Series 79 STC Interactive Guide – Flashcards
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Central Registration Depository (CRD)
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Computerized info system maintained by FINRA that provides registration info regarding broker-dealers (BDs) & registered representatives (RRs) to state regulators, other SROs, and the SEC
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Nonregistered persons are able to...
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Send invitations to firm-sponsored events
Inquire whether a prospective customer would like to discuss investments with an RR
Inquire whether a prospective customer would like to receive literature from the firm
Inquire whether a prospective customer would like to discuss investments with an RR
Inquire whether a prospective customer would like to receive literature from the firm
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Special Inactive
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An RR who voluntarily joins the military. Exempt from the 2-year inactive status but cannot contact customers while in action
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Special Inactive
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An RR who voluntarily joins the military. Exempt from the 2-year inactive status but cannot contact customers while in action
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Regulatory Element of Continuing Education
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Required on the second anniversary of initial registration and every 3 years thereafter. Content written by securities industry / regulatory council & covers compliance, regulatory, ethical, and sales-practice standards. 30 day notification, 120 days to complete
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Covered Person
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Any RR who has direct contact with a customer
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Firm Element of Continuing Education
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Firms must demonstrate at least once a year it has analyzed and updated its training plan based upon the firms needs. BDs must maintain records documenting the content ; completion. Training must emphasize:
1. General investment features and assoc. risks
2. Suitability and sales practice considerations
3. Applicable regulatory reqmts.
1. General investment features and assoc. risks
2. Suitability and sales practice considerations
3. Applicable regulatory reqmts.
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Securities Exchange Act of 1934 (The Exchange Act)
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The main federal law covering the operation of the secondary markets. Covers:
1. Regulation of txns in the 2ndary mkt, including antimanipulation rules ; registration of the extension of credit in securities txns
2. Reg. ; regist. of BDs
3. Oversight of industry self-reg. organizations (SROs)
4. Reg. ; regist. of co.s w/ securities trading in the 2ndary mkt, incl. regular financial disclosures, proxy rules, ; insider reporting
5. Authorized the creation of the SEC to enforce securities laws ; create rules to implement those laws
- Members apptd by President w/ advice & consent of Senate
- 5 commissioners apptd for terms of 5 years
1. Regulation of txns in the 2ndary mkt, including antimanipulation rules ; registration of the extension of credit in securities txns
2. Reg. ; regist. of BDs
3. Oversight of industry self-reg. organizations (SROs)
4. Reg. ; regist. of co.s w/ securities trading in the 2ndary mkt, incl. regular financial disclosures, proxy rules, ; insider reporting
5. Authorized the creation of the SEC to enforce securities laws ; create rules to implement those laws
- Members apptd by President w/ advice & consent of Senate
- 5 commissioners apptd for terms of 5 years
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Manipulation
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Includes any untrue statement of a material fact ; any omission of a material fact necessary to make the stmts made not misleading. Includes:
1. Insider trading
2. Painting the tape
3. Matched orders
Someone who suffers as a result of manipulation may sue w/in 3 years of activity and 1 yr of discovery
1. Insider trading
2. Painting the tape
3. Matched orders
Someone who suffers as a result of manipulation may sue w/in 3 years of activity and 1 yr of discovery
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NYSE Rule 435(5)
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Generally prohibits the circulation of rumors
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Schedule 13e-3
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Filed when effect of a stock repurchase is to cause any class of security to be held by less than 300 persons or to cause the delisting of the stock on an exchange or Nasdaq
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Stock Repurchases
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Material changes must be filed. Report of results of txns must be filed no later than 10 days after termination
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SEC Rule 10b-18
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Controls how an issuer, or an affiliate, may buy its own stock in the 2ndary mkt to protect against manipulation. Safe Harbor and block purchase rules.
