First Review

Regulation D

Provision in '33 act concerning SEC rules concerning PRIVATE PLACEMENTS and defining related concepts such as ACCREDITED INVESTOR. - provides exemptions for private companies from filing requirements

Who is exempt under Reg D offering?

Institutional investors, private business development companies, tax exempt organizations, directors/partners of the issuer, ppl with 1 million dollar net worth or incomes over 200k, trust/charitable organizations with total assets in excess of 5,000,000

rule 504 offering

Cannot exceed $5,000,000

Rule 506 (b) Offering

Investors can continue to conduct "quiet" private placements without using general solicitation..avertising, but non-accredited investors may participate if they are provided with disclosure info about the issuer, ussually in a PPM - to no more than 35 sophisticated investors, plus an unlimited number of accredited ones

Securities under rule 506 are

restricted - when investors purchase restricted securities, they sign an investment letter and agree to hold the stock for at least 6 months prior to the sale (NOT good for investors concerned w/LIQUIDITY)

New Rule 506 (c) Offering

- Issuers May use General Solicitation/Advertising (internet, TV)- ALL purchasers must be Accredited Investors (NOT sophisticated) which the Issuers must take reasonable steps to verify

SEC Rule 144

Sets forth conditions under which a holder of Unregistered securities may make a public sale without filing a registration statement with the SEC- Resale of Restricted (unregistered/non-registered) Stock

Rule 144 requires

restricted securities are owned/paid for 6 months prior to sale, sales in any 90 day period are limited to 1% of outstanding stock or avg trading volume of past 4 weeks (whichever is greater) - transactions must be sec report @ sale

Restricted Shares

Shares that have been acquired through a private placement and are NOT Registered

Control Shares

Shares acquired by an affiliated per or control person of the company, such as an officer or director- Control Shares May or May Not be Registered

SEC Rule 144 A does which of the following?

allows sale of restricted(unresgistered) securiteis to qualified institutional buyers during the 6 month restricted period (QIBS are insurance companies, banks, rural business invesmtent compas, LLC's, and trust funds - NO INDIVIDUALS)

SEC rule 145

Applies to the registration of transactions where an "Offer to Sell" or "Offer for Sale" would be considered to have been made as part of a merger, consolidation, or stock reclassification (DOES NOT require registration with the SEC for changes in Par value or stock splits)

SEC Rule 147

- covers Intrastate Offerings- Sales Limited to Only residents of the same state, for 9 Months from the last sale by the issuer- exempt from normal registration requirements

Blue Sky Laws

State Laws that prohibit misrepresentations, misleading statements, and sales by person not registered or licensed in the state. Blue Sky Laws do not prohibit sales of securities of non-U.S. issuers.

For a security to be sold in a state, the security must either be:

registered in the state, exempt from registration in that state, or a federal covered security listed on a national securities exchange

for a RR to sell securities in a state

the RR must be registered in the state

Prohibitions Relating to Interstate Commerce and the Mails

Unless a registration statement has been filed for an offering, it is unlawful to -provide info across states about the offering

Exchange Offer

an offer by a company to exchange outstanding shares of common stock or bonds for other securities offered by the company

tender offer

offer to buy shares made by a prospective buyer directly to a target corporation's shareholders, who then make individual decisions about whether to sell

Transfer on Death (TOD)

individual account with a named beneficiary-assets transferred directly to the named beneficiary upon death of account holder (NO PROBATE)

Joint tenants with right of survivorship (JTWROS)

A form of joint ownership of an account whereby a deceased tenant's fractional interest in the account passes to the surviving tenant(s). It is used almost exclusively by husbands and wives.

Tenants in Common

shared ownership of a single property among two or more persons; interests need not be equal and no right of survivorship exists (upon death pass to estate and not other)

Corporate Accounts

-a RR that establishes this type of account must first get: 1. the business' legal right to open an investment account2. An indication of any limitations that the owners, stockholder, a court, or any other entity has placed on the securities in which the business can invest3. Who will represent the business in transactions involving the accountMust also obtain a copy of the corporate charter as well as a corporate resolution

Limited Partnership Accounts

require signature of general partners when establishing a new account but do not require the signature of each limited partner since the general partner(s) manages(s) and controls the partnership

Pattern Day Traders

Customers who execute four or more day trades within five business days. Subject to special margin requirements of $25,000 at all times.

Pattern Day traders are

most concerned with "timing risk", least suseptible to inflationary risk (close positions daily)

Trust Account

Account established by one individual to be held for the benefit of another; creates a fiduciary responsibility. In order for a trustee to establish margin account, it must be authorized in the trust agreement

An investment advisor

Person who is in the business of giving investment advice for compensation (registered under 1940 investment advisors act)

Non-Managed Fee Based Account Programs

-refers to arrangements in which no investment advisory services are provided by the member firm and in which customers are charged a fixed fee and/or percentage of the account's value rather than transaction based commissions

discretionary authority

RR must obtain prior written authorization on a discretionary account agreement designating that the RR, is authorized to trade in the account and obtain the firms approval.

