Understanding Trading Halts

The market’s intense reaction to the coronavirus has caused something not seen since 1997: trading halts. Continue reading

Understanding Trading Halts

The market’s intense reaction to the coronavirus has caused something not seen since 1997: trading halts. If you’re studying for the FINRA Series 7 General Securities Representative exam or the FINRA Series 24 General Securities Principal exam, FINRA may test you on the subject. Rest assured, Solomon Exam Prep’s Series 7 and Series 24 study materials cover the topic in detail. Here’s a little background on trading halts.
 
Sometimes called “circuit breakers,” these trading halts were first put in place after the 1987 stock market crash known as Black Monday. Part of the reason the Black Monday crash was so bad was the panic selling that happened once the market started dropping. A trading halt is meant to prevent this panicked free fall.
 
A trading halt may apply to the entire market, or a single security.
 

Market-Wide Trading Halts

A market-wide trading halt will be triggered when the S&P 500 drops sharply from where it was the day before. A Level 1 halt is triggered by a 7% drop and lasts for 15 minutes. If the drop reaches 13%, it triggers a Level 2 halt. A level 2 halt also lasts 15 minutes. Finally, a 20% drop in the S&P 500 triggers a Level 3 halt, which stops trading for the rest of the day. These kind of halts stop securities and options trading on all the exchanges, as well as the OTC markets.  
 
Trading Pauses in a Single Security
 
When a company makes a major announcement, it’s stock price may move dramatically. Pausing trading of a particular stock or security protects smaller investors who generally cannot react as quickly to the news as larger investors. If the price of a security drops a certain amount below what it normally trades at, the security is said to be “limit down.” If it stays limit down for 15 seconds, then trading in that security is paused for 5 minutes. Unlike market-wide trading halts, the same goes if the price of a single security rises rapidly. If a security is “limit up” for 15 seconds, trading pauses for 5 minutes. How much a security has to move to be limit up or limit down depends on the type of stock and its normal price range.
 
Your Securities Exams
 
Trading halts are topics on the FINRA Series 7 and Series 24 exams. Solomon Exam Prep covers trading halts in Solomon study guides, audio guides, video lectures, exam simulators and digital flashcards. For more information, go to www.SolomonExamPrep.Com or call 503.601.0212.
 

Exam Alert: FINRA Establishes Exemption from Spinning Rule for Certain Funds of Funds

Effective February 3, 2014, FINRA has put in place a modification to its issue allocation rules. The change provides an exemption from the “anti-spinning” provision of FINRA Rule 5131. Continue reading

Effective February 3, 2014, FINRA has put in place a modification to its issue allocation rules. The change provides an exemption from the “anti-spinning” provision of FINRA Rule 5131.

Spinning refers to the practice of a firm allocating shares of a new issue to an investor’s account in exchange for that investor directing their company’s investment banking business to the firm. Spinning is generally prohibited.

The new exemption allows for a firm to allocate shares of a private fund (such as a fund of funds) to an account (such as a hedge fund) if both the account and the fund meets certain conditions. These conditions include that the fund:
-is managed by an investment adviser;
-has assets greater than $50 million;
-owns less than 25 percent of the account;
-is not a fund in which a single investor has a beneficial interest of 25 percent or more; and
-was not formed for the specific purpose of investing in the account.
The account must not look through to the beneficial owners of unaffiliated private funds invested in the account, except for beneficial owners that are control persons of the investment adviser managing the fund.

In addition, the adviser managing the account must be unaffiliated with the investment adviser managing the fund.

Source: FINRA Regulatory Notice 13-43: SEC Approves a Limited Exception From FINRA Rule 5131(b) to Permit Firms to Rely Upon a Written Representation From Certain Unaffiliated Private Funds

Further reading: Mondaq.com: FINRA Amends Its Rule 5131 To Ease “New Issues” Compliance Related To Certain Funds-Of-Funds

This alert applies to the Series 7 and Series 55.

Exam Alert: SEC rule excludes home value from net worth calculation for “qualified clients”

An SEC rule change announced on February 15, 2012, will exclude the value of an investor’s home from the “qualified client” net worth calculation. Continue reading

A qualified client is a client that may be charged performance-based fees by an investment adviser.  The threshold for determining whether a client is a qualified client is if they have at least $1 million in assets under management with the adviser or if they have a net worth of at least $2 million.  An SEC rule change announced on February 15, 2012, will exclude the value of an investor’s home (primary residence) from the net worth calculation.  The rule amendment will take effect 90 days after publication in the Federal Register.

Source: SEC Release 2012-29

This alert applies to the Series 63, Series 65, Series 66, and Series 24.

Exam Alert: SEC alters investment adviser registration and reporting requirements

The SEC has adopted changes to the registration and reporting requirements that private fund advisers face. Unless the private fund adviser meets Continue reading

The SEC has adopted changes to the registration and reporting requirements that private fund advisers face.  Unless the private fund adviser meets an exemption, they must register with the SEC.  Exemptions from registration are provided for venture capital fund advisers and private fund advisers with less than $150 million in assets under management in the U.S., though these advisers must still report certain business information.  Foreign private advisers are exempt from the registration and reporting requirements.

Source: SEC Release 2011-133

Exam Alert: SEC approves exemption from investment adviser registration for “family offices”

On June 22, 2011, the SEC approved an exclusion for “family offices” from the regulations of the Investment Adviser Act of 1940. The new exemption applies Continue reading

On June 22, 2011, the SEC approved an exclusion for “family offices” from the regulations of the Investment Adviser Act of 1940.  The new exemption applies to a company that only provides advice to “family clients,” is wholly owned by “family clients,” and does not hold itself out to the public as an investment adviser.  “Family clients” include family members, key employees, and certain other clients.

Family offices were typically covered under the exemption for advisers with fewer than 15 clients, but that exemption will be removed under Dodd-Frank changes.

Relevant to the Series 7, 6, 65, 66, 63, 24 and Series 26 exams.

Source: SEC Release 2011-134

Exam Alert: Private advisers must register with the SEC

Effective July 21, 2011, investment advisers to most private funds (hedge funds and private equity funds) must register with the SEC. Previously, these Continue reading

Effective July 21, 2011, investment advisers to most private funds (hedge funds and private equity funds) must register with the SEC.  Previously, these advisers had been exempt due to the “private adviser”” exemption.  The Dodd-Frank Act replaces this exemption with narrower exemptions for certain advisers, including advisers that exclusively advise venture capital funds and private fund advisers with less than $150 million in assets under management in the United States.

http://www.sec.gov/spotlight/dodd-frank/hedgefundadvisers.shtml