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Recommended textbook solutions HDEV56th EditionSpencer A. Rathus 380 solutions Calculus for Business, Economics, Life Sciences and Social Sciences13th EditionKarl E. Byleen, Michael R. Ziegler, Michae Ziegler, Raymond A. Barnett 3,913 solutions
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Securities Act of 1933 The Securities Act of 1933 imposes rules on the new issue market that require: - Registration with the SEC for non-exempt new issues; Exempt Securities / SA 1933 The exempt issues under the Securities Act of
1933 are: 20 Day Cooling Off Period During the 20 day cooling off period, the new issue cannot be: The underwriters can distribute a Preliminary Prospectus to obtain non-binding indications of interest. The SEC reviews the filing for full and fair disclosure; and can issue a deficiency letter if it finds that disclosure is not adequate. The issuer, underwriters, legal counsel, and accountants all perform "due diligence" to insure that all material facts have been disclosed in the registration statement (and in the Final Prospectus) so that investors receive full disclosure and can make an informed purchase decision. Regulation A Regulation A is intended to make it easier for start-up companies to raise capital. It gives an "E-Z" registration method for offerings of up to $50 million within a 12 month period. The rule is split into Tier 1 and Tier 2. Tier 1 offerings, up to a maximum amount of $20 million, are given the easiest registration method and do not require audited financial statements. Tier 2 offerings allow a maximum of $50 million to be raised, but require audited financial statements. An abbreviated registration statement is filed with the SEC (Form S1-A) and the issue must go through a 20 day review period, similar to a regular registered offering. Disclosure to investors is made through an Offering Circular rather than a Prospectus. Offering Circular Part of Reg A. Helps Small Businesses, no need for full prospectus Shelf Registration / Rule 415 Rule 415 allows big, "seasoned" issuers to file a blanket registration statement that goes on the SEC's "shelf" for 3 years. Under the blanket registration statement, the issuer can give the SEC 2 days' notice and issue securities during the 3 year period. This reduces the time needed, and cost involved, with issuing securities for these large, well-known issuers. Interstate (Rule 147) Exception SA does not apply to issues registered in one state only Rule 147 details the requirements for an issuer to obtain an "intrastate exemption." 100% of the issue must be offered and sold in the State; only to residents of that State. Residency is determined by the purchaser's primary residence. The issue cannot be resold outside that State for 9 months (270 days) following first issue. Regulation D / SA 1933 Regulation D allows a non-exempt issue to be "privately placed" without a registration statement being filed with the SEC; and without a Prospectus requirement. This is an "exempt transaction" - thus if a non-exempt security (such as common stock) is privately placed (sold in a exempt transaction), then registration is not required. To qualify for the Regulation D private placement exemption, the issue can be sold to a maximum of 35 "non-accredited" investors and can be sold to an unlimited number of accredited investors. There is no dollar limit on the offering; and the offering can be made in any state. Rule 144 / SA1933 Private placement shares issued under Regulation D are unregistered and are called "restricted stock" because trading of these shares is "restricted" in the secondary market. To resell the shares publicly, either a registration statement must be filed with the SEC or the shares must be sold though Rule 144 - which will also register the shares. Rule 144 requires that the: Control Stock / Rule 144 The provisions of Rule 144 also apply to holders of "control stock" - these are registered shares purchased in the open market by officers and directors of the issuer. All provisions of Rule 144 must be followed (filing of the Form 144 public notice; 4 sales per year maximum; limitation on the amount of each sale; etc.), except that there is no 6-month holding period requirement. Thus, officers and directors who buy shares of their company in the open market cannot just "dump" them in the market. Rule 144A / SAA 1933 Rule 144A (not to be confused with Rule 144) was enacted in the early 1990s to permit institutions to buy private placement units and trade them among themselves without having to register the securities. Qualified Institutional Buyers are permitted to buy $500,000 or larger private placement units and trade them among themselves under this rule without SEC registration of the securities. Rule 145 SEC Rule 145 requires issuers to file registration statements with the SEC when publicly traded securities are created due to such actions as a: Securities Exchange