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Series 62 > Trading Securities > Flashcards

Trading Securities Flashcards

1
Q

Name four key areas of the Securities Exchange Act of 1934…

A
  1. Trading of securities
  2. Regulation of companies with securities trading in the secondary market
  3. Regulation of exchanges
  4. Regulation of BDs and SROs
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2
Q

What are the registration requirements on corporations of 1933 and 1934 Acts?

A

1933 Securities Act requires registration of securities when first offered.
1934 Exchange Act requires corporations to register with SEC once its total assets and number of shareholders reaches certain level.

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3
Q

What’s the best course of action if an RR receives material, non-public information on a company?

A

Contact a principal or compliance officer at his firm.

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4
Q

Creating a false impression of volume through coordinated trades is known as…

A

Painting the tape / wash sales

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5
Q

Capping and pegging are…

A

Forming pools or syndicates for purpose of raising or lowering the price (both illegal)

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6
Q

An insider is defined as…

A

Director, officer or owner of more than 10% of a corporation and their immediate family members

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7
Q

Someone becoming an insider must…

A

Report to SEC on Form 3 within 10 days.

Any change in stock position must then reported in second business day after the change.

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8
Q

Someone acquiring 5% or more of the equity securities of a company must…

A

Report through a 13D filing within 20 business days stating reason for the holding
(Persons acting in concert - eg purchase for a minor - are covered)

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9
Q

What are the restrictions on insiders trading stock?

A
  • No short swing profits
  • If sold within first six months, company may sue for the profit
  • After six months holding any profit from a sale followed by a repurchase within six months is also recoverable
  • No short selling
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10
Q

What is shorting against the box?

A

An insider selling short against a long position held elsewhere to ensure timely delivery of securities in legal transfer.

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11
Q

Six points on a customer confirmation of a trade…

A
  1. Trade and settlement dates (NOT TIME)
  2. Agent or principal
  3. Name, price, number of shares or principal amount of bonds
  4. Redemption features on a bond
  5. Amount of commission
  6. If firm is a market maker or specialist
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12
Q

The status of an order as solicited or unsolicited must be disclosed where? Order ticket or customer confirmation?

A

Order ticket

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13
Q

Free credit balances of customers of a BD are payable on demand. How often must a BD inform customers of their balance?

A

Every three months

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14
Q

What must a BD do if it executes a sale and customer fails to deliver securities within 10 days after settlement?

A

Close out the transaction by buying the same securities – “buy in”

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15
Q

Regulation FD on Fair Disclosure covers disclosure of material non-public information by…

A

Requiring a company to disclose simultaneously to public or to do so within 24 hours / before next trading day opens using SEC Form 8-K

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16
Q

Regulation M places restrictions on underwriters and issuers of new issues around….

A

…bidding on or purchasing stock in secondary market to support a new issue.
No time limit on permitted stabilisation.

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17
Q

Regulation M Rule 101 prevents distributors of a new issue to buy or bid during restricted period of…

A

1 or 5 days before pricing until the end of distribution

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18
Q

What is passive market making?

A

Underwriters of an issue can still be market makers (to preserve liquidity) but cannot enter a bid or effect a purchase at a price higher than the highest independent price

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19
Q

In a falling market a passive market maker can delay lowering its bid until…

A

Its purchases have reached or exceeded lesser of

  • twice the minimum quotation size
  • passive market maker’s remaining daily limit
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20
Q

What is a passive market maker’s daily purchase limit?

A

Average daily trading volume as determined by FINRA – note it is net purchases.
Can complete a single order which breaches limit but must then withdraw.

21
Q

Under Rule 104 – what is permissible stabilising?

A
  • Not allowed in an at-the-market offering
  • maximum price is public offering price
  • must be disclosed to market and the person to whom bid is made
22
Q

What type of short sales are prohibited by Rule 105?

A

During period 5 BUSINESS days before pricing and ending with pricing, violation to sell short a security subject to offering and then purchase that security from an underwriter

23
Q

An unlisted stock with a market value of less than $5 is known as…

A

A Penny Stock

24
Q

What must a BD do for Penny Stock transactions?

A
  • Prior to any trading give customer a Risk Disclosure Document
  • For each transaction disclose current quotation / compensation for BD / compensation for RR
25
Q

What are key features of Penny Stock transaction Cold Call Rule?

A
  1. Approve account determining suitability, delivering written assessment of suitability and receiving signed copy back
  2. Obtain written agreement to the transaction specifying identity and quantity to be purchased
26
Q

What transactions are exempt from Cold Call Rule?

A
  1. With institutional accredited investor
  2. Non recommended transactions
  3. Transactions with established customers (at least one year from a transaction or deposit or with three penny stock transactions)
27
Q

How long must tender offers generally be held open for?

A

20 days

28
Q

What is short tendering?

A

Tendering securities you don’t own

29
Q

Five features of Regulation S-K on projections?

A
  1. Reasonable basis
  2. May provide a review of previous projections
  3. Full and prompt disclosure of material facts
  4. Management may resume or discontinue projections
  5. External review permitted but not required
30
Q

What is registration by reference?

A

Referring to – rather than including – documents filed with SEC (generally within last five years)

31
Q

What deals with missing, lost, counterfeit and stolen securities?

A

Securities Information Centre

32
Q

Exemption of registration of equity securities under Section 12 of 1934 Act applies to issuers with…

A
  • Less than 500 holders of a class of equity security
    AND
  • Total assets less than $5m
33
Q

Companies registered under Section 12 must provide the SEC with…

A

Quarterly and annual reports

34
Q

SIPC covers each customer to what extent?

A
  • A maximum of $500k of which a maximum of $250k in cash

– in a margin account only equity, not market value, is covered

35
Q

When must BDs advise customers of SIPC?

A

In writing in account opening and once per year thereafter

36
Q

Regulation M-A allows more flexibility in cross

Border M&A, however one key requirement that remains…

A

Provision of a summary term sheet to investors

37
Q

Under Rule 103 - Passive Market Making - in a falling market, PMM must (after reaching limits) must drop its price to…

A

The highest independent bid or lower

Limits are purchases reaching or exceeding lesser of 2x minimum quote size or PMM’s remaining daily limit

38
Q

Under SEC Display Rule, MM receiving a limit order may display or alternatively…

A
  1. Execute upon receipt
  2. Deliver to an ECN
  3. Deliver to another firm that complies with display rule
39
Q

Can insider trading happen without a transaction?

A

No. A transaction must take place. However it need not be profitable.

40
Q

How are established customers treated by penny stock rules?

A

Exempt from account approval procedure, but must receive Risk Disclosure Document prior to first transaction and be subject to penny stock transaction rules

41
Q

Who can enter orders into an ECN?

A

Any subscriber - most open to all investors and traders

42
Q

When must confirmations on a stock transaction be sent?

A

At or before completion (ie by the settlement date)

43
Q

According to the Display Rule if a MM is at the inside and receives a lot order at the inside, it must increase its displayed size UNLESS…

A

The order is de minimis - 10% or less of the displayed size - in which case no change

44
Q

What securities would not be protected by SIPC?

A

Those in the name of the customer held by the customer

45
Q

When a stock goes ex-dividend and orders adjusted, how is a dividend of 43.5 treated?

A

Always round dividend UP to whole cent and THEN adjust price

46
Q

If an issue has a green shoe clause, to what extent can an issuer generally overallot?

A

15%

47
Q

What’s the timeframe for a principal to approve a customer order?

A

Same day

48
Q

What’s the ADF?

A

Alternative Display Facility quoting NMS stocks

OTC stocks are NOT NMS securities

Series 62 (16 decks)

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