Regulatory Flashcards
Requirements for Audit Committees?
SarbOx: each member be an independent member of BOD
Reg SK: must disclose if have a financial expert or not, and if yes, their name
NYSE and Nasdaq listing req: must have a financial expert
FINRA rule on selling away…
RR must disclose in writing to her BD. If receiving compensation, must also receive approval in writing.
What must be disclosed under FINRA Corporate Financing Rule?
Estimate of maximum offering price, estimate of maximum underwriting spread (or other compensation), affiliation of an insider with any member firm, detailed statement on other arrangements and compensation in prior 180 day period, statement demonstrating compliance with any exceptions
Rules on Correspondence?
Each member must have procedures relevant to their size on monitoring incoming and outgoing correspondence
Under Regulation M, what must managing underwriter do?
Request Underwriting Activity Report from FINRA, and if there is one, file a Restricted Period Notification Form identifying if participants will be PMM or are excused
SEC Rule 10b-18 (repurchase of its own securities by an issuer) includes what restrictions?
No more than 25% of ADTV
Use only one MM or ECN per day (can use another in after hours trading)
Pay no more than highest independent bid
Which category of listing has the most stringent conditions?
Nasdaq Global Select is more stringent than NYSE around publicly held shares and financials.
Order: Nasdaq Global Select, NYSE, Nasdaq Global, Nasdaq Capital
PMM in rising and falling markets…
FALLING: bid at independent bid; if that falls, may purchase 2x Minimum Quote Size or PMM Daily Limit before lowering bid (or withdrawing)
RISING: may but not must raise bid when best independent bid rises
Rules on audit of AML procedures?
Must be tested by an independent audit
Nasdaq Global Select Requirements?
Common across all three standards:
$4 minimum bid price
3 or 4 MM
Subject to corporate governance
Equity holders can only tender net-long positions. What would affect a long position?
Call options positions reduce long position (1 = 100 shares)
Long puts do not reduce it
How are deferred tax positions created?
Taxable income > accounting income: Tax asset
Accounting income > taxable income: Tax liability
TO CALCULATE: multiply excess by marginal tax rate
Who could buy at less than public offering price?
Syndicate and selling group members (all must be BDs and members of FINRA)
When can underwriters levy a penalty for flipping?
Only if they levy a penalty on the entire syndicate – not on individual syndicate members whose customers may have flipped (sold within 30 days of IPO)
Who can utilise a Reg A offer?
Companies registered in and based in US or Canada
Requirements of a company subject to a tender offer?
Notify shareholders within 10 days, with a recommendation, declaration of neutrality or statement that it is unable to take a position
What’s spinning?
Underwriter allocating shares to execs of a company which is or has been or may become a client. Exception: “issuer directed allocations” which the IB has played no part in
When can a BD sell shares in an IPO to a restricted person of that issuer?
Under “antidilution provision” where the person has held a position for one year plus, to allow them to maintain their %, provided that they hold the issued shares for three months
What defines relationship between client and IB?
Engagement Letter
When can Rule 145 shares be sold?
- Under Rule 144 conditions on public info, amount, manner of selling
- Not an affiliate, held for six months, with public info
- Has held shares >1 yr and not an affiliate for >3 months
What happens on an indictment?
Reported to FINRA, can stay employed until verdict is known
What must a BD do on hiring an RR?
Within 60 days, review the U5 filed by previous employer
RR must supply U5 within 2 days
When determining number of market makers for Exchange listing rules, what’s the status of ECNs?
Disregarded
What form gives details on insider sales?
Form 4
Lowest to highest interest rates?
Federal Funds > Discount Rate > Broker Loan Rate > Prime Rate
What info does a 13D include on source of funds?
It indicates source (e.g. whether borrowed) but doesn’t need to include the name of the financial institution providing any borrowed funds
What % of creditors need to accept a reorganisation plan?
Within a class, half of the number of creditors, representing at least 2/3 of the dollar amount
How is a material event reported between 10Q filings?
