Series 66 Flashcards
What does the Securities Act of 1933 regulate?
the issuing of corporate securities sold to the public (IPO and SEO)
The Securities Act of 1933 requires
issuers to make full disclosure of all material information in their registration material in order for investors to make fully informed investments decisions
Howey Case
determined the fundamental definition of a securitiy
Investment Contract
1- the investment of money
2- in a common enterprise (pooling)
3- with an expextation of profits
4- the results solely from the efforts of others
Issuer
any person whos issues any security
Underwriter
any person who has purchased from an issuer with a view selling (NO INCLUDING BROKER FIRM EARNING COMMISSION ON A RETAIL SALE)
Prospectus
is any notice, circular or communication, written or broadcast by radio or television, that offers any security for sale or confirms the sale of a security (DOESNT INCLUDE ORAL COMMUNICATION)
Tombstone Advertisement
is one that id the security, price and the underwriters (NOT CONSIDERED A PROSPECTUS)
Offer to Sell
refers to any attempt or offer to dispose of a security or an interest in security for value or a solicitation of an offer to buy a security for value
Sale of the Security doesn’t include: (2)
1-the preliminary negotiations or agreements between the issuer and underwriter
2-a gift of securities
SEC when registering a new issues looks for (3)
-the issuer file a registration statement with the sec before securities are offered or sold interstate commerce
2- a prospectus that meets the requirements of the act be provided to prospective buyers
3-penalties be imposed for violation of this act
Exempted securities under the Securities Act of 1933 includes (7)
1-any securities issued or guaranteed by the US, any state or political subdivision of a state
2-Commerical paper issued duration less than 270 and intended to be used as increase working capital
3-any securities issued by person organized as religious, educational, benevolent, fraternal or charitable purpose
4-any interest in railroad equipment trust
5-an securities by a federal or state bank, savings and loan association , building and loan association
6-transactions by any person other than an issuer, underwriter or dealer
7-transactions by an user that don’t involve a public offering
Rule 147
any security offered and sold only to persons resident within a single state or territory, where the issuer of such security is a persona resident and doing business within such state
Are securities under Rule 147 exempted under both Federal law and Uniform Security Act?
NO only exempted federal law
Rule 147 qualifications (5)
1- the security must be offered or sold exclusively to persons resident in one state
2-For 9 months from the date of the last sale by the issuer of any part of the issue, resale only made to residents of the state
3-at least 80%of issuers gross rev must come within state
5- at least 80% of proceeds of the offering must be used for business purposes within state
5- at least 80% of issuers assets must be located within the state
Security Act of 1933 protects investors who but new issuers of (5)
1- requiring registration of new issuers that are to be distributed interstate
2- requiring an issuer to provide full and fair disclosure about itself and the offering
3- requiring an issuer to make available al material information necessary for an investor to judge the issuer’s merit
4-reg the underwriting and distributions of primary and secondary issues
5-provide criminal penalties for fraud
What three people have to sign the registration statement?
1- CEO
2-CFO
3- majority of board
Registration Statement must summarizes the following: 10
1-purpose of issue
2-POP
3-underwriting commissions or discount
4-promotion expenses
5-expect use of the net proceeds of the issue to the company
6-BS
7-Earnings statements for the last three years
8- names, addresses and bios of officers, directions, stockholder owning more than 10% of outstanding stock and underwriters of the issue
9-copy of underwriting agreements
10-copies of articles of incorporation
Deficiency letter
is what is sent to issuers if the prospectus is missing something
Stop order issued by the SEC means
that all underwriting activities cease
Red Herring
is used to gauge investors interest in the cooling of period has a bona fide price range on it
What two items are missing from the red herring?
Final offering price and the effective date
Final Prospectus
summarizes the information contained in the registration statements
Who must the prospectus be giving to?
every investor who purchases no later than with confirmation of the sale
Rule 482
allows investments companies to use what is known as omitting prospectus
What five conditions must be met for Rule 482?
1- any info in the advertisement must be taken substantially from the regular prospectus
2-the ad must state conspicuously from whom a prospectus may be obtained
3-the ad must urge investors to read the prospectus carefully before investing
4- any past performance data, such as yield or return, that are quoted in the ad must be accompanied by appropriate disclaimers
5- the advertisement cannot be used to purchase the shares
When are final prospectus usually delivered?
with confirmation of trade, but could also be delivered earlier
Who may investor sue for fraud in the prospectus? (7)
1- every person who signed the registration form 2- all directors of the issuer 3-attorneys 4-accountants 5-appraisers or other experts 6-underwriters 7-parent companies
What is the statue of information for bringing legal action for fraudulent info in prospectus?
is the earlier of one year after the discover of the violation OR three years after the date of the action
Five powers that the SEC has?
