A secondary offering is the sale of a large block of previously-issued, privately-held stock, which actually requires registration with the SEC, but does not raise capital for the company which issued the shares originally. A secondary offering is a non-dilutive sale of existing shares which were previously held by one, or a few, investors. The proceeds of the sale go to the sellers of the shares and not to the company which issued the shares. Continue reading...
The IAA sought to regulate an industry that was deemed to be of public concern and within the Federal jurisdiction, though it did define some state-specific jurisdictions. It defines investment advisors and made laws dealing with fraud, advertising, non-public client information, disclosures, handling of client funds, and so forth. The Investment Advisors Act of 1940 established definitions for the capacity in which an investment adviser and investment advice could be defined, and made rules concerning the standards by which advisors should operate. Continue reading...
Professional investment advice is highly regulated, and all publications, seminars, correspondence and recommendations between professional advisors and clients must be kept on record and hold up to scrutiny. It is easy to mislead or misinform investors who have not had a chance to educate themselves, and their very livelihoods are at stake if their money is mishandled. Investment advice can be found at the local barber shop, bleachers, and beaches, but those who want to make sure their money is handled correctly will seek professional advice. Continue reading...
The Investment Advisers Supervision Coordination Act of 1996 sought to delegate the responsibility of monitoring investment advisors between the states and the federal government. It amended the Investment Advisors Act of 1940, which required all advisors to register with the SEC. The Dodd-Frank Act further amended the IAA, such that only advisors with assets under management exceeding $100 million had to register with the SEC. The IASC was part of the NSMIA legislation passed in 1996. Up until that point, all advisors were regulated and monitored by the SEC. Continue reading...
The IARD system is maintained by FINRA, and keeps track of all adviser registrations, which states they are licensed to work in, all licenses they hold, and any customer complaints. It simplified the registration requirements of the Investment Advisers Act of 1940. The Investment Adviser Registration Depository (IARD) was established in 2001 to streamline the registration requirements of the Investment Advisors Act of 1940. The act required that all advisers register with the SEC and the states in which they practice. Continue reading...
The Securities and Exchange Commission (SEC) is a governmental regulatory agency established by Congress which polices the practices of the securities industry. Since 1934, the SEC's mission has been to protect investors and the market from malfeasance. FINRA (the 2007 successor to the NASD which was formed in 1939) is a self-regulatory organization in the industry which seeks to keep member firms more than compliant with SEC regulations. Continue reading...
An ATS is a platform separate from an exchange where securities are traded. ATSs provide marketplaces for buyers and sellers to transact in securities, much like a stock exchange. However, they are not available to the entire investment public, and they do not necessarily provide public information on the best prices available to traders within their system. They also do not set rules governing the conduct of subscribers and they perform no self-regulation, while exchanges perform all of these functions. Continue reading...
A resistance line is the inverse of a support line and represents the glass ceiling through which a security price has difficulty breaking through. Resistance lines are calculated as part of analysis methods which use moving averages and standard deviation, or similar calculations, to put a range of probability on the expected movement of a security price, with the resistance line representing the top of that range. Continue reading...
FinCEN is an agency of the Treasury Department responsible for preventing financial crimes, and they have taken a few steps toward creative effective regulations for cryptocurrency transactions. FinCEN is the Financial Crimes Enforcement Network, an office of the Treasury Department, primarily concerned with money laundering and other forms of financial fraud domestically and internationally. It is because of FinCEN’s far=reaching authority that major cryptocurrency exchanges who do business with US citizens will generally require identity and bank account verification, and will impose limits on transaction amounts. In 2013, FinCEN issued guidance that anyone engaged in the transmission or exchange of cryptocurrencies may fall under their jurisdiction to regulate Money Service Businesses (MSBs), meaning you may potentially have to register as a Money Transmitter on the Federal and state level if you frequently engage in cryptocurrency transactions. Continue reading...
In technical analysis, a level of resistance is an imaginary barrier that keeps the price of a security from rising beyond a certain level. Conversely, a level of support is an imaginary barrier that keeps the price of a security from falling beyond a certain level. A resistance line can be thought of as the theoretical glass ceiling that a security price has difficulty breaking through. Resistance lines (along with moving averages, standard deviation, and similar calculations) are used to put a range of probability on the expected movement of a security price, with the resistance line representing the top of that range. Continue reading...