In periods of mkt turbulence, timing ; volume rules are relaxed following a mkt-wide trading suspension, but volume may not exceed 100% ADTV
In periods of mkt turbulence, timing ; volume rules are relaxed following a mkt-wide trading suspension, but volume may not exceed 100% ADTV
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Safe Harbor
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If the following conditions are met by an issuer, the SEC will assume co. is not trying to manipulate its own stock px:
1. Use one BD to place bids ; make purchases on any trading session
2. Avoid making purchases at certain times: 1st txn of the day or in the last 30 mins (10 mins if actively traded)
3. Limit the bid price: cannot be higher than the highest independent bid or the last independent txn (whichever is higher)
4. Limit amt of stock purchased on any single day: volume cannot exceed 25% ADTV (exception: once a week can make a block purchase if no other 10b-18 purchases are made that day)
1. Use one BD to place bids ; make purchases on any trading session
2. Avoid making purchases at certain times: 1st txn of the day or in the last 30 mins (10 mins if actively traded)
3. Limit the bid price: cannot be higher than the highest independent bid or the last independent txn (whichever is higher)
4. Limit amt of stock purchased on any single day: volume cannot exceed 25% ADTV (exception: once a week can make a block purchase if no other 10b-18 purchases are made that day)
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Block Purchase
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Quantity of stock that either:
1) has purchase price of $200k or more
2) is at least 5k shares with purchase price of $50k or more
3) is at least 20 round lots that total 150% or more of the trading volume for that security
1) has purchase price of $200k or more
2) is at least 5k shares with purchase price of $50k or more
3) is at least 20 round lots that total 150% or more of the trading volume for that security
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NYSE Rule 77
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A member of the floor may not:
1. buy or sell securities on stop at or below market
2. buy or sell at the close
3. buy or sell dividends
4. bet on the course of the market
5. buy or sell privileges to recieve securities
1. buy or sell securities on stop at or below market
2. buy or sell at the close
3. buy or sell dividends
4. bet on the course of the market
5. buy or sell privileges to recieve securities
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SEC Rule 10b-5
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A rule of the Securities and Exchange Commission that makes it unlawful, in connection with the purchase or sale of any security, to make any untrue statement of a material fact or to omit a material fact if such omission causes the statement to be misleading.
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Insider Trading and Securities Fraud Enforcement Act of 1988 (ITSFEA)
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Requires B/D to establish/enforce written policies and procedures:
1. A system for monitoring employees personal trading and firm proprietary accounts
2. A watch list
3. To restrict access to files containing confidential info
4. Create information barriers
5. Provide employee training about insider trading
1. A system for monitoring employees personal trading and firm proprietary accounts
2. A watch list
3. To restrict access to files containing confidential info
4. Create information barriers
5. Provide employee training about insider trading
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Consequences of Insider Trading
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1. Civil penalties up to 3x the gains or losses avoided & may have to give up profits earned
2. Criminal penalties up to $5M or 20 years for individuals. Corporations up to $25M/violation
3. Bounties which may not exceed 10% of the penalty
2. Criminal penalties up to $5M or 20 years for individuals. Corporations up to $25M/violation
3. Bounties which may not exceed 10% of the penalty
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Office of Supervisory Jurisdiction (OSJ)
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Any office at which one or more of the following functions take place:
1. Order execution or market making
2. Formation or structuring of public offerings or private placements
3. Custody of customer funds or securities
4. Final approval of new accounts on behalf of the member 5. Review and endorsement of customer orders
6. Final approval of advertising and sales lit
Must be inspected annually.
1. Order execution or market making
2. Formation or structuring of public offerings or private placements
3. Custody of customer funds or securities
4. Final approval of new accounts on behalf of the member 5. Review and endorsement of customer orders
6. Final approval of advertising and sales lit
Must be inspected annually.
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Branch Office
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Where one or more of the firms assoc personnel regularly conduct the business of effecting txns in the purchase or sale of any security. Must be inspected annually.
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Currency Transaction Reports (CTRs)
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The form (FinCEN Form 104) that is required to be filed for daily customer cash transactions that cumulatively exceed $10,000
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Currency ; Monetary Instrument Transportation Report (CMIR)
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Filed whenever anyone physically transports, sends, or receives cash, cash equivs., or insts. of more than $10K into or out of the US
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Suspicious Activity Reports (SARs)
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Filed if a txn has involved at least $5K and the firm knows or has reason to believe the funds are derived from an illegal activity, designed to avoid filing of other forms, or have no legitimate lawful purpose. Filed no later than 30 days after activity is discovered.
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Verifying Customers Identities
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1. Customers cannot be on the Office of Foreign Assets Control list
2. Firms must have a Customer Identification Program (CIP)
3. Penalties for violating AML laws are up to 20 years and $500K or 2x amt of money involved
2. Firms must have a Customer Identification Program (CIP)
3. Penalties for violating AML laws are up to 20 years and $500K or 2x amt of money involved
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Foreign Corrupt Practices Act (FCPA)
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Prohibits American companies from making corrupt payments to foreign officials for the purpose of obtaining or keeping business. Non-US co.s that issue stock or trade as an ADR in the US are subject. If improper pmts are discovered in the due diligence process, must be disclosed to the SEC and DoJ
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Handling Accounts of Employees of Other Member Firms
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Firm must do due diligence to determine such txns wont adversely affect the interests of the firm.
