Securities Act of 1934 Flashcards
What is MISS PERMS in the Securities act of 1934?
M - manipulation
I - Insiders
S - SEC created
S - SHO (regulation SHO)
P - Proxy rules E - Exchanges must register with SEC R - Reports; annual and quarterly M - Margin; control over credit is FRB S - Stabilization; this is allowed for new issues per SEC
What is Manipulation?
FRAUD. Sec. Act of 1934 applies to all securities for this one, whether the securities are exempt or non-exempt!
What are some examples of manipulation?
- Wash trades
- Trading pools
- Trading by underwriters
- Unlawful tender offers
What is a tender offer?
When an outside company or investor wants to buy a company to take control over it
What are the rules for a tender offer practices?
- The offer must be outstanding for at least 20 business days
- If insufficient number of shares accepted, tender offer is “sweetened”, extending the offer for another TEN business days
What are the rules for Tender Offers on BONDS?
- Only required to be held open for 5 business days
- If the offering is sweetened, the offering window must be extended for another 5 business days
What is Rule 10b-5 under the Sec. Act of 1934?
Anything the Act doesn’t specify can still be considered fraud
How long do insiders have to report their trades to the SEC?
2 business days
What are short swing profits?
Profits derived from trades within a 6 month period must be paid back to the corporation
What does the SEC regulate?
SECURITIES. Not insurance, commodities, or future contracts
What is proxy solicitation?
Shareholders are given a fair opportunity to vote through the use of proxies
When must 8K’s be filed in relation to “big changes”
Within 4 business days of event
What is a 13D filing for?
Aggressive. When person accumulates a 5% equity position and intends to exercise CONTROL over the company
What is a 13G filing for?
Passive. When person has a 5% equity position but intends to remain a passive investor
What is Reg. T?
Controls credit from Broker to Customer
What is Reg. U?
Controls credit from Bank to Broker
What is Regulation M?
Set of rules to deal with potential market manipulation that occur during the 20 day cooling off period for add–on offerings
What are the 3 tiers for Issues under Regulation M?
Tier 1 - actively traded; average trading volume $1MM, market cap of at least $150MM
Tier 2 - Moderately traded; 100K min trading volume, market cap of $25MM - $149.9MM
Tier 3 - Inactively traded; trading volume of less than 100K and market cap of less than $25MM
What are the market maker restrictions fore each of the Tiers under Regulation M?
Tier 1 - Market makers are not restricted prior to distribution
Tier 2 - Subject to 1 day restriction period - business day prior to the effective date
Tier 3 - restriction of 5 business days prior to effective date
What do Reg. M restrictions apply to?
These apply to ONLY common stock add on offerings
What is Rule 105 of Reg M? (push down POP)
Underwriters aggressively short sale the stock during the 20 day cooling period to push down POP and then realize a profit when value is greater in the markets. Broker dealers cannot buy shares from underwriters within 5 days of effective date
What is the violation penalty for insider trading?
Penalty can be up to 3 times profit or loss avoided; criminal penalties up to $5MM in fines and 20 years in jail
Where are fines from inside trading made payable to?
The Department of Treasury
What must an issuer do if it intentionally makes non-public disclosure?
Must immediately disclose info by broad distribution to public
