Regulations - Securities Exchange Act of 1934 Flashcards
MISS PERMS stands for
Manipulation
Insider trading
SEC created
Short sales rules
Proxy rules Exchanges Reports Margin Stabilization
The 1934 act does _____ apply to exempt securities
DOES NOT
The one provision of the 1934 act that DOES apply to non-exempt and exempt securities are _____
fraud provisions
Prohibited Manipulation trading activities under the 1934 act are:
- wash sales
- trading pools (trading at successively higher prices)
- trading by underwriters handling a primary offering before the effective date
For tender offers, the SEC requires it be held out to shareholders for a minimum of ____ business days. Each “sweetener” extends the offer for another ____ business days.
20 business days, then 10 business days for each sweetener
The maker of a tender offer can only buy shares through the _____ and not the market during the offering period
can only buy through the offer
For tender offers for bonds made by the issuer, the offer must be held open for ____ business days and sweeteners extend it for ____ business days
5 business days, 5 business days
It is prohibited to _____ tender (because you could end up with a _____ position that could never be covered)
short tender; short position that could never be covered if all the shares got bought up
Rule 10b-5 is nicknamed the “_______” fraud rule
catch all
An “insider” is defined as an officer, director, or ____ shareholder
10%
Insiders are required to report their trades within ____ days of the event to the SEC
2 days
Insiders are prohibited from trading based on:
- insider material, non-public information
- any short swing profits (within a 6 month period)
- can’t short their own stock (except for short against the bock at year end - position against the box must be closed within 20 days)
The SEC DOES NOT regulate:
- insurance products
- commodities
- futures contracts
The SEC wrote Regulation _____ to regulate short sales
SHO (covered in other section)
Shareholders must be given a fair opportunity to vote and must be provided _______
proxy materials
Proxy materials must be filed with the SEC _____ days prior to being sent to shareholders
10 days
Any one person who accumulates more than _____ ownership must file a _______ within _____ business days of that threshold being reached
5%, must file a Form 13D within 10 business days of that threshold being reached
If person with 5% ownership intends to be a passive owner, then must file a ______ within _____ days after year end
Form 13G within 45 days after calendar year end
Exchanges and member firms must ______ with the SEC
register
Under SEC rules, member firms must meet _____ requirements (min liquid capital)
minimum net capital requirements
SEC member firms must segregate fully paid ______
customer securities
If a customer sells a security and fails to deliver on settlement, the position must be bought-in no later than _____ business days after settlement date
10 business days
Excess margin securities (those in excess of _____ of debit balance) must be ______
140% of debit balance, must be segregated
Customers that have uninvested cash balances (“free credit” balances) must be ______ by BDs
notified - must tell them amount, how much is available at request, how much is not segregated from other firm cash balances
BDs must send ______ reports on their balance sheet and net capital computation - NO INCOME STATEMENT
semi-annual
Rule 606 of Reg M permits BDs to pay _____ but they must disclose it to customers at least _____
pay for order flow; at least annually
Rule 606 of Reg M also requires that BDs prepare _____ reports that detail order routing procedures and payments for order flow
quarterly
Issuers are required to file quarterly and annual reports under forms
10K and 10Q, along with 8K for special events
8Ks must be filed within _____ business days of the event
4 business days
Margin rules are regulated under Reg __ for broker to customer margin and Reg __ for bank to broker
Reg T and Reg U
Reg M provides regulations against _______ and allows underwriters to place ______ bids
market manipulation, allows underwriters to place stabilizing bids
Rule 103 of Reg M states that any syndicate member who is a market maker in that security, during the 20 day cooling off period, must either _____ or act as a _____ market maker (NOTE: this rule only applies to add on offerings)
must either resign as a market maker or act as a passive market maker
Rule 101 of Reg M sets limits on syndicate members who are NOT market makers, and covers the ____ day window just prior to the effective date.
5 day window
Rule 101 of Reg M (non-market maker syndicate members) has three tiers of restrictions:
- Tier 1 (Actively traded, no restriction): at least $1m daily trading volume and $150m market cap
- Tier 2 (limited, restricted for 1 day): $100k trading volume and market cap of at least $25m
- Tier 3 (inactive, 5 day restricted period): less than $100k volume and under $25m market cap
Rule 101 of Reg M applies ONLY to common stock. T/F
True - only places restrictions on non-market maker syndicate members for common stock issues
Rule 105 of Reg M impedes _____ from pushing down the price of a security prior to the effective date
short selling
Under Rule 105 of Reg M, a BD cannot buy shares from the underwriters to cover short positions established within _____ days of the effective date
5 days
Rule 104 of Reg M allows for stabilizing bids by the underwriter, and a ______ must appear on the prospectus
Notice of Stabilization
Only ____ stabilizing bid is permitted per ______, and the syndicate agreement will state that the ______ is the sole firm that can do so.
only 1 per market/market maker; syndicate agreement will name the manager as the only firm that can do so
Stabilizing bids must be placed ____ or ____ the POP
at or below the POP
Penalties for insider trading can be up to ______ the profits received/losses avoided and criminal penalty up to ______ for each inside trade and up to _____ years in jail for each violation
3 times gain/loss avoided; crim penalty up to $5m; up to 20 years in jail for each violation
Fines for a “controlled person” (ie employed by a BD and should have had procedures in place to avoid), can be fined up to _____
$25m
Any penalties paid are paid to the _____, not the SEC
department of the treasury
Informants can be paid between ____ and ____ of the civil penalties above $1m
10-30%
Anyone who traded in a security that was traded by an insider can sue that person for _____ years
5 years
Reg FD concerns _______
fair disclosure of information
Under Reg FD, when an issuer discloses information to a member of the financial community, they must also disclose it _____
publicly
To remedy disclosing information to financial professionals, an issuer, under Reg FD, can disclose the information over ______ or by filing a ____ for non-intentional disclosures
broad public distribution (ie news wire) or by filing an 8K for non-intentional disclosures (can also use broad public disclosure)
The 10b5-1 rule allows statutory insiders (officers, directors, 10% share holders) to create a ______ for selling their shares
trading plan
Rule 10b5-2 states that to be considered an “inside” trader, you can’t just _____ upon the information and trade on it. You have to have intentionally misused the information
stumbled upon it
Rule 10b-1 states that Section 10 (anti-manipulation) apples to both ___ and ____ securities
exempt and non-exempt
Rule 10b-3 states that it is unlawful for BDs, including muni BDs, to use or employ any ____ or _____ device
deceptive or manipulative
Rule 10b-18 is an anti-manipulation rule that sets ground rules for ____ to buy and sell their own stock
issuer (and affiliated persons)
To avoid breaching Rule 10b-18, issuer transactions in their own stock must be:
- effected through 1 BD
- not the opening transaction
- cannot be executed within 10 minutes of market close if actively traded, otherwise can be within 30 minutes of market close
- must be effected at prices no higher than current market
- cannot exceed 25% of trading volume in the security for that day
Suits against people who manipulated the market must be bought within ____ but no later than ____ after the violation occurred
2 years of discovery; 5 years since violation occurred
Under rule 15a-6, foreign BDs who are NOT registered with the SEC are permitted to:
- effect trades for US persons that are unsolicited
- solicit business from and provide research to major institutional investors and institutional investors
- conduct business with foreign nationals temporarily in the US
