Stock Lawyer Securities Regulation and Compliance 2 — Questions and Answers
Question 1: What is 'Regulation FD' and what conduct does it prohibit?
- Prohibits front-running by broker-dealers
- Prevents selective disclosure of material nonpublic information by public companies (Correct answer)
- Restricts foreign investment in US securities
- Bars analysts from trading securities they cover
Correct answer: Prevents selective disclosure of material nonpublic information by public companies
Regulation FD (Fair Disclosure) prohibits public companies from selectively disclosing material nonpublic information to certain investors without simultaneously disclosing it to the public.
Question 2: Under the Securities Exchange Act of 1934, which section requires periodic reporting by public companies?
- Section 9
- Section 10(b)
- Section 13 (Correct answer)
- Section 16
Correct answer: Section 13
Section 13 of the Securities Exchange Act of 1934 requires registered companies to file periodic reports, including annual 10-K and quarterly 10-Q forms, with the SEC.
Question 3: What standard of liability applies to a company's auditors in a Section 11 claim under the Securities Act of 1933?
- Strict liability
- Negligence
- Due diligence defense available (Correct answer)
- Intentional misconduct only
Correct answer: Due diligence defense available
Auditors and other experts in a Section 11 claim may assert a due diligence defense by showing they had reasonable grounds to believe the statements were true after reasonable investigation.
Question 4: Which FINRA rule governs suitability obligations of broker-dealers when recommending securities to customers?
- FINRA Rule 2010
- FINRA Rule 4512
- FINRA Rule 2111 (Correct answer)
- FINRA Rule 3110
Correct answer: FINRA Rule 2111
FINRA Rule 2111 (Suitability) requires broker-dealers to have a reasonable basis for believing a recommended security or strategy is suitable for the customer based on their profile.
Question 5: What is a 'prospectus' in securities law?
- A court filing in a securities lawsuit
- A formal document disclosing details of a securities offering to potential investors (Correct answer)
- An SEC enforcement order
- A broker's internal research report
Correct answer: A formal document disclosing details of a securities offering to potential investors
A prospectus is a formal legal document that provides details about an investment offering to potential investors, including financials, risk factors, and management information.
Question 6: Which regulation allows large institutional investors to trade restricted and control securities among themselves without SEC registration?
- Regulation A+
- Regulation D
- Rule 144A (Correct answer)
- Rule 147
Correct answer: Rule 144A
Rule 144A provides a safe harbor exemption allowing the resale of restricted securities to qualified institutional buyers (QIBs) without SEC registration.
Stock Lawyer Securities Regulation and Compliance 2
What is 'Regulation FD' and what conduct does it prohibit?