1. Must notify the member firm of the intention to open the acct
2. Send duplicate confirmations ; stmts if requested
3. Notify the person opening the acct that these procedures will be followed
4. Employee must give written notice of intention to open acct to both the member firm and the executing firm
1. Must notify the member firm of the intention to open the acct
2. Send duplicate confirmations ; stmts if requested
3. Notify the person opening the acct that these procedures will be followed
4. Employee must give written notice of intention to open acct to both the member firm and the executing firm
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Private Securities Transactions
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Txns outside the regular scope of an associated persons employment with a member firm & may include participation in pvt placements, traditional public offerings, & arranging loans
- If assoc person is compensated, member must approve txn in writing & must be recorded on the members books
- If not compensated, member may require assoc person to adhere to specific conditions in order to participate
- If assoc person is compensated, member must approve txn in writing & must be recorded on the members books
- If not compensated, member may require assoc person to adhere to specific conditions in order to participate
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Sharing in Accounts
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Allowed if:
1. Employee made a financial contribution
2. Sharing of P;L is in direct relationship to employees financial contribution
3. Employee has received written consent of member firm carrying the acct
1. Employee made a financial contribution
2. Sharing of P;L is in direct relationship to employees financial contribution
3. Employee has received written consent of member firm carrying the acct
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Borrowing & Lending Practices with Customers
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Not permitted from registered individuals unless there are written procedures permitting such activity and one of the following provisions is met:
1. Customer & RR are immediate family members
2. Customer is a financial institution regularly in the business of extending credit or providing loans
3. Both parties are registered with the same firm
4. Loan is based on a personal relationship
5. Loan is based on a business relationship independent of customer-broker relationship
1. Customer & RR are immediate family members
2. Customer is a financial institution regularly in the business of extending credit or providing loans
3. Both parties are registered with the same firm
4. Loan is based on a personal relationship
5. Loan is based on a business relationship independent of customer-broker relationship
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Written Complaints
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Each OSJ required to keep a separate file of all. File must also contain a description of actions taken in response. Records must me maintained for 4 years. Statistical and summary info must be provided on a quarterly basis, due on the 15th of the month following the end of the calendar quarter.
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SRO Reporting Requirements
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No later than 10 business days after the firm knows or should have known of certain activities occurrences. Long list on 1-20.
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Code of Procedure
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FINRAs disciplinary process.
1. Dept of Enforcement believes member firm has violated a rule or law under its jurisdiction
2. Dept requests authorization from Office of Disciplinary Affairs to issue a complaint
3. Respondent must file response w/in 25 days of receiving complaint or a second notice will be issued. Failure to answer 2nd notice w/in 14 days can be treated as an admission to the allegations
4. Respondent may request a hearing, held by a Hearing Panel of an Officer ; 2 panelists, apptd by the Chief Hearing Officer. The Hearing Officer is an attorney employed by FINRA
5. Hearing Officer must provide 28 days notice of the hearing to the respondent
6. W/in 60 days after the Hearing Panel has stopped accepting evidence, it must render a written decision arrived at by a majority vote
7. Anytime before the hearing has begun, respondent may offer a settlement. If settlement is accepted, the respondent waives the right to appeal. If rejected, hearing would proceed to a conclusion
1. Dept of Enforcement believes member firm has violated a rule or law under its jurisdiction
2. Dept requests authorization from Office of Disciplinary Affairs to issue a complaint
3. Respondent must file response w/in 25 days of receiving complaint or a second notice will be issued. Failure to answer 2nd notice w/in 14 days can be treated as an admission to the allegations
4. Respondent may request a hearing, held by a Hearing Panel of an Officer ; 2 panelists, apptd by the Chief Hearing Officer. The Hearing Officer is an attorney employed by FINRA
5. Hearing Officer must provide 28 days notice of the hearing to the respondent
6. W/in 60 days after the Hearing Panel has stopped accepting evidence, it must render a written decision arrived at by a majority vote
7. Anytime before the hearing has begun, respondent may offer a settlement. If settlement is accepted, the respondent waives the right to appeal. If rejected, hearing would proceed to a conclusion
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Sanctions
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Could be censured, fined, suspended, or expelled.
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Appeals
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Respondent has 25 days to file an appeal with the Natl Adjudicatory Council (NAC) which has the power to affirm, modify, reverse, increase or decrease any santion or impose any other fitting sanction. After that, may appeal a final disciplinary action to the SEC, then to a federal court
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Letter of Acceptance, Waiver, and Consent (AWC)
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May be sent by the Dept of Enforcement if the Dept believes a violation has occurred and the member or associated person does not dispute the violation. If rejected, proceedings are as usual
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Code of Arbitration
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Concerned with the settlement of disputes through arbitration and requires that disputes between members and other member or clearing houses to be settled by arbitration.