An investment club can be a term used for a group that organizes itself for the purpose of pooling investment dollars and participating in the market, or for a group that meets for informational and educational purposes. Clubs that actually invest sometimes organize themselves as LLCs and establish a system for how to choose and manage their investments as a group. Even though “investment club” may sound like an informal and relatively unregulated way to invest with pooled assets, they are actually subject to regulation by the SEC. Continue reading...
There are many different forms of ownership of a company in the United States. This subtopic describes some of them. Corporations can be privately held or publicly traded. There are also C-Corporations (C-corps), which are the typically large companies controlled by a board of directors, and S-Corporations (S-Corps), which are smaller and have some of the characteristics of LLCs. LLC is an abbreviation for Limited Liability Company, which is a pass-through entity for partnerships or sole proprietors which shields the private assets of the owners from the liabilities of the business. LLCs are almost entirely regulated by state law, and while they can issue stock, it depends on the state. Continue reading...
A security is a marketable ownership contract which entitles the owner to the right to use the contract as a type of currency backed by a specific asset, which could be partial ownership in a company, a debt (bond), or a derivative interest. Securities are broadly categorized into debt securities (e.g., bonds), equity securities (e.g., stock), and derivatives (e.g., futures, options, etc.). They will generally be issued by a company or government entity and will entitle the owner of the contract the right to trade the ownership interest for value in the open market. Continue reading...
The term "Financial Advisor" applies to professionals who are compensated for helping to implement investment strategies, but it is a broad and non-specific term. There are thousands of people who are called “Financial Advisors” – but within this category are various professions with different specialties and compensation structures. There are Financial Advisors, Financial Planners, Investment Managers, Registered Investment Advisors (RIAs), and at times even CPAs, insurance agents, and lawyers are included in this umbrella term. Continue reading...
A penny Stock is a term for equity shares valued below $5, many of which are not registered with the SEC and trade over-the-counter. They do trade on over-the-counter exchanges regulated by FINRA. Penny Stocks are equity in companies that may be small or have bad credit ratings, whose shares are priced below $5, per the SEC definition, but below $1 in the more widely accepted street definition. Because they do not have to observe all of the disclosure requirements of the SEC, there is not very much transparency about the companies or brokers issuing penny stocks. Continue reading...
A form ADV can be requested to find out all about the fees and professional backgrounds of a financial advisory firm. Firms who engage in the solicitation of securities or give investment advice must file form ADV with the SEC and keep it updated, usually on an annual basis. It is similar to the form U4 that individual securities-licensed professionals must submit and keep updated in the event of changes of address, tax liens, industry disciplinary actions, and so forth, but the ADV is filed on behalf of a firm instead of an individual. FINRA and the NASAA keep up with the filings as well. Continue reading...
The ‘40 Act, as it’s sometimes called, defined and delineated rules for investment companies, which today are known as mutual funds, investment trusts, ETFs, and so on. The ‘40 Act, along with the Securities Act of 1933, and the Securities Exchange Act of 1934, have formed the foundation for regulation in the investment industry in the US. The ‘40 Act defines investment companies and stipulates how they are to represent themselves and disclose information about the funds they sell to the public. Continue reading...
The Federal Trade Commission (FTC) was originally created to encourage market competition and to protect consumers by breaking up monopolies and monitoring mergers and acquisition activity. It has now branched out into more areas in the pursuit of consumer protection and fair markets. The FTC is now comprised of three bureaus: Consumer Protection, Competition, and Economics. They protect consumers from fraudulent business activity and monopolistic business practices. Continue reading...
Breakouts are events where a stock or index suddenly changes the magnitude and direction of its trading range and a new level of support and resistance is defined. A stock or index might bump up against the same support or resistance level for some time, or experience a time of consolidation and horizontal movement before the price breaks the upper limit of resistance and a new high is attained. Sometimes prices consolidate or hit resistance levels as the markets and investors wait to see what some news will be about the condition of the economy and so forth. Once there is good news, investors might take it as the “go-ahead” sign, and the price will breakout from the previous range. Continue reading...
Initial Coin Offerings are ways for new cryptocurrency or other technology companies to raise capital and put their coins into circulation. For companies too small to attract the attention of a big investment bank, this may be the best option for “going public.” In initial coin offerings, as opposed to using venture capital and initial public offerings of stock in regulated markets, the new company doesn’t actually give up any of their equity (i.e., control) in the company to third parties. Continue reading...