Series 24 - Chapter 3 Securities exchange act of 1934

Question 1

What kind of trading restrictions or suspensions can be SEC impose?

Answer 1

The SEC may:

• Suspend the trading in any security (other than exam security) 48. Not exceeding 10 days Suspend all training on any national securities exchange or otherwise for a period not exceeding 90 days.
• If there is an emergency The SEC may alter supplements to spend or impose requirements or restrictions with respect to any matter subject to a SEC or SRO regulation.
• SEC must determine that:
• Necessary to maintain or restore fair and orderly securities markets Ensure prompt accurate and safe clearance and settlement of transactions and securities
• Emergency orders may not remain in effect for more than 10 business days including extensions. What are the maximum penalties that exist for an individual and a business if the securities act of 1934 is violated?
• Violations of the act or SEC rules can result in a $5 million fine and up to 20 years in prison for individuals
• For business entities the maximum fine is $25 million

Question 2

When must a publicly traded corporation register with the SEC and provide regular ongoing reporting? Assets and number of persons?

Answer 2

• Assets of more than $10 million
• Shares held by 2000 or more persons
• Shares held by 500 or more persons who are not accredited investors
• Companies will be required to file an annual report on form 10 K and quarterly reports on form 10 Q.

Question 3

What is form 10 Q?

Answer 3

Form 10 Q is filed by issuer for each of the first three fiscal quarters of each year.

Question 4

What is form 10 K? What is included in form 10k?

Answer 4

• This information is made available to the public
• Includes:
• Business line
• Assets of the company
• Legal proceedings
• Risk factors
• Footnotes of accounting policies
• The market for the company’s equity securities
• A list of the company’s directors and executive officers

Question 5

What is form 8K? What does the form cover?

Answer 5

If an event occurs that would materially affect the issuer’s financial conditions or share price a report must be made to the SEC on form 8K

1. Business and operations – definitive agreement or bankruptcy receivership
2. Financial information – completion of an acquisition or disposition of an asset
3. Securities in trading markets – notice of a deal listing on registered sale of equity securities
4. Accounts and financial statements – changing to certify accountant
5. Corporate governance and management – changing control of the company the resignation of an elected director amendments to corporate bylaws code of ethics
6. Asset-backed securities - securities act updating disclosures failure to make a required distribution
7. Regulation FD - accidental disclosure of material nonpublic information must be disclosed publicly
8. Financial statements and exhibits – the latest financial statement
9. Other events – material events not listed in the form

Question 6

What does schedule 13 D cover?

What is contained in schedule 13 day?

Answer 6

• Section 13 D of the exchange act requires anyone who requires more than 5% of an issue or equity securities to notify the issue or the exchange in the SEC within 10 days after the acquisition

Information contained:

• The security and issuer.
• Identity and background of the filer
• Source and amount of funds - was it borrowed?
• The purpose of the transaction – is the file are trying to acquire the company or purchasing undervalued shares or other reason?.
• The number of shares and percentage ownership Contracts or relationships with respect to securities of the issuer Any material to be filed as exhibits.

Question 7

What is schedule 13 G cover?

Answer 7

13 G is the institutional form of schedule 13 D.

This is typically used for mutual fund companies

Question 8

What is schedule 13 F? What does it cover?

Answer 8

• Under the securities exchange act of 1934 institutional investment managers that can exercise investment discretion over at least 100 million in equity securities must file a quarterly for form.
• This form must be filed regardless of whether the filer is registered with the SEC.
• The SEC publishes a list of equity securities that would require the institutional investment manager to file.
• The list typically includes:
• Exchange traded stocks
• Equity options
• Warrants
• Shares of closed and investment companies Certain convertible debt securities
• Closed end funds
• ETFS
• Are included as 13 F
• Open end mutual funds are not 13F

Question 9

What does route SEC rule 16 A – 1 cover?