1-make, amend and rescind rules
2- administer oaths
3- subpoena witness and other records for evidence
4-seek injunctions or restraining orders in the appropriate court
5- turn over evidence to the attorney general of the US
Regulation D
are exempted from registration with the SEC and are considered federal covered securities exempt form registration on the state level
SEC Rule 506
is a private placement where there is no dollar limit on the amount sold
JOBS Act of 2012
made two major changes to SEC Rule 506
Rule 506 (b)
can sell the offer to unlimited accredited investors and up to 35 non-accredited investors (no advertising can be done)
Rule 506 (c)
permit advertising, but must
1-must sure all purchasers are accredited investors, or has reasonably believes that they are
2- steps to verify that al purchasers are accredited investors
Bad actor/bad provision in Rule 506
it states if the issuer or other relevant persons have been convicted of securities fraud am offering under rule 506 cannot take place
SEC Rule 501 Separate categories (7)
1-bank, insurance company, registered investment co
2-an employee benefit plan if a bank, insurance company or registered investment adviser makes the investment decision or if the plan has total assets in excess of 5 million
3-a charitable org, corp or partnership with assets over five million
4-directors, executive officers and general partners of the issuer
5-anyone with a net worth of 1 million at time of purchase
6- any personal who has an income of 200,000 or 300,00 joint with wife
7- entities made up of accredited investors
How to count non accredited investors for 506 (b)?
1-any relative, spouse or relative of spouse of a purchaser who has the same primary address as the purchase counts as a single purchaser
2- a corp, partnership or other entity is counted as one purchaser
Form D
under rule 503 of regulation d, must file this form with the SEC no later than 15 days after the first sale of securities in the offering
Form D must include
the amount sold to date, the use of proceeds and names of any personas paid commission
Restricted Securities
are unregistered securities purchased by an investor through private placement and are generally restricted from resale for a stated period of time
Other nicknames for restricted securities?
letter or legend securities
Control Person
a corporate director, officers, greater than 10% voting stockholder, or spouse of any of the preceding
Control Stock
is tock held by a control person (sales and purchases must notify SEC)
Nonaffiliated
is an investor who is not a control person and has no affiliation with the issuer other than owning the security
SEC Rule 144
was created so that certain resales of already existing securities could be made without having to file a complete registration statement with the SEC
Broker
is any person engaged in the business of effecting transactions in securities for the account of others
Dealer
is any person regularly engaged in the business or buying and selling securities for his own account
Associated Person
is any partner, officer or director of the BD or any person directly or indirectly controlling or controlled by the BD (expect workers of BD that do clerical work)
Market Maker
is a dealer who holds himself out as being willing to buy and sell a particular securities for his own account and on a regular or continuous basis
Securities information processor (SIP) is any person who does (2)
1-collecting, processing or preparing for distribution or publication info with respect to transaction in any non exempt security
2- distribution or publishing, current or continuing basis) info with respect to such transactions
Examples of SIPs
The consolidated ticker tape
OPRA-options price reporting authority
SIPs don’t include
1- bona fide newspaper, mag or business/financial publication of general or regular circulation
2- any SROs
3-an bank or BD supplying quotations
4-any common carrier subject to the jurisdiction of th federal comm commission
Transfer agent is any person who engages on behalf of an issuer of securities in:
1- countersigning the certificate
2- registering the transfer of the issuer’s securities
3- exchanging the issuing securities
4- transferring record ownership of securities by bookkeeping entry without physical issuance of securities certificates
Exchange
is an organization, association or group of persons providing a marketplace or facilities for bringing together purchasers and sellers of securities
How long does it take the exchange to become registered?
within 90 days they will know
Self Regulatory Organization (SRO)
is a national security exchange or a registered securities association (FINRA)
Are loss of a civil lawsuit grounds for a statutory disqualification?
No…not even if they are related to securities
SEC has the power to regulate: (5)
1- National Securities Exchange 2- Registered Securities Associations 3- Members of an exchange or association 4- Persons associated with a member 5- Applicants to become a member or person associated with a member
Discretion is defined as the authority to decide: (3)
1- which security
2-the number of shares
3-whether to buy or sell
Discretion doesn’t apply to:
1- Time
2- Price
How long does the FA have to exercise an oral grant of time and price discretion?
Till end of day unless a form is signed and dated giving the FA more time to act
How long does it take the Broker Dealer to become registered with SEC? What form must they sign?
