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119 Cards in this Set

  • Front
  • Back
Securities Act of 1933
Focuses on registration and sale of securities
Securities Exchange Act of 1934
Focuses on regulation of transactions in the secondary markets (anti-manipulation), B/D registration, and oversight of self-regulatory organizations (SROs)
SEC Rule 10b-18
Controls how and issuer can buy its own stock in the secondary market.
1. Use one B/D per trading session
2. No purchases first of day, or last 30 mins (10 mins if actively traded)
3. No price higher than highest independent bid or last independent transaction price
4. Max volume of 25% ADTV, unless block trade
i) Value > $200,000
ii) > 5,000 shares for > $50,000
iii) 20 round lots > 150% ADTV
NYSE Rule 77
A member of the floor can't:
1. Buy/sell 'on stop' at or below market
2. Buy/sell at the close
3. Buy/sell dividends
4. Bet on the course of the market
5. Buy or sell privileges to recieve securities
Suspicious Activity Report (SAR)
aka. FinCEN Form 101. Filed if transaction involves > $5,000 and is suspicious, and must be filed within 30 days of activity discovery
Regulation FD
Bars issuers from disclosing MNPI to B/D employees, shareholders, etc. If done intentionally must disclose to public immediately. If accidental, issuers have 24 hours to disclose by 8-K or other broad public method
Schedule 13D
What someone files if they acquire greater than 5% of a company's equity, and must notify issuer and SEC within 10 calendar days
Schedule 13G
Same as 13D but normally for institutional investors with no intent to influence issuer

filed within 45 days of the end of the year

Schedule 13F
Quarterly filing for institutional investment managers with securities portfolios > $100 million
Form S-1
Registration statement for IPOs
Form S-3
Short-form registration statement for WKSIs used to file a shelf. Require > $75 million public float of voting and nonvoting common
Form F-3
Same as Form S-3 but for foreign issuers
Form S-4
Registration statement for securities issued in connection with a merger. A proxy also needs to be issued for shareholders to vote
SEC Rule 14c-2
Issuers must furnish a proxy to shareholders > 20 days before annual meeting (40 days before if done online)
Preliminary Proxy
Must be filed with SEC 10 days before definitive proxy is sent to shareholders unless electing BOD, accountants, or other minor shareholder proposals
Schedule TO
What someone files if they acquire greater than 5% of a company's equity, as soon as practical on commencement
Rule 134
Permits tombstones advertisements for issues
Rule 135A
Permits generic advertising on how investment companies work
Regulation S-K
Establishes guidelines for preparing projections and registration reports. The basis must be reasonable and the time frame must be appropriate. Must also disclose # of BOD meetings during fiscal year and the names of Directors who attended < 75%
Regulation S-X
Establishes the form, content, and requirements of financial statements
Rule 137
B/D can publish research reports for company when not acting as underwriter as long as issuer not a black check/shell/penny company in the last 3 years
Rule 138
B/D can publish research reports on non-equivalent securities (On Security A if underwriting Security B)
Rule 139
If issuer is a reporting company, B/D may publish research when acting as underwriter if underwriter is continuing regular coverage (no coverage initiation)
Rule 147
Exempt securities sold on an intrastate basis.
i) Company must be domiciled in the state with 80% of assets/revenues/issue proceeds coming from that state
ii) 100% of issue sales must be made to state residents
iii) Residents who buy can't sell out of state for 9 months
Regulation A
SEC regulation that exempts public issues < $5 million in 12 months from most registration requirements
Section 4(2) Exemption
Registration is not required for transactions that do not involve a public offering or public solicitation
Section 4(6) Exemption
Registration is exempt for transactions < 5 million and sold only to accredited investors
Regulation D
SEC rules concerning private placements and defining related concepts like accredited investors
Rule 504 (Reg D)
Exempts offerings less than $1 million in any 12 month period, does not require disclosure, and unlimited purchasers
Rule 505 (Reg D)
Exempts offerings up to $5 million in any 12 month period to an unlimited number of accredited investors
Accredited Investor
Has net worth > $1 million, or has had an annual income of $200,000 or more in last two years ($300,000 with a spouse)
Rule 506 (Reg D)
Allows private placement of unlimited amount of securities (accredited and sophisticated)
Rule 144A
Exemption for purchase of restricted securities by QIBs (need > $100 million in securities)
Regulation S
Offshore offerings by US issuers exempt from registration as long as no offers made to US investors (debt may be resold into US after 40 days, and equity after 1 year)
SEC Rule 14e-3
Prohibits trading of MNPI regarding a tender offer
SEC Rule 14d-9
Filed by certain individuals (issuer, other owners of company) that includes recommendations or solicitations related to a tender offer no later than 10 days from date of tender offer
SEC Rule 14e-5
Persons engaged in a tender offer may not purchase common stock or convertible securities when the tender is open. Tendering stock one does not own is also prohibited