Answer 9

• Rule 16A-1 captures information on ownership of a director or officer who controls more than 10% of the stock of a corporation.
• Must be reported to the SEC within 10 days of becoming an insider. On Form 3.
• If there is a change in their position, this must be filed by the second business day following the change in position on Form 4.
• Form five is an annual filing by insiders cover in certain transactions such as guests.
• There is no requirement to file reports for 401(k) holdings.

Question 10

What are short swing profits and how are the regulated for insiders?

Answer 10

• Refers to insiders who are not allowed to take certain actions in regard to the stock that they are affiliated with.
• Insiders may not sell the stock short.
• Although they may short against the box. Short swing profits are those aren’t within six months of purchase.
• If insider sells within six months the business may sue for recovery called disgorgement.
• This also holds true for an insider who sells a stock and buys it back at a lower price within six months.

Question 11

What is rule 10 B 5–1 Plan cover?

Answer 11

• Insiders are generally prohibited from buying or selling a security based on material nonpublic information.
• Blackout periods around material event such as earnings releases.
• A 10 B 5–1 plan allows a person to have an affirmative defense against insider trading if certain conditions are met.

Question 12

What must be in place for a 10 B51 plan to be effective?

Answer 12

The following must be executed prior to person becoming aware of the insider information:

• A written plan that is binding entered into purchaser sounds security The plan instructs another person to purchase or sell security for this person The details of the plan must describe:
• The specified amount of securities to be purchased or sold the price and the date
• Include a written formula or algorithm for determining security purchases of sales
• The person who create a plan is not permitted to exercise any subsequent influence over how when or whether to affect purchases or sales in the individual who makes the purchase and sale systems must not be aware of the material my public information The carpet insider is not permitted to be involved in the decisions to purchase or sell the securities.

Question 13

What information must be filed on SEC form 14 a?

Answer 13

• Companies must provide shareholders with a proxy statement prior to its annual meeting.
• Contains information that will be voted on during the annual shareholder meeting.
• Detailed information on proposed executive comp and ownership percentages are required.
• Broker-dealer holding the stock and street name must forward proxy material from the issuing corporation if the issuer covers all out-of-pocket expenses.

Question 14

What is the difference between the preliminary and definitive proxy statements?

Answer 14

There are two types of proxy statements.

• Preliminary proxy statement must be filed with the SEC at least 10 days prior to the date the definitive proxy statement is sent to shareholders.
• The second type the definitive proxy is given to shareholders to provide them with the information that will allow them to make informed decisions on what’s being voted on.
• Definitive proxy must be filed with the SEC no later than the date it is for sent to shareholders
• A definitive proxy is not required if the matter being voted on relates only to election directors election or approval of the companies accountants.
• Business combinations such as a proposed merger would require the filing of a preliminary proxy.

Question 15

What is required to be filed during a tender offer?

Answer 15

Any person who makes a tender offer and becomes the owner of more than 5% of a company is required to file schedule TO.

Question 16

To protect the interests of shareholders the SEC requires certain things to ensure that a tender offer is done anyway that is fair.

What are those requirements?

Answer 16

• Shareholders must be notified of a tender offer no later than 10 business days from the date the tenders made
• Management of the company must advise shareholders if they recommend or declined a tender offer or express they have no opinion and remain neutral
• Tender offers must generally be held open for at least 20 business days from the time they are announced to the Security holders.
• If the person making the offer increases or decreases the percentage of the class of security is being sought the consideration being offered at a dealer soliciting for the offer must remain open for at least 10 business days from the date of the notice of the change is given to security holders.
• In order to extend the offer to the person making it must make a public announcement no later than earlier of 9 AM Eastern time of the next business day after the scheduled expiration date of the offer or for exchange listed securities the opening of the exchange on the next business day after the scheduled expiration of the offer.
• It is considered fraudulent for a person making a tender offer to fail to pay to consideration offered or fail to return the skirt is tender promptly after the offer is terminate or withdrawn (prompt payment generally means no more than two business settlement days from the conclusion of the offer.