Act of 1934 The purpose of the Securities Exchange Act of 1934 is to curb manipulation and fraud in the trading (secondary) markets. The Securities Exchange Act of 1934 regulates trading of all non-exempt securities, including common stocks, preferred stocks, corporate bonds, options on securities, etc The anti-fraud provisions of the Securities Exchange Act of 1934 apply to both exempt and non-exempt issues. First Market Trading of listed securities on a stock exchange; Second Market Over-the-counter trading of securities not listed on an exchange; Third Market Over-the-counter trading of securities listed on an exchange Fourth Market Over-the-counter trading from institution to institution directly via ECNs and ATSs. Rule 10b-18 Rule 10b-18 sets ground rules for issuers or affiliated persons who wish to buy their shares in the open market. If an issuer aggressively buys its stock in the market, or bids for its stock, it can manipulate the market price upwards. Bids and purchases that are made in compliance with Rule 10b-18 will not be considered manipulative activities under Rule 10b-5 ("catch-all" fraud rule). Rule 10b-18 purchases, as they are known: 8K/ 10Q/ 10K 8K - Corporate issuers must file a special 8K report for significant events that might
affect the issuer's stock price. Corporate issuers must file annual audited financial statements with the SEC in a 10K report./ Unaudited in 10Q Rule 13D Anyone who accumulates a 5% or greater holding in an issuer's stock must make a public announcement of the holding. This is done by filing a 13D report with the SEC within 10 days of crossing the 5% threshold. Thus, sneak takeovers of companies become almost impossible. Short Tender Rule The short tender rule states that if there is a tender offer for a company's shares, only those people who are "net long" the stock can tender. A person with a net short position in the stock cannot tender. A person who is "short against the box" has a net "0" position and cannot tender. Margin Rules The Securities Exchange Act of 1934 gave the Federal Reserve the power to set margins on non-exempt securities. The Federal Reserve wrote 2 important regulations: Regulation T: controls the extension of credit on securities by brokers; Regulation U: controls the extension of credit on securities by banks. Regulation M Stabilization of new issues is the only legal form of market manipulation. Stabilizing bids are permitted at, or below, the Public Offering Price - never above. There is no time limitation on the period that a stabilizing bid can be maintained under Regulation M. Stabilization of new issues is permitted as long as the stabilizing trades (which take place in the secondary market) conform to the requirements of the 1934 Act. Reg M and Syndication To stop this, the SEC requires that either the market maker stop making a market until the effective date; or alternatively, the market maker must act as a "passive" market maker - meaning that it cannot buy the stock at a price higher than the current high bid. Regulation FD It prohibits issuers from making selective disclosure of non-public information to research analysts, mutual fund managers, and other industry professionals, unless at the same time, the information is broadly disseminated to the public. If an officer of a company makes an accidental disclosure of material non-public information at a presentation to analysts, Regulation FD considers the officer to be a tipper and the analysts to be tippees. To avoid insider trading liability, the company can either make an immediate public disclosure of the information (defined as public disclosure within 24 hours of the inadvertent disclosure) or can file an 8K report (a special report of significant events with the SEC, which makes the information public). Trust Indenture Act of 1939 The Act requires that non-exempt debt offerings in excess of $50,000,000 have an independent trustee appointed to protect the interests of the bondholders. Note that this is not a requirement for exempt debt issues, such as government and municipal debt. Investment Advisors Act of 1940 The Investment Advisers Act of 1940 requires that anyone who gives advice about securities for a fee register with the SEC as an Investment Adviser. Excluded