Acceptable when acting as an agent

SEC Rule 14e-1
A person may not extend length of a tender unless they issue a notice of extension through press release no later than 9:00am ET on next business day after schedule expiration
SEC Rule 14e-2
Subject company must recommend shareholders to accept/decline, no opinion, or can't opine
SEC Rule 14d-10
A bidder must treat all shareholders (retail and institutional) equally with the same tender prices and time period
Rule 145
Securities offered as a result of business combinations (M&A) must be registered with the SEC (doesn't cover PE)
Regulation M-A
Relaxes disclosure rules related to tenders and M&A transactions
Hart-Scott-Rodino Act
Requires parties planning M&A to file notice with the FTC and Justice Department, with a subsequent 30 days holding period while waiting for approval. Required if:
i) One company has > $130.3 million in revenues/assets and the other at least $13 million
ii) Transaction is valued at more than $260.7 million

Golden Parachute

payment made to a senior officer of a company in the event of a takeover, or a change in control. IRS rules companies paying excess golden parachute payments (defined as those greater than three times the individual's average annualized compensation as computed over the prior five years) could potentially lose the corporation's tax deduction for such payments, and expose the recipient to an excise tax of 20%

How many days must the tender offer be kept open?
20 business days, but must be kept open for an additional 10 business days after the notice f change in the tender offer
Section 338(h)(10)
Allows a stock sale to be treated as an asset sale for tax purposes if certain conditions are met. The purchaser benefits through being able to step-up (increase) the value of the target's assets to their fair value, rather than using their book value. The purchaser receives this stepped-up basis without being required to pay tax on the difference between the book value and fair value. Purchaser will have a lower tax when the assets are sold. The seller that will be required to pay tax on the difference between those two values.
No-shop provision

Provision in the preliminary proposal to go seek one buyer, cannot "shop around"

Go-shop provision

Provision in the preliminary proposal to go seek additional bidders

Shareholder's Rights Plan

Defensive tactic used by target companies to prevent hostile takeovers aka poison pill, makes it more expensive

Section 338(h)(10)

Tax code that allows a stock sale to be treated as an asset sale for tax purposes Purchaser gets tax breaksseller has to pay taxes

Staggered Boards

A plan that staggers the term length of board members so hostile takeovers take longer to acquire board seats

Letter of Intent

Term sheet or MOU, description of transaction, usually one of the last steps in the M&A process

Section 363


One-step merger


two-step merger

1st step tender a lot of the targets outstanding shares, and then enter into a short temr merger agreement. Usually faster than 1-step because no proxy period and 2nd step (short termmerger) does not require shareholder approval

Indemnification Basket

The seller does not have any liability until the amount of the buyer's losses exceeds a certain dollar amount of the purchase price if there is a breach of contract

Indemnification Cap

The seller's liability is limited to a maximum amount based on the purchase price if there is a breach of contact

reverse merger


Stalking Horse


Section 363

Asset sale in bankruptcy, can only be conducted by a DIP or trustee, not a credit committee

Standstill agreement

hostile takeover defense where an unfriendly bidder agrees to limit its holdings of a Target or allow the repurchase of shares for a premium

Rule 165

Written Communication is permitted after there is public announcement of a business combination