45 days and BD from
Schedule 13D Filings
More than 5% owners of a common stock class must file with issuer and the security market where those CS trades within 10 days of transaction
13D filing of the acquiring person must include:
1- name, background of the person/entity
2- origin of the money for the acquisition
3- purpose of acquiring the securities
Section 13F Filings
requires any intuitional investment manger that has investment discretion of over 100million or more on the last trading day of any day within a year file out a 13 f quarterly with the SEC
What Securities are on the 13(f)? What aren’t?
all exchanged traded or Nasdaq quoted stocks, equity options, warrants, shares of closed end fund and certain convertible securities, ETFs, NO- MUTUAL FUNDS
Passive Investors
is defined as any person as any person who can certify that they didn’t purchase or do not hold the securities for the purpose of changing or influencing control over the issuer (cant hold more than 20%)
Schedule G Filing
must be filed by passive investor within 10 calendar days AFTER crossing more than 5%
Amend a Schedule G
takes pass 45 days after the end of the calendar year to report any changes in the information
Section 16 Filings
requires executive officers, directors and greater than 10% stockholders to file transaction reports before the on of the second business day following the day on which a transaction has bee executed in an equity security
Treble Damages
in insider trading the guilty party may be liable for up to 3 times the ill gotten gains or losses avoided (is a reserved action of the SEC)
Limitation on Liability
a private person can only obtain what they lost and nothing more
Statue of Limitations
no action may be brought under this section more than five years after the date of the last transaction that is the subject of the violation
Chinese Wall Doctrine
refers to the research department cannot be close to the retail sales staff
Which SROs can the SEC investigate?
National Securities Exchange
FINRA
MSRB
What actions may the SEC take when investigating the SROs?
1- administer oaths
2- subpoena witnesses
3- compel attendance
4-require books and records to be produced
5- Summarily suspend trading in any nonexempt security for up to 10 days w/o prior notice
6-Suspend trading on an entire exchange for up to 90 days (w/ president thumbs up)
15c3-1 (Uniform Net Capital Rule)
establishes minimum net capital requirements for BD
Securities Amendment Act of 1975
1-fixed commission rates were abolished in favor of negotiated commissions on public orders
2- the act required registration of municipal securities dealers with the sec
3-sec was given power to regulate the activities of transfer agents
Investment Companies
is defined as any issuer that is or holds itself out as being engaged primarily in the business of investing securities
Face Amount Certificate
is a security that represents an obligation on the part of issuer to pay a stated sum at a fixed date for more than 24 months
Unit Investment Trust
has no BOD and is only redeemable from issuer…the portfolio is fixed
Management Company
are managed by advisers with a fee associated with amount of assets under management
Open end Company
is a management company that is continuously offering for sale or has outstanding, any redeemable security of which it is the issuer
Closed End Company
have a onetime offering of shares and don’t redeem their outstanding shares
The following two items disqualifies a person from serving as adviser, director, board, office?
1- convicted within 10 years for any felony or misdemeanor involving the purchase or sale of any securities
2- permanently or temp barred from acting in any phrase of the securities business
What is the highest percentage of board seats that can go to interested persons in an investment company?
60%
Rule 12b-1
allows an mutual fund to act as a distributor of its own shares
Asset-Based Sales load
is any direct or indirect financing by a mutual fund of sales/promo/activities in connection with distribution of the shares
No load 12b-1 fee cannot be advertised if expense is over
.25% or 25 basis points
Max 12b-1 charge is
.75% or 75 basis points
Written Plan of how a mutual fund will use the asset base sale will include: (2)
1-the plan has majority of voting shares
2- the plan must be voted on annually by BOD and directors that are (not interest person) and have no direct or indirect financial interest in the fee
Prohibited Activities of Investment Company (4)
1-purchase shares on margin
2-participate on joint basis in any trading account in securities
3- sell any security short
4-acquire more than 3% of voting securities outstanding
Examples of changes in investment policy that would require a vote: (3)
1-change in subclassification (Open to close)
2-Change any fundamental policy (investment obj)
Investment Company written contract with an investment advise or principal underwriter must include:
1-all compensation to be paid
2-Annually voting done by BOD or majority of shareholders to renew contract is 2 years
3-may be terminated with vote of BOD or shareholders will be given 60 days notice
Unlawfully for any affiliated person a registered investment company to:
1-borrow $ or any other property from the fund
2- knowingly purchase from investment company any security other than the fund’s shares
Affiliated Person
is defined as any person directly or indirectly owning, controlling or holding power to vote, 5% or more of the outstanding shares of the investment company
Control Person
owning or controlling more than 25% of the outstanding shares
Where do the assets of a investment company located?
In a custodian bank…doesn’t have to be FDIC
Semi Annually shareholders should be mailed reports:
1-Balance Sheet
2-An income Statement
3-Listing of the amounts and values of securities owned
4- statement of purchases and sales
5- statements of payment to directors, BOD
What happens if the monies, funds or securities are stolen and caught?
max fine of 10,000 and imprisonment for up to five years or both….SEC can go after you in a civil suit