from the registration requirement are: Also note that only the larger advisers (those with $100,000,000 or more of assets under management) must register with the SEC; smaller advisers are only required to register at the State level. SIPC Every registered broker-dealer must belong to SIPC and must pay annual assessments to the SIPC insurance fund. SIPC insures customer accounts for up to $500,000 of equity in the account; inclusive of maximum cash coverage of $250,000. For any claims in excess of SIPC limits ($500,000 of equity in an account with cash coverage not to exceed $250,000), the customer becomes a general creditor of the failed broker-dealer. SIPC coverage is applied "per customer name." Federal Telephone Consumer Protection Act of 1991 This Act applies to any telephone solicitations, whether they are made by voice, telephone recording, fax or e-mail. The Act permits unsolicited cold calls to be made only between the hours of 8:00 AM to 9:00 PM in the time zone of the recipient. The 3 exceptions provided for cold calls to individuals that are on the National Do-Not-Call list are the: Blue Sky Laws State "Blue Sky" laws require that new issues that will be offered in each State be registered in that State. he Uniform Securities Act requires that: However, State law also exempts from registration: Sarbanes-Oxley Act of 2002 The major provisions of Sarbanes-Oxley that relate to issuers and brokerage firms are: - Issuers must "speed up" their disclosures of special events - the requirements for 8K filings are tightened up and now, most events must be reported within 4 business days (down from the previous 15 days). - Insiders, such as officers and directors, are prohibited from trading their own company's stock during any "blackout periods" established by the company. - Insiders must report their trades in the subject company within 2 business days of the event. (This used to be within 10 business days of the beginning of the following month.) - Research analysts at brokerage firms must be separated from investment banking and their compensation cannot be influenced or determined by investment banking. FINRA Remember that the MSRB writes rules for municipal market participants, but does not enforce its rules. Enforcement is performed by FINRA. FINRA Prohibitons Employees of FINRA member firms are prohibited (among other things) from: 5% policy The 5% Policy states that mark-ups charged in OTC principal transactions and commissions charged in both exchange and OTC agency transactions must be fair and reasonable, with 5% being a guideline, not a rule. In determining a fair and reasonable mark-up or commission, the following should be considered: MSRB ... EMMA EMMA" - the Electronic Municipal Market Access system - is an MSRB-created website established specifically for retail customer use. It gives municipal investors access to municipal disclosure documents and municipal price reporting at no charge. The information that the investing public can find on EMMA is: Anti reciporcal rule Mutual funds are prohibited from selecting broker-dealers to effect their portfolio trades based upon how much of the fund's shares are sold by that broker-dealer. Confirmation Disclosure Confirmation Disclosure Municipal confirmations for trades effected on a yield basis must compute the dollar price to the customer. For yield basis trades that are not at par (discount or premium); the coupon rate, yield to maturity; and maturity or call date used to compute the price, must be shown; along with the resultant dollar price (Remember that discount bonds are priced to the maturity date; while premium bonds are priced to the nearest "in whole" call date). For yield basis trades that are at par, the coupon rate is shown; there is no need to show the yield to maturity since it is the same as the coupon rate. If the securities are callable, this must be disclosed. It must be disclosed if the municipal firm acted as a broker or a dealer in the transaction. MSRB Take long positions in municipal securities (but rarely, if ever, take short positions, due to the thin market); Give "bona-fide" quotes to customers (such a quote represents the dealer's best judgment of market value); Participate in new issue syndicates; and Participate in secondary market joint accounts. CBOE - No Selling Call Options for Issuers Issuers are prohibited from selling call options against their underlying stock. CBOE ROP The designated Registered Options Principal is responsible for the creation and review of procedures to insure that the member firm is in compliance with all regulations pertaining to options. This is a main office compliance function. The designated ROP approves all options advertising and sales literature. The designated ROP does not approve new accounts or options transactions in accounts - this is performed by the Branch Manager. Additionally, the BOM approves correspondence with customers - which the CBOE defines as a communication to fewer than 25 existing or prospective clients. Rule 103 Rule 103 of Regulation M covers the situation where a firm in the underwriting group for an add-on securities offering also happens to be a market maker in the stock. The worry of the SEC is that the market maker, during the 20-day cooling off period, would be tempted to aggressively buy the stock to push up the market price. This, in turn, would push up the POP when it is set just prior to the effective date, which would increase the underwriters' spread. To stop this, the SEC requires that either the market maker stop making a market until the effective date; or alternatively, the market maker must act as a "passive" market