Limited Trading Authorization or Limited Power of Attorney

RR can purchase/sale decisions - cannot withdraw cash or securities from the account, checks must be payable to owner of account

Full Trading Authorization or Full Power of Attorney

can withdraw cash and securities(not unlimited trading privledges though)

Discretionary Accounts

owner may still initiate orders, RR must designated each discretionary order as "discretionary" on the order ticket, authorization is good until revoked in writing by the customer

All discretionary orders must be reviewed by

a principal of the firm

Time and Price Discretion

- Orders where the RR only determines the time when the order will be entered and the price of the security at the time of entry- The broker does not decide which security or how many shares or whether to buy or sell- This type of order does NOT require written discretionary authority from the customer

Buy 100 ABC, whenever you think the price is right

does not require descretionary authorization because RR must decided when to buy and at what price only

Here's 20,000 buy whatever you think is best

authorization required because customer is asking RR to decide what security to buy and how many shares

Time and price discretion are

good for day of entry only


exercise legal rights for benefit of another (trustees, executors, administrators, guardians, custodians)

Fiduciary cannot

grant trading authority to a third party, open a margin account without documentation, or profit share in the account

Officer of Financial institutions

If president of a bank or other officer wishes to open a margin account, they would have to complete a new account report form, and sign a hypothecation agreement but would NOT need authorization from BOARD OF DIRECTORS

Investment clubs do not

qualify for breakpoint discounts from mutual funds

Financial Institutions

Required to invest using a legal list provided by some states or adhere to prudent man rule

Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA)

allow opening of securities account for a minor - typically used to transfer securities or cash to a minor upon reaching legal age and without involving an attorney to establish special trust (ANY ACCOUNT WHICH INCLUDES ADULT AND MINOR MUST BE SET UP LIKE THIS< NOT A JOINT ACCOUNT

Donor must be


Donor can give

securities, cash, mutual fund shares (only fully paid securities) (any amount can be given) (some states permit money, life insurance,e and annuities)

Completion of UGMA transaction occurs when

securities are registered in name of custodian for benefit of the minor

UGMA gift is

completely irrrevocable

UGMA donor cannot

make a gift through last will (inheritance)

Donor does not

pay capital gains taxes on donated securities

For each UGMA account there may only be:

one person as custodian (no joint custodians) one minor as beneficiary

UGMA account is opened with

minor's social security number

UGMA taxes due are paid by

the minor

UGMA gifts incude

only new gifts are allowed, property already owned by minor may not be given, stock certificates must be in name of custodian

UGMA margin accounts

NOT ALLOWED FOR MINORS - short sales also NOT allowed

The custodian must

turn over al property to minor when he reaches age of majority (can receive compensation unless custodian is donor)

Custodian is seeking

capital growth

UGMA checks can never

be drawn in custodians name

Guardian account

for child/adult with disabilities, can't manage their own financial situation

Order tickets must indicate:

buy oor sell, number of shares, discretionary or not lol

confirmations must be sent out

at/before the completion of any transaction in any security

confirmations must show

capacity in which BD acted/settlement date/if security is callable

When trade comparisons between two broker/dealers do not match which of the following is sent?[A] A confirmation[B] A DK notice[C] A Due Bill[D] A Letter of Intent

DK notice

Customers must receive account statements at least


Customer account statements must disclose

current positions, all debit balances, interest and dividend payments

the SIPC is NOT

a government agency

A SIPC Trustee is responsible for which of the following activities?I. Distribution of customer securities.II. The orderly liquidation of a failed firm.III. Notifying customers of a firm in SIPC liquidation.


SIPC covers

500,000 per separate customer account, although not more than 250,000 for a cash claim

If claim exceeds the maximum

customer becomes a general creditor of the firm and securities will be settled at market value on a date that federal court chooses

SIPC provides protection based on

separate customer basis, not a per account basis

Annuities have the objective of

long term capital appreciation

annuity contracts are issued by

Life insurance companies

Separate account in variable annuities consists of

professionally managed mutual funds or other securities, in a tax deferred account

Securities in the separate account are

long term capital appreciating, hedge against inflation

During the accumulation period

earnings are tax deferred until payments begin - investor can withdraw cash value (for surrender charges)

the contract holder (owner of variable annuity) must

recieve a prospectus at the time of purchase, must receive a statement of additional information (if requested_), NOT protected against capital loss in separate account

Variable Annuities are considered

securities, NOT insurance

Variable annuities are sold when

prospectus is delivered

Sales charge breakpoints for investments in variable annuities are based on

total amount invested in annuity


add to cost of purchase of variable contract (must be disclosed to customer before purchase)


personal account for people who are employed/spouses (either tax free or tax deferred) (think of an IRA as a wide container where one can keep stocks, bonds, mutual funds, and other investments)

Traditional IRA

encourage employed individuals to save for retirement w/tax incentivescontributions are tax deductibletaxes on contributions and earnings are deferred

Characteristics of Traditional IRA

Contributions must be made in cash up to April 15th in the year that the deduction is claimedNo age limit on contributions

Trad IRA deductions

individuals who are NOT ACTIVE participants in a retirement plan at work - may deduct all contributions up to liitationsindividuals who are ACTIVE at work - can deduct contributions depending on gross income

Trad IRA earnings

Always tax deferred until withdrawals made

Trad IRA distributions may begin at

age 59.5, are subject to 10% penalty tax except death, disabiliy, medical expenses, first time home, higher education, and medical insurance premiums

Trad IRA distributions are mandatory by

age 72 - no later than April 1st following the calendar year where owner turns 72 - late distributions are 50% taxed

Trad IRA withdrawals are taxed as

ordinary income

Roth IRA (Individual Retirement Account)

An individual retirement account for which contributions are taxed but earnings are never taxed

Roth IRA is good for

people who will be in a higher tax bracket upon retirement

Contributuions to Roth IRAs are forbidden for

those who have income over AGI limitations


No age limit on roth or traditional contributions


less costly version of 401K, easier administratively, small employers w/>100 employees