Regulations Flashcards
Securities Act of 1933 applies to
Non Exempt Issues
Registration under SEC 33 must be filed before
any sales related activites take place
Registration statement includes
- general character of business
- use of proceeds
- historical financial statements
- biographical date on officers
- legal issues
Deficiency letter
- disclosure is not sufficient
Final Prospectus must be delivered by
at or prior to confirmation of sale
Primary Distribution of Final Prospectus
must be given the first 90 days, after that it is no longer required
Secondary Distribution of Final Prospectus
after the first 40 days, it is no longer required
Exchange/ NASDAQ listed Distribution of Final Prospectus
after first 25 days, it is no longer required
Seasoned Issuer
- registered with SEC for 1 year,
- minimum of $75 mil market cap
Rule 415
- seasoned issuers can have a blanket letter filed with SEC for three years, bc registering with SEC is expensive
- no 20 day cooling period
Exempt
- US Government Issues
- Agencies
- Municpals
- Commercial Paper, and bank acceptances
Exempt Transactions
Common stock under a private placement
Section 4 (a)(2)
- allows private placements to institutional and wealthy investors without registering with the SEC
Section 4(a)(5)
- offers no more than 5 million made only to accredited investors are exempt
Issues that are regulated by another Federal or state law that are exempt are
- Bank Issuers
- Savings and Loan issuers
- Insurance Company Issuers
- Common Carrier Issuers
Small Businesses are ___ from SEC act of 1933
exempt
Nonprofit Business are ____from SEC 1933
Exempt
Non Exempt Issues from sec act of 1933
- Corporate stock, bonds, warrants, rights
- Options
- Investment Companies
- Non Variable Annuities
- Limited Partnerships
Rule 147 Intrastate Exemption
- federal laws only apply to interstate activities
- 100% of issue must be sold to residents of the state
- issuer MUST be in that state
- for a 6 month period after, re-sale is only allowed to resident of that state
- must comply with blue sky laws
Blue Sky Laws
- state registration requirements
Regulation D
- private placement execution
- sold to a MAX OF 35 NON ACCREDITED INVESTORS/ UNLIMITED NUMBER OF ACCREDITED INVESTORS
- No dollar limit/ no limit on units
Accredited Investors
- net worth of 1 mil
- annual income of 200,000 for past 2 years, joint 300,000
- officer or director of the issue
- financial inst. such as banks, insurance companies with assets of 5 mil or more
- non- profits with excess of 5 mil
Private Placements can only be advertised if
- they are advertising to accredited investors only
Full disclosure is given to Regulation D by
- an “Offering Circular” or an “ Offering Memorandum”
Investment Letter
- for “sophisticated investors( know the merit of the investment)”
- stating that they know that the issue is unregistered, that it cannot be readily resold in public, and tends to hold the issue as an investment
Purchaser Rep
- a lawyer or an accountant who evaluates the issue if the investor cannot
- registered rep cannot be a purchaser rep
Restricted Stock
- may only be sold in a private trade or under Rule 144
Regulation A
- intended to make it easier for start up companies to raise capital
Regulation A Tier 1
up to a maximum amount of $20 million, are given the easiest registration method and do not require audited financial statements
Regulation A Tier 2
- allow a maximum of $50 million to be raised, but require audited financial statements.
- Tier 2 issues are also called Regulation A+ issues and can be exchange listed.
