Unit 2 - Other Types of Equities and Corporate Actions

American Depository Receipts

A type of equity security designed to simplify foreign investing for U.S. investors, created when common shares in the foreign company’s home market are purchased by a U.S. depository bank then deposited in a foreign branch of that bank

Rule 144

Part of the Securities Act of 1933 that restricts the sale of restricted securities and securities issued to control persons/insiders

Unregistered securities

Securities not registered with the SEC when first issued

Restricted securities

Securities initially acquired through means other than a registered public offering

Registered public offering

An offer and sale of a security that has been registered under the Securities Act

Private placement

The sale of securities directly to a small group of qualified investors rather than to the general public

Control stock

Stock owned by directors, officers, or persons who own or control 10% or more of the issuer’s voting stock

Form 144

Form used to determine the number of shares control persons may sell over a 90-day period

Additional public offering (APO)

An additional primary offering where a corporation issues more common shares to raise more capital

Stock rights (or preemptive rights)

Rights that allow existing stockholders to maintain proportionate ownership by buying newly issued shares before they are offered to the public

Subscription period

The time period during which the holder of a right may choose to exercise that right, ending on the expiration date

Warrant

A certificate granting its owner the right to purchase securities from the issuer at a specified price

Stock dividends

Additional shares of common stock given to shareholders instead of cash, functioning like a smaller-scale stock split

Stock split

When a company divides each existing share into several shares, increasing the number of shares while keeping total value the same

Forward stock split

A split that increases the number of shares and reduces the price per share without changing total market value

Even split

A split where investors receive a certain number of shares for each share owned, such as 2

Uneven split

A split with a ratio where the second number is something other than one, such as 3

Reverse split

A split that reduces the number of shares outstanding and increases the price per share proportionally

Delisting

When a stock is removed from an exchange because it does not meet listing criteria, such as having too low of a stock price

Corporate actions

Actions a corporation may take that impact the value of its shares or the number of outstanding shares

Merger

When two or more companies combine operations and assets, and shareholders receive shares of the combined company

Acquisition

When one company takes over the operations and assets of another company

Spin-off

When a corporation forms a subsidiary company from some of its assets and operations, and shareholders receive shares of the new company

Buyback

When a company buys its own outstanding shares in the open market, reducing the number of shares available

Tender offer

An offer to buy a security directly from the owners of the security, not through secondary markets

Proxy

A limited power of attorney that allows another person to vote on a stockholder’s behalf

Proxy solicitations

The process of asking shareholders for permission to vote their shares on company matters

Street name

When stock is registered in the broker-dealer’s name rather than the customer’s name