Series 24 - Facts & Information Flashcards
Minimum Maintenance Margin Required in Long Accounts
_____________________
Minimum Maintenance Margin Required in Short Accounts
=25%
___________________
=Greater of $5/share or 30%
Restricted Margin Account
___________________
Regulation T Requirement For Initial Purchases
- % equity (Margin) fallen below initial 50% requirement
- Can buy additional securities on margin, but must put up initial margin requirement (50% of new purchase)
________________
Initial Trade Size Reg T Required Deposit
$4000 Long & Short: $4000
Aggregated Indebtedness
All unsecured liabilities and all customer related liabilities (all monies the BD must pay if liquidates)
Included:
- Accounts Payable
- Customer Credit Balances
- Fails to Receive - Customer Accounts (Customer has paid for securities not yet received, firm owes these securities to the customer)
- Fails to Receive - Firm Account (Sold)
- Stocks Loaned - Customer Account
- Bank Loans - Customer Collateral (Margin Securities)
Not Included:
*Fails to Receive - Firm Account (Unsold) [FINRA close out procedures would cancel these transactions]
*Subordinated Loans (loans only repaid after all other creditors
____________
Important Note: For AI/NC Ratio, subtract the special reserve bank account from AI balance
Maximum AI/NC Ratio
_________
Early Warning Ratio Level
8:1 for First Year Firms
15:1 for Established Firm
_______________
Early Warning if exceeds 12:1
Market Value Where Account Will Be at Maintenance Margin - Long & Short Accounts
Long = Debit Balance/0.75 Short = Credit Balance/1.3
Restrictions on Member Activity
FINRA Rule 5121
Members Cannot Expand Business If:
*Net Capital < 150% of Minimum Requirement
*AI/NC >10:1
For 15 consecutive business days
Members May Have to Reduce Business If:
*Net Capital 12:1
For 15 consecutive business days
IF NET CAPITAL IS LESS THAN MINIMUM REQUIREMENT, FINRA CAN SHUT THE FIRM DOWN
Minimum Net Capital Requirements
Clearing BD $250,000
Fully Disclosed BD (receives securities) $50,000
Fully Disclosed BD (does not receive securities) $5,000
Clearing Prime Broker $1,500,000 Executing Broker (in Prime Relationship) $1,000,000
Market Maker BD (NASDAQ, OTCBB, Pink)
$1000 for each security with bis $5
and
Min $100,000 - Max $1,000,000
Mutual Fund Firms
- accept wire orders $25000
- only accept subscriptions $5000
Net Capital - Definition
Liquid Net Worth
Liquid Assets Less Total Liabilities
Allowable Assets:
- Cash
- Cash in Reserve Account
- Customer Debit Balance
- Receivable (if secured)
- Stock Borrowed
Allowable with Haircut
* Aged Fails to Deliver - 15% haircut if over 4 bus days after settlement
* Inventory (Securities)
- 15% if >4 market makers
- 40% if 2-3 market makers
- 100% if you are only market maker
PLUS: if single security accounts for more than 10% of tentative net capital, extra 15% haircut on amount over 10%
Debt/Equity Ratio
Subordinated Debt/Total Available Capital
Cannot Exceed 70% for Greater than 90 Days
Subordinated Debt
Minimum Term of 1 Year
Repayment is suspended if AI/NC increases above 12:1
Prepayment prohibited if AI/NC increases above 10:1 or NC falls below 120% of minimum
Temporary Subordinated Debt
Maximum duration of 45 days
Maximum number of loans per year = 3
Cannot get a temporary loan if AI/NC > 10:1 or net capital is below 120% of minimum
Eastern Syndicate vs Western Syndicate
Eastern Syndicate: Undivided as to selling responsibility and liability
Western Syndicate: Divided as to selling responsibility and liability
New Issue Prospectus Delivery
Provided to customers at or prior to confirmation
Required to provide a Final Prospectus to all initial purchasers for a 90-day period.
For the first registered offering of an issuer:
* the final prospectus must be provided to all purchasers (primary or secondary market) for 90-days * only 25 days if issue is listed on an exchange
Securities Act of 1933
Regulates Primary Market (issuance of securities)
Securities Act of 1934
Regulates the Secondary Market (trading of securities)
Forms F-3 & F-6
F-3 Foreign Issues that wish to directly register shared for sale in the US
F-6 ADRs (US banks that create ADRs from foreign securities held on deposit in an overseas branch)
Regulation D
Allows a “private placement” exemption if an issue is sold to a maximum of 35 non-accredited investors. The issue can be sold to an unlimited number of accredited investors under this exemption and still be considered a private placement.
Rule 144 Exemption
vs
Rule 144A
Rule 144 Exemption allows small amounts of restricted stock to be sold periodically without formal registration.
Rule 144A Allows large institutional purchasers to trade private placement securities.
Rule 144 Exemption Requirements and Other Implications
Requires:
- Issuer must be registered with SEC
- Seller files Form 144 with SEC prior to sale date
- Securities are fully paid for at least 6 months
- Files Form 144 no more than 4x per year
- Max sale is greater of 1% of shares outstanding or weekly average of last four weeks trading volume.
Rule 144 extends to control stock, but without the 6 month holding period.
No filing required for sales of 5000 shares or less, with market value of no more than $50,000 (once every 90 days)
Once shares are sold they are considered registered.
Rule 144A
Rule permits any QIB (qualified institutional buyer) to purchase unregistered security directly from the issuer or from a BD.
QIBs can sell to other QIB
Reg A Exemption
Reg A - Small Dollar Offering
Issuer can sell $5,000,000 of its own securities in a 12 mo period.
Affiliates can sell $1,500,000 of securities under the Exemption
No prospectus but
- Form1A and a copy of the Offering Circular must be filed 20 calendar days prior to the proposed effective date.
- Offering Circular provided to purchaser at least 48 hours prior to confirmation of sale.
Reports of sales must be made within 30 days of the end of each 6-mo period.
Issues are registered.
Exemptions that Require Filing
vs.
No Filing Requirement
Private Placements are exempted from full registration under Reg D
Sale of Restricted Stock are exempted from full registration under Rule 144
Sale of Small dollar amounts of securities are exempted under Reg A
No Filing for transactions between private parties as these are not covered under the Act.
Rule 405
Well Known Seasoned Issuer
Rule 405/WKSI Requirements
Min Mcap of $700mil or at least $1Bil in non-convertible senior securities registered with the SEC in past 3 yrs.
Can only be used for add on offerings
Automatic Shelf Registration (S-3)
Pay as you go registration fees
3-Yr Shelf Registration
Electronic Prospectus Delivery Permitted (assuming meets access equals delivery requirements)
Free Writing Prospectus Allowed - can be used before or after the registration statement is filed. must be filed with the SEC prior to or at first use.