If both companies are publicly traded they both have to file with the SEC


Corporation is split into many different pieces, to split up shareholders, different from a spin off

no tax liability too

splits up shareholder's

Stock Sale

Shareholder's pay tax not coporation

Asset Sale

Stepped up basis for Purchaser more advantageous for purchaser because of less tax

seller is the corporation

Entire Class of Creditors

two thirds of total money owed and one half of creditors

Rule 10b-18

Safe Harbor, prevents issuers from manipulating stock prices via various stipulations including restrictions on trading during certain time periods and only using one B/D

Price cannot be higher than the higher of the last independent bid or transaction price

Volume is limited to less than 25% of the ADTV

Different B/D can be used in after hours trading

loan from others

1.Family Members

2.Bank or financial institution or other lending business

3.Both parties registered with same firm and based on personal outside relationship

4.Based on a business relationship outside of the BD

1- no report 2-4 report to firm

Regulation M

Prevents upward price manipulation


Supsicious Activity Report, if transaction involves at least $5000, filed no later than the 30th calendar day after activity was discovered

Under no circumstance will the subject be informed.

Code of Arbitration

-Both parties agree that in the event of arbitration, the decision reached by the panel will not be contested

-A majority of the arbiters will be from OUTSIDE the industry

-The arbiters do not need to provide the reasoning behind any award

-Each party is vacating its right to seek a resolution through a civil court proceeding

Statutory disqualification

Expelled or suspended from SRO

Having a registration denied or revoked by SEC

Violating any laws of securities or commodities or any rule of MSRB

Being convicted of felony or misdemeanor within the last 10 years

Failing to supervise a subordinate who vioaltes rules

May not be associated with a FINRA member firm in any capacity if subject to stat dis

Form U5

Supplied within 2 days

Must be filed within 30 days of terminiation

States whether the termination was voluntary or not

ended her affiliation with a FINRA member firm must requalify by examination if her registration had been inactive for more than two years.

Form U4

Must be filed within 30 days

Non Sponsored Private Securities Transactions


Compensation - need approval and to notify

No compensation - just notify

Code of procedures

Used to discipline a person for violating FINRA SEC or whatever rules

Original jurisdiction rests with a Hearing Panel. It is the Hearing Panel that holds hearings, considers complaints, and assesses penalties. If a respondent disagrees with the findings of the Hearing Panel, she may appeal to the National Adjudicatory Council, which has both appellate and review jurisdiction.

Code of procedures cont.

Must file a response after 25 days of receiving complaint, if not then 14 days after 2nd notice

Failure to respond after second notice time period is treated as admission to the allegations


office of a member firm that is specifically authorized to supervise registered representatives under written supervisory procedures, annual inspection

an office where order execution takes place

An office solely involved with the structuring of initial public offerings

An office maintaining custody of a client's funds or assets

responsible for filing complaints

Non-supervisory branch - 3 years

non-branch offices - "regular" inspection

Continuing Education

All registered persons are required to complete the Regulatory Element

There is both a Regulatory and a Firm Element requirement

The person will have all registrations deemed inactive if he fails to complete the Regulatory Element of the Continuing Education program

Start 2 years after initial registration and then every 3 years after that

opens an account at another member firm
must notify the other firm in writing prior to opening the account, and must furnish the employing firm with duplicate confirmations and statements, if requested

Prior to an employee of a member firm opening an account or placing an initial order for the purchase or sale of securities with another member, the employee must provide written notification to both the employing member and the executing member regarding his association with the other member.