1. Reqd if a public customer wishes to arb a dispute with a member , but not vice-versa
2. A cust may initiate arb by filing a Submission Agreement of Claim
3. The Natl Arb Committee will appoint a panel of 1-3 arbitrators to hear the dispute. If a customer is involved, the majority will be public arbitrators unless parties agree otherwise
4. Disputes involving $25K or less eligible or simplified arb with only 1 arbitrator and decisions based upon written submissions only. Auto for disputes only involving securities industry participants
5. Any awards granted by an arbitrator must be paid w/in 30 days
1. Reqd if a public customer wishes to arb a dispute with a member , but not vice-versa
2. A cust may initiate arb by filing a Submission Agreement of Claim
3. The Natl Arb Committee will appoint a panel of 1-3 arbitrators to hear the dispute. If a customer is involved, the majority will be public arbitrators unless parties agree otherwise
4. Disputes involving $25K or less eligible or simplified arb with only 1 arbitrator and decisions based upon written submissions only. Auto for disputes only involving securities industry participants
5. Any awards granted by an arbitrator must be paid w/in 30 days
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Mediation
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Arb is popular so long delays. Alternative with a neutral mediator. First meet in a joint session then individually in caucuses. More of a compromise than a win or lose situation.
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Schedule 13D & G
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When any person or group acquires more than 5% of an issuers equity securitiesm they must notify the issuer, the exchg, ; the SEC w/in 10 days
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Schedule 13F
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Qtrly filings when inst. mgrs. exercise investment discretion over at least $100M in equity securities
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Proxy Statements on Form 14A
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Contains info to be voted on at the annual shareholder meeting
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Form 3, 4 ; 5
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Beneficial ownership reports of directors, officers, and owners of 10%+ (insiders)
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Form S-1
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Registration form used for most IPOs ; contains all relevant info regarding the issuers important disclosures
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Form S-3
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Short form registration. Min rqmt to use an S-3 is $75M of public float in voting & nonvoting common equity. Large public companies (like WKSIs) will use S-3s to file a shelf-registration that will permit an issuer to sell securities over a 3 year period
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Form S-4
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Filed when securities are to be issued in connection with a merger
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Schedule 13e-3
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Filed when going private to make certain disclosures to shareholders
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Schedule TO
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Reqd to be filed when any person who makes a tender offer becomes the owner of more than 5% of the company
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American Depositoary Receipts (ADRs) or Shares (ADS)
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Used to facilitate the trading of foreign stocks in the U.S. by representing a claim to foreign securities. Traded on exchg or OTC. Held by US banks abroad. Priced in USD and divs paid in USD. Dont directly receive preemptive rights ; exposed to foreign currency risk
1. Sponsored - co pays depositary bank to issue shares in the US so it can be listed on an exchg
2. Unsponsored - will trade on OTC mkt on a private quotation svc called the Pink Sheets
3. Global Depositary Receipt (Share) - same as ADR except generalized (other country)
1. Sponsored - co pays depositary bank to issue shares in the US so it can be listed on an exchg
2. Unsponsored - will trade on OTC mkt on a private quotation svc called the Pink Sheets
3. Global Depositary Receipt (Share) - same as ADR except generalized (other country)
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Nominal Yield
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Stated, fixed coupon (annual int pmt)
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Current Yield
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(Annual Int Pmt)/(CM Px)
Issue: Doesnt take into account px appreciation on a discount bond
Issue: Doesnt take into account px appreciation on a discount bond
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YTM
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Measures the investors total overall return ; most widely quoted type of yield for bonds
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Sinking Funds
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Fund set up by issuer into which monies are deposited. Used to redeem a portion of the bonds beginning a few years prior to maturity. Ensures that the debt will be retired in an orderly fashion and enhances the safety ; liquidity of the issue
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Summary of Yield Relationships
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Par: NY = CY = YTM
Discount: NY ; CY ; YTM
Premium: NY ; CY ; YTM
Discount: NY ; CY ; YTM
Premium: NY ; CY ; YTM
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Trust Indenture Act of 1939
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A corporation issuing more than $10M in debt must provide an indenture (agreement) between the issuer and a trustee who will act on behalf of bondholders (usually a bank or trust co.)
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Bond Indenture
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Consists of two parts:
1. Protective Covenants
2. What happens if the issuer defaults
1. Protective Covenants
2. What happens if the issuer defaults
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Collateral Trust Bonds
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Bonds secured by stocks or bonds
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Subordinated Debentures
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Junior claim on assets compared to outstanding secured bonds
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Guaranteed Bonds
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Bonds secured by a guarantee of another corporation to pay int. ; principal if necessary (ex: parent ; subsidiary)
