must have its “principal place of business” in that state and satisfy any one of the following requirements: 80% of assets, revenues generated, or net proceeds must be from that state. Resale of non-state residents is permissible after size months from date of last sale.

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31
Q

Regulation S

A

Provides a registration exemption to U.S. companies that issue securities for sale outside of the U.S. provided the following: no offer is directed to a U.S. resident, the transactions is effected through an overseas securities market.

32
Q

True or False: Reg S securities may be resold to a U.S. resident after 90 days for debt and 6 months for equities.

A

False. Securities may be resold to a U.S. resident after 40 days for debt and one year for equities.

33
Q

Section 4(2)

A

Registration exemption for securities that do not involved a public offering (private placements)

34
Q

Section 4(5)

A

Securities are exempt from registration if they meet the conditions below: offering does not exceed $5 million, no advertising or public solicitation can be used, offering may be sold only to accredited investors, only 35 non-accredited investors (35).

35
Q

Regulation D

A

Available to issuers that conduct private placements, requires pre-qualification of investors

36
Q

Accredited Investor

A

Net worth of $1 million (excluding primary residence), or annual income of $200,000 ($300,000 for spouses)

37
Q

Rule 504

A

Registration exemption aligned with Reg D. Deal size: $5 million, no limit on accredited and non-accredited investors

38
Q

Rule 506

A

Registration exemption aligned with Reg D. Deal size: unlimited, non-accredited investors: no more than 35, and no limit on accredited investors

39
Q

Rule 144A

A

Registration exemption for securities sold to QIBs and allow QIBs to freely trade private placements amount themselves with no holding period

40
Q

Rule 144

A

Permits the sale of restricted and control stock. To sell either, the SEC must be notified at the time the sell order is placed, over any 90 day period, the maximum sale allowed is the great of 1% of outstanding shares or the ADTV over prior four weeks

41
Q

Exemption of SEC Notification for Rule 144?

A

If the sale does not exceed 5,000 shares and the dollar amount does not exceed $50,000

42
Q

Restricted Stock

A

Unregistered stock. The company must have publicly held available shares, and the shares are subject to a six month holding period.

43
Q

Control Stock (affiliated)

A

Registered stock that is purchased and owned by corporate insiders, which are the company’s officers, directors, and greater than 10% shareholders, has no mandatory holding period.

44
Q

What are the requirements for the holding periods for restricted and control stock under Rule 144?

A

Six months for restricted stock, and no holding period for control stock

45
Q

Registration Timeline

A

Pre-registration, file registration statement, effective date determined by the SEC

46
Q

Pre-Registration period

A

Document preparation and due diligence begins, no communication with public unless it is 30 days prior and there is not mention of the offering

47
Q

File registration statement

A

Begins the 20-day “cooling off” period, no sales or money may be accepted, issuer allowed to distribute preliminary prospectus (“Red Herring”), Blue Sky provisions

48
Q

Effective date determined by SEC

A

Final statutory prospectus (full disclosure document) must be delivered to all purchases

49
Q

Aftermarket prospectus delivery rules

A

90 days for non-listed IPO, 40 days for non-listed registered secondary, 25 days for an exchange-listed IPO

50
Q

Financial Statement Re-Filing Requirement

A

Balance sheet for the last two years, income statement and cash flows for the last three years

51
Q

When do financials become stale?

A

WKSI - more than 129 days (130 is considered stale), Non-WKSI, more than 134 (135 is considered sale)

52
Q

“Gun-Jumping”

A

Refers to non-allowable communication during the “Cooling Off” period related to new issues

53
Q

Safe Harbors from “Gun-Jumping”

A

Factual business information (reporting and non-reporting issuer safe harbor), and forward looking information (reporting issuer-only safe harbor)

54
Q

WKSI

A

Public float of $700 million, $1 billion in non-convertible debt issuance in prior three years

55
Q

WKSI Benefits

A

Automatic shelf registration, pay-as-you go filing fees when securities are pulled from the shelf

56
Q

Automatic Shelf Registration

A

Available for three years, effective immediately, not subject to SEC review

57
Q

Seasoned Issuer

A

Eligible to use form S-3 or Form F-3 for primary offerings, but odes not meet the other financial tests to be a WKSI

58
Q

Unseasoned Issuer

A

Not eligible to file S-3

59
Q

Non-Reporting Issuer

A

Company that has not filed an 10-K. Example would be a company in the process of filing an IPO.

60
Q

Equity Research Quite Periods (FINRA Rules)

A

IPO - 10 days for manager/co-manager, underwriter/syndicate member, and selling group, Follow-On - Three days for manager and co-manager, and on for underwrtier/syndicate member and selling group

61
Q

True of False: FINRA Equity Research Quite Periods for IPOs and Follow-Ons apply if the company is an EGC

A

False

62
Q

Emerging Growth Company (EGC)

A

Revenue of less than $1B (1.07 billion)

63
Q

Free Writing Prospectus (FWP)

A

Any document which is used in connection with an offering that’s not a statutory prospectus.

64
Q

Filings for FWP’s

A

WKSI’s - anytime, Seasonsed Issuers - after their registration statement has been filed, Unseason and Non-reporting - after their registration statement has been filed; it must be proceeded or accompanied by a statutory prospectus, ineligible issuers - they are not permitted to use an FWP

65
Q

Chapter 11 Bankruptcy

A

voluntary, filing done by the company, company and management continue to exist, the filer is referred to as a debtor-in-possession (DIP), and the DIP files the plan or reorganization

66
Q

Chapter 7 Bankruptcy

A

Trustee files the plan, company and management cease to exist, assets are sold off to pay creditors and other investors

67
Q

Payment Priority

A

Secured creditors, unsecured as follows: administrative claims, employee back wages, other unsecured debt (senior, then subordinated), preferred stockholder, common stockholders

68
Q

338(h)(10) Election

A

Provision IRS tax code, a stock sale may be treated as an asset sale for tax reporting purposes in an M&A transaction. Also, it allows the buyer to step-up its cost basis for future tax purposes.

69
Q

Rules under Regulation M

A

Rules 101-105

70
Q

Rules 101 and 102

A

Limits the activities that could manipulate the price of a security during a restricted period which begins (one or five business days prior to pricing), participants are prohibited from buying covered security during restricted period and must refrain from active market making.

  • 101 pertains to BDs that are involved in the offering
  • 102 pertain to the issuer and selling shareholders
71
Q

Regulation M - Five Days Prior to Pricing Rule

A

Public Float less than $25 million and ADTV of less than $100,000

72
Q

Regulation M - One day prior to pricing

A

Public Float between $25 million and $150 million and ADTV of at least $100,00

73
Q

Regulation M - No Restricted Period (for BDs only)

A

Activity Traded Securities - Public Float of at least $150 million and ADTV of $1 million

Applied to municipals, governments, non-convertible investment grade debt

74
Q

Rule 103

A

Passive market making is permitted if there’s at least one independent market maker, may not bid higher than highest independent bid, daily purchase limit is higher of 30% of its ADTV or 200 shares

75
Q

Rule 104

A

Only form of price manipulation that is allowed by the SEC, stabilizing bid may be made at the lower of the public offering price or the highest bid in the principal market, only one syndicate member may stabilize, and there is no limit on how long a stabilizing bid may remain open

76
Q

Rule 105

A

Restricts the purchase of new issues it a short position was executed within the five business day period prior to pricing

Series 79 (1 decks)

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