Unit 3: The Securities Act of 1933 and the Securities Exchange Act of 1934

Flashcards covering the legal framework of the Securities Act of 1933 and the Securities Exchange Act of 1934, including major exemptions, registration processes, and underwriting rules.

Securities Act of 1933

Also known as the Full and Fair Disclosure Act, its primary purpose is to require full and fair disclosure of all material facts in connection with the sale of securities to the public in the primary market.

Securities Exchange Act of 1934

An act broad in scope that regulates the secondary markets, covering manipulation, short selling, proxies, reporting, broker-dealer standards, and the creation of the Securities and Exchange Commission (SEC).

Exempt Security

Any security exempt by law from having to register with the SEC prior to public sale, such as U.S. government and agency securities, municipal securities, commercial paper, and banker's acceptances.

Rule 145

An SEC rule that exempts certain types of corporate reorganizations, including a stock split, a stock dividend, and a change in par value of existing shares, from registration requirements.

Rule 147

Known as the intrastate exemption, it requires that an issue be offered and sold exclusively to residents of a single state, and that the issuer derives at least $80\%$ of its gross revenue from that state.

Rule 147A

An SEC rule nearly identical to Rule 147 but permitting offers to be accessible to out-of-state residents, such as via internet ads, as long as purchases are limited to in-state residents.

Regulation A Tier 1

Permits securities offerings up to $\$20\text{ million}$ in a $12\text{-month}$ period, including no more than $\$6\text{ million}$ sold on behalf of selling shareholders, subject to coordinated review by states and the SEC.

Regulation A Tier 2

Permits securities offerings up to $\$75\text{ million}$ in a $12\text{-month}$ period, requiring audited financial statements and annual, semiannual, and current report filings.

Accredited Investor

Defined under Rule 501 of Regulation D as an individual with an annual income of $\$200,000$, a joint income of $\$300,000$, or a net worth of $\$1\text{ million}$ exclusive of primary residence equity.

Rule 506(b)

A Regulation D safe harbor allowing an unlimited number of accredited investors and up to $35$ nonaccredited investors to participate in a private placement, provided no general solicitation occurs.

Rule 506(c)

Permits general solicitation in private placements provided all purchasers are accredited investors and the issuer takes reasonable steps to verify their status.

Regulation Crowdfunding

Enables companies to offer and sell securities online through an SEC-registered intermediary to raise a maximum aggregate amount of $\$5\text{ million}$, subject to specific disclosure and resale restrictions.

Restricted Securities

Securities acquired through a Regulation D private placement or other non-public offering that must be held for at least $6\text{ months}$ (reporting company) or $1\text{ year}$ (nonreporting company) before resale.

Control Securities

Securities owned by persons affiliated with the issuer, such as directors or executive officers, which are subject to volume limitations under Rule 144 but not holding periods unless also restricted.

Rule 144 Volume Limits

Allows an investor in any $90\text{-day}$ period to sell the greater of $1\%$ of the total outstanding shares or the average weekly trading volume over the past $4\text{ weeks}$.

Qualified Institutional Buyer (QIB)

An institution, such as a pension fund or insurance company, that owns and invests a securities portfolio of at least $\$100\text{ million}$ wholly unaffiliated with the buyer.

Hart-Scott-Rodino Act (HSR)

An amendment to antitrust laws requiring merger or acquisition parties to file information with the FTC and DOJ and observe a $30\text{-day}$ waiting period (or $15\text{ days}$ for all-cash deals).

Regulation M-A

A regulation that provides guidelines for companies involved in tender offers, mergers, and acquisitions, requiring a summary term sheet to be provided to investors.

Tender Offer

A public offer by an entity to buy securities of another company at a fixed price, which must remain open for at least $20\text{ business days}$ from the date of filing.

Short Tender Rule

A regulation prohibiting shareholders from tendering more than their net long position in a target company's stock during a tender offer.

Independent Qualified Underwriter

A bookrunning manager of at least $3$ public offerings of equity securities over the preceding $3\text{-year}$ period, required to assist in offerings involving an affiliated member firm conflict of interest.

Green Shoe Clause

A negotiated provision allowing a syndicate to sell up to $15\%$ more shares than initially registered within $30\text{ days}$ of an IPO's initial trading.

Shelf Registration (Rule 415)

Permits issuers to register securities and then offer them on a delayed or continuous basis for up to $2\text{ years}$ ($3\text{ years}$ for a WKSI) to match financing needs with market conditions.

Well-Known Seasoned Issuer (WKSI)

An issuer with at least $\$700\text{ million}$ in common equity held by nonaffiliates or one that has issued $\$1\text{ billion}$ in nonconvertible debt over the preceding $3\text{ years}$.

Preliminary Prospectus (Red Herring)

A disclosure document distributed during the cooling-off period to solicit indications of interest; it lacks the final offering price, underwriting spread, and effective date.

Emerging Growth Company (EGC)

A company defined by the JOBS Act as having total annual gross revenue of less than $\$1.235\text{ billion}$, adjusted periodically for inflation.

Schedule 13D

A beneficial ownership report that must be filed with the SEC within $5\text{ business days}$ of an entity acquiring more than $5\%$ interest in a public issuer of stock.

Form 13F

A quarterly report required from institutional investment managers who have discretion over $\$100\text{ million}$ or more in Section $13(f)$ equity securities.

Spinning

The prohibited practice of allocating highly sought-after IPO shares to individuals positioned to direct future securities business to the member firm.

Flipping

The sale of new issue shares, such as a hot stock, within $30\text{ days}$ after the offering date; member firms may attempt to recoup credits from associated persons for such sales.