maker - meaning that it cannot buy the stock at a price higher than the current high bid. Rule 10b-5-1 SEC issued a "safe-harbor" rule that permits statutory insiders (officers, directors and 10% shareholders) to set up a written plan for trading that company's securities. Such a written plan specifies the future date with amount on which securities are to be bought and sold; or specifies the algorithm to be used for determining the amount and date of future purchases or sales. Once the plan is in force, the "insider" cannot have any further influence on trades effected under the plan. As long as the insider adheres to such a written trading plan, that person is given a "safe harbor" from being accused of using "inside information" as the basis for the trades that occur based on adhering to the plan. Rule 101 of Regulation M Syndicate members who are not market makers in that stock that are in an underwriting group for an "add on" stock offering.The intent is to make sure that they do not try and manipulate the price of the security upwards prior to the effective date, so that a higher POP could be set. Tier 1 Issue - if the security is actively traded (average daily trading volume of $1,000,000 or more and public float of at least $150,000,000), there are no restrictions placed on market makers trading the issue prior to the distribution. The idea here is that this issue is too big for the price to be manipulated. This is called a "Tier 1" issue. Tier 2 Issue - if the security has an average daily trading volume of $100,000 and a public float of at least $25,000,000 the restricted period is the business day prior to the effective date. This is called a "Tier 2" issue. Tier 3 Issue - any other security not meeting these minimums is a "Tier 3" issue and is subject to a restricted period of 5 business days prior to the effective date. Penny Stock Rule The "penny stock rule" (Rules 15g-1 through 15g-6) requires that new customers who receive a recommendation and purchase non-exchange listed securities (meaning OTCBB or Pink Sheet issues) priced under $5 per share sign and return a suitability statement before sale can be confirmed. This rule is intended to stop "boiler room" high pressure phone sales of speculative penny stocks. BrokerCheck FINRA maintains a "BrokerCheck" website, where retail customers can input a registered representative's name and see that individual's employment history for the past 10 years, disciplinary record, licenses held, states in which that person is registered, and outside business activities. In addition, pending serious customer complaints that are not yet resolved are included. Assistant Representative An Assistant Representative - Order Processor is an individual that has a Series #11 license. This person can only accept unsolicited customer orders. He or she cannot solicit customers. This person can take new account information (e.g., customer name, address, social security number, etc.) but cannot perform a suitability determination or sign the new account form, opening an account for a customer. Restricted Stock A security which was never registered and can only be sold in the public markets when it is either registered, or sold under an exemption provision Regulation NMS - Statistical Information SEC Rule 606 of Regulation NMS requires broker-dealers to compile and report statistical information on their order routing procedures for all customer trades every quarter. What is exempt from the disclosure requirements of the Securities Act?Certain types of securities and certain transactions are deemed by the SEC to be exempt from registration requirements. Exempt Security - Common types of exempt securities are government securities, bank securities, high-quality debt instruments, non-profit securities, and insurance contracts.
Which of the following securities are exempt from the registration requirements of the Uniform Securities Act?All government and municipal securities are exempt from registration requirements under the Uniform Securities Act as are insurance company securities if the company is authorized to do business in this state.
Which of the following securities is exempt from the Securities Act of 1933 quizlet?Which of the following are exempt securities under Securities Act of 1933? Government bonds, municipal bonds, and Small Business Investment Company issues are all exempt securities under the 1933 Act.
What is exempt from the Securities Act of 1933?Exempt transactions are securities transactions that are exempt from the registration requirements of the 1933 Securities Act. Four typical examples of transaction exemptions in the United States include 1) Regulation A Offerings, 2) Regulation D Offerings, 3) Intrastate Offerings, and 4) Rule 144 Offerings.
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Which of the following is exempt from the disclosure requirements of the Securities Act Quizlet
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