Form 1-A
- filed with the SEC for the Tier requirements
- gives disclosure
- 20 day review period must be completed before the issue can be sold
Offering Circular for Regulation A
- Disclosure document
- during 20 day review period, preliminary offering circular must be delivered any customer at least 48 hours prior to sale
Test the Waters
- can distribute promotional materials to prospective purchasers prior to filing the offering statement with the SEC and all through the review period
Non Accredited Investors cannot purchase a Tier 2 offering that is
greater than 10% of their annual income or net worth
Rule 144
- allows small amount of stock to be sold periodically without a formal registration
- a way of registering restricted shares without registering with the SEC
Rule 144 and rules for selling restricted stock
- registered its shares outstanding and is in current filing with the SEC
- Files a form 144
- held securities for 6 months
- files a form 144 no more than 4 times a year
- max sale under form 144 is no more than greater than 1% of outsanding shares of the customer or, weekly average of the 4 week trading period preceding filing
Control stock
- affiliated or officer/ director of issue is not subject to hold for 6 months
Small offers and 144
- may sell up to 5,000 shares $50,000 worth every 90 days without filing
Act as a ___ in rule 144
- agent
Estate Owners and 144
- if the holder dies, his or her estate can sell the position without being subject to rule 144 limitations
Document that must be contained for Rule 144
- copy of the form 144
- Issuer and Broker’s representation letter
RULE 144A
- allows large institutional investors to trade privately placed securities
QIBs
- owns and invests on a discretionary basis at least $100,000,00
- can only sell to QIBS
PORTAL
The electronic trading of 144A for QIBS to QIBS
- owned by NASDAQ
Regulation Crowdfunding
- the raising of capital by small start-up businesses through relatively small investment amounts.
- private placement securities that are exempt from registration with SEC
Crowdfunding offering limit
- only raise a max of 1 mil
- can only be sold through FINRA registered broker dealers
Crowdfunding investment limits
- anyone can invest
- investors with income under 100,000 can only invest greater of 2,000 or 5% of the investors income
- for over 100,000 can only invest 10% of annual income
- adjusted for inflation index
Crowdfunding disclosure
- description of business
- discussion of risk factors
- name and positions of officers and 20% shareholders
- price of securities
- 100,000 must have financial statements by principal
- 100-500, unaduited financial statements
- 5000+ auditied financial statements
-
Offering requirements
- allows investors to direct questions
- obtain representation from investor that entire investment may be lost
- ## provide education material
Rule 145 Reorg
- substituting one security for another security
- merger or consolidation, in which securities will be exchanged
- transfer of assets from one person to another
Rule 153A
-shareholders must get a copy of the prospectus detailing the terms of the re org prior to the voting date
Rule 145 Exemptions
- stock split or reverse split
- change in par value
- stock dividend
Securities Act of 1934
- created SEC
- preventing manipulation and fraud in the securities market
Fraud Provisions
Apply to exempt an on exempt securities
FINRA rules are approved by the SEC and cover
Dealer-Dealer Practices;
Dealer-Customer Practices;
Dealer-Dealer Dispute Resolution Procedures;
Dealer-Customer Dispute Resolution Procedures.
Under SEC 1934, Every member firm must register with
FINRA
Under SEC 1934, Every officer of the firm must register with
FINRA
Under SEC 1934, Every sales employee must register with
FINRA
Tender offer for common stock must be
held for 20 business days
- sweetener extends for 10 days
Tender offer for bonds made by issuer must be
held for 5 business days
- sweetener extends for 5 days
Short Tender RUule
- must have a long position in the stock
Rule10-b-5
- if you do something the act didnt specify, and it is wrong it can be considered fraud
Insider Rules
- required to report trades within 2 days
- any short swing profits paid back to corporation
- prohibitted from selling own company’s stock short
The SEC regulates
Securities only
Regulation SHO
- every order ticket be marked long or short
Proxy Solicitation
- proxy materials filed 10 days before shareholders receive
- owns more than 5% reports 13D Filing within 10 business days that 5% is reached
- passive investor, 13g filed 45 days
Exchange and Member firms msut
register with the SEC
Free Credit Balance
- uninvested cash balances must receive quarterly notice with
- amount of free credit balance
- funds are available upon customer request
- funds are not segregated from other brokerage firms cash balances
Broker-dealer financial condition
- must send semi-annual financial statements containing
1. Balance sheet
2. Net Capital COmputation