Written Complaints

must be filed and along with a memo describing any action taken in response to the complaintkept for a minimum of 4 years

Member firms are required to report to the appropriate SRO statistical and summary information regarding customer complaints, on a quarterly basis


Under $100 to clients unless, part of business transaction attend meal/sporting event with them

Employees do no apply under this rule, can be any amount and unrelated to their performance


Office of Foreign Asset Control

U.S. economic sanctions and embargos with a number of countries

required to block the transaction and report it to OFAC within 10 days

Painting the Tape

A form of market manipulation where participants sell and buy among themselves to create the illusion of trading activity

prohibits corrupt or improper payments to foreign government officials for the purpose of obtaining business

non-U.S. companies that issue stock or trade as an ADR in the U.S. are subject to the FCPA


The first appeal of the finding of a hearing panel must be made within 25 days to FINRA's National Adjudicatory Council (NAC). Appeals of NAC findings may then be made to the SEC, whose findings may be appealed to the federal court system

Selling Away

When a broker solicits you to purchase securities not held or offered by the firm

engages in private securities transactions, selling securities outside his regular scope of employment without his firm's approval

Documents B/D are required to have records

all retail communications, institutional communications, research reports, and correspondence (including e-mail and instant messages) used by a member firm must be kept on file for a minimum of three years

SEC Filings are not required to be kept on hand by the firm

Non branch office

sole function is to solicit investment banking services confers nonbranch status

"regularly" checked

Branch Office

Every 3 years to be checked

Lagging Economic Indicator

an indicator that is lagging, confirms market data or trends, confirms trends in the economy

ie unemployment

Leading economic indicator

indicators that predict future, ie bond or equity stuff because traders price in the future, money supply

Coincident indicator

occur at the same time that it happens in the economy

Public float

Number of shares outstanding less the shares of restricted stock

counts the publicly traded stocks and not shares owned by company insiders


negative interest rates


reduced inflation (still positive though) just to a lesser extent


no economic growth


No economic growth, but prices are rising

Keynesian Policy

Fiscal policy is what drives economic growth, government spending

Supply Side Economics

Smaller governments ie less taxes drive the economy, corporations and people a like will use extra money to buy stuff and stimulate the economy

fiscal conservatism

Treasury Stock

Shares that are bought back from outside listed on a company's balance sheet, should not be included in the calculation of market cap or shares outstanding (component of market cap)

PEG Ration

P/E Growth ratio, low peg indicates that it is a value buy based on its growth trajectory


Growth at a reasonable price

C Corporation

Unlimited number of shareholders

Pay taxes on dividend gains

Pay taxes on net income -double taxed

Operations and reporting requirements more complex than partnership

S corporation

No more than 100 shareholders

1 class of stock outstanding

must be a domestic corporation

pass through losses and gains to shareholders only taxed once

Distributions in excess of basis are taxed as capital gains

May elect to be taxed as a partnership


If 90% of ordinary income is distributed to investors than only taxed by shareholders

95% of gross inc must be from dividends, interest, and rents

75% of gross income must be from real property income

No more than 30% from stock sale

REIT Dividends taxed as ordinary income

at least 100 shareholders

5 or less individuals may not own more than 50%

American Depository Receipts

Represents a claim to a foreign security with the actual security being held in a bank

Unsponsored trades in OTC does not pay costs

Sponsored pays cost but trades on an exchange

Preemptive rights

existing shareholders being able to buy securities before they are offered to the general public to preserve percentage of ownership

Global Depository Receipts

can be an ADR or anything other currency, but allows companies to riase capital abroad

Stock Appreciation Right

Do not require employees to put up funds, right to receive the difference between the current market value of the company's stock and a fixed price

Trust Indenture Act of 1939

Legal relationship between a corporate issuer and a trustee for the benefit of the bondholder's

section 11

Fraud with documents

persons other than the issuer are exempt from liability if they can prove that they had no knowledge of the fraud and properly notified

gun jumping

illegal soliciting orders for an IPO before it is filed, during the cooling period aka the filing and effective date

Rule 504

Exemption from registration of up to 1,000,000 in shares and not a blank check company/shell/ penny

green shoe option

Option to allow underwriter's to sell up to 15% more shares


Customer effecting a sale within 30 days of IPO

Rule 104

Stabilizing - The placing of any bid or the effecting of any purchase for the purpose of pegging, fixing, or otherwise maintaining the price of a security

Enterprise Value

Market Cap + debt - cash

market value of debt more accurate than par value

Gordon Growth Model

Stock Value = Div /(req return/ div growth)