8K – announcement that a company won’t hit earnings (absent significant factors) does not warrant filing an 8K
How does an SEC Rule 4(5) offering differ from a Reg D offering?
No participation by non-accredited investors
What’s an MLP?
Publicly traded partnership, on an exchange or readily traded in secondary markets;
90% of gross income from eligible sources
Rules for EGCs with respect to quiet periods?
For EGCs (Revenue
Actions on noticing a payment from an OFAC country?
Block and report within 10 days
What must a firm do if there is a trade in a security on its watch list?
Conduct a review and submit a report to the SRO
Record keeping requirement for BDs?
Original entry: six years
Others: three years
In both cases: two years easily accessible
Qualification for being an QIU?
When member firms participating in distribution of own securities, need a QIU, who has done at least three similar transactions over the past three years
Priority distribution in a bankruptcy?
Administrative expenses (including wages going forward) come first, then back wages prior to bankruptcy, then the creditors, then equity holders
Difference between restricted and control stock under 144?
Control is registered stock acquired by an insider. Not subject to holding period, but is subject to the volume restrictions
New Issue Rule would allow BDs / RRs to receive a new issue under what circumstances?
RRs if they constitute less than 10% of the beneficial ownership of a joint account
BDs in their own account if they’ve made a bona fide public offer of those securities
Where would you find details on securities held by a hedge fund?
13F is filed by institutional investors controlling over $100m in equity securities
When does a Regulation M notice need to be filed?
In connection with an underwriting, even if no restricted period. However NO REQUIREMENT for investment-grade non-convertible debt, exempt securities and 144A sales
In a MPO, BD must provide disclosure document except…
Sold to institutional investors or QIBs, or for certain exempt securities
Where would someone find details of required non financial disclosures under the ‘33 Act?
Regulation SK
What’s the exception to the regulation precluding RRs from guaranteeing customers against a loss?
If the guarantee is extended to all holders of that security by the issuer as a part of that security
Corporate Financing Rule prohibits many types of compensation, but allows what?
Reimbursement of legal and accounting services provided
SEC Rule 165 on written comms after announcement of a merger?
Permitted, but must be filed by SEC (by each company if they are both publicly traded), and carry legend urging investors to read all documents. No requirement to send to all shareholders
How are subsidiaries treated in regards to requirements for disclosure in an MPO?
Ladder up – Owning 60% of A, who in turn owns 70% of B, means net ownership of B is 42%, less than the control threshold of 50%
What must an investor in a Section 4(5) offering receive?
No requirement to receive any document
Specific exemptions under New Issue Rule?
Investment Companies registered under 1940 act
Insurance companies, trust funds, accounts with less than 10% restricted persons, foreign investment companies, ERISA accounts
Rule 145 covers?
Business combinations through M+A, consolidations, reclassifications of securities, transfers of corporate assets
What’s contained in a Annual Proxy?
BOD, Exec Compensation, 5% owners, auditors, and proposals to be voted on at the AGM
(Financial statements in 10Q and 10K)
What constitutes a public appearance by an analyst?
More than 15 people or media present
How should interdepartmental communication happen?
Via legal and compliance department; record of all communications must be kept
What do SROs allow on compensation for nonregistered persons for referrals?
If isolated and non-recurring, and not related to level of business activity in those accounts
Difference between 13F and 13G
F – fund – filed by registered investment companies with >$100m
G – filed by holders of more than 5%
Reporting of complaints to SRO?
Summary quarterly;
Theft, forgery, misappropriation of funds: promptly
SarbOx rules on loans to executive officers?
Strictly banned
Reg D rule on providing disclosure documents?
If issue is >$1m
However advised to issue in all cases to meet anti-fraud provisions
Who can use Pay As You Go registration?
WKSI
When would a Preliminary Proxy not be needed?
Election of directors
Election or confirmation of auditors
Shareholder proposal
Maximum underwriting compensation for selling partnership units?
10%
