SEC Announces Major Revisions to Registration Exemptions Aimed at “Harmonizing” Regulation A Offerings, Regulation D Private Placements, and Crowdfunding

On November 2, the SEC announced a collection of rule changes meant to, in the announcement’s words, “harmonize, simplify, and improve” its “overly complex exempt offering framework.” Continue reading

On November 2, the SEC announced a collection of rule changes meant to, in the announcement’s words, “harmonize, simplify, and improve” its “overly complex exempt offering framework.” The changes affect Regulation A, which governs small public offerings; Regulation D, which governs private placements; and Regulation CF, which governs crowdfunding. This system of exemptions allows various small offerings to avoid the normal registration process required by the Securities Act.  
 
The rule changes should provide a clearer choice as to which exemption is most appropriate to an issuer, based on how much the issuer needs to raise and other factors.
 
The changes also seek to clarify how issuers can avoid “integration” of exempt offerings. Integration is the risk that exempt offerings will be considered a single offering by the SEC, because the offerings are too similar.
 
Highlights of the changes include:
 
  • If two exempt offerings are conducted more than 30 days apart, they are almost always protected from integration.
  • An issuer can “test the waters” with potential investors before deciding which exemption it will use for an offering. Test-the-waters communications solicit interest in a potential offering before the issuer has filed anything with the SEC. Previously, an issuer could only test the waters after deciding that its potential offering would take place under Regulation A.
  • Caps on the amount that may be raised through these exemptions have been increased:
    • Crowdfunding: from $1.07 million to $5 million
    • Regulation A, Tier 2: from $50 million to $75 million 
    • Regulation D, Rule 504: from $5 million to $10 million
  • Make “bad actor” exclusions more consistent across different exemptions.
The rule changes will take effect early next year. Until the changes take effect, securities exam questions will continue to be based on the old rules. FINRA Exams affected by these rule changes include the SIE, Series 6, Series 7, Series 14, Series 22, Series 24, Series 65, Series 66, Series 79, and Series 82.

Testing integrity in times of COVID-19

Test candidates are bound by guidelines that prohibit cheating or using any unfair means during the exam. Continue reading

On July 13, 2020, FINRA and NASAA responded to the pandemic testing challenge posed by in-person test centers with Prometric’s ProProctor, an online testing service, for certain qualifications exams. The exams for which online testing is permitted are the FINRA Securities Industry Essentials (SIE), Series 6, Series 7 and the NASAA Series 63, Series 65, and Series 66 exams. Read more about the announcement here

Curious about what the ProProctor online testing experience looks like? Click here to find out.

It is interesting to note that although the exams are proctored remotely, candidates are still bound by guidelines that prohibit cheating or using any unfair means during the exam. The checks that have been put in place especially for remote testing are as follows:

  • Candidates are required to provide a 360° view of his/her workstations and surrounding environment;
  • A camera (external or embedded) is required during the course of the exam. If an embedded camera is used, a large free-standing mirror is also required in order to reflect unseen areas;
  • Candidates are asked to participate in a visual person check (including a sleeve, pocket and glasses check);
  • While the exam is in progress, candidates are prohibited from leaving, moving out of or obstructing the camera view while the exam is in progress without prior authorization from the proctor; and
  • Additional requirements that are listed in the ProProctor User Guide.

Warning: a candidate found cheating in an online test will be subject to the same disciplinary actions that he/she would be subject to in a physical test, and if found guilty, can be permanently barred from the broker-dealer industry.

September Study Question of the Month

Answer this month’s study question for a chance to win! Continue reading

This question comes from the Solomon Exam Prep Online Exam Simulator question database for Series 65 & 66:
 
Under modern portfolio theory, which of the following is the most efficient set?
 
A. Expected return 9%,  Standard deviation 8
B. Expected return 9%,  Standard deviation 9
C. Expected return 11%, Standard deviation 8
D. Expected return 11%, Standard deviation 9
 

Correct Answer: C. Expected return 11%, Standard deviation 8

Rationale: According to modern portfolio theory (MPT), the investment opportunity set consists of all available risk-return combinations. Standard deviation is the measure of volatility used in MPT. Assuming a normal distribution of returns, 68% of all returns will fall within one standard deviation of the mean return and 95% of all returns will fall within two standard deviations of the mean return. An efficient portfolio is a portfolio that has the highest possible expected return for a given standard deviation.  In this question, the highest expected return with the lowest standard deviation is 11% and 8.

Passing Your Securities Exam May Now Make You an Accredited Investor

On Wednesday, the SEC finalized rule changes that will broaden its definition of “accredited investor” to encompass industry professionals who have earned certain FINRA licenses. Continue reading

On Wednesday, the SEC finalized rule changes that will broaden its definition of “accredited investor” to encompass industry professionals who have earned certain FINRA licenses.
 
An accredited investor is an investor considered sophisticated enough to weigh an investment’s merits independently. Accredited investors have easier access to certain types of investments, such as private equity offerings.
 
Under the newly expanded definition, General Securities Representatives (Series 7), Private Securities Offerings Representatives (Series 82), and Licensed Investment Adviser Representatives (Series 65) are now accredited investors. The SEC indicated that it may add other FINRA licenses later.
 
The rule change also allows “spousal equivalents” such as domestic partners to qualify as accredited investors based on the total income and assets of both partners, a benefit previously limited to couples who are legally married. Native American tribes and foreign governments now qualify as accredited investors as well.
 
The Solomon Exam Prep team is always on the lookout for how current developments affect the securities industry. For more updates from our Industry News blog, use the subscribe form on this page.

Market Circuit Breakers — A Post-Brexit Reminder

With post-Brexit vote market turmoil, it’s good to remember that the Securities Exchange Commission requires trading halts across US markets in the event that stocks fall more than specified percentages in one day. Continue reading

stop-634941_1280With post-Brexit vote market turmoil, it’s good to remember that the Securities Exchange Commission requires trading halts across US markets in the event that stocks fall more than specified percentages in one day. This information is also important to know if you are studying for securities licensing exam such as the Series 7, Series 24, Series 26, Series 62, Series 79, and the Series 65.

A market-wide trading halt can be triggered at three thresholds. These thresholds are triggered by steep declines in the S&P 500 Index. They are calculated based on the prior day’s closing price of the Index.

• Level 1 Halt—a 7% drop in the S&P 500 prior to 3:25 p.m. ET will result in a 15-minute cross-market trading halt. There will be no halt if the drop occurs at or after 3:25 p.m. ET.

• Level 2 Halt—a 13% drop in the S&P 500 prior to 3:25 p.m. ET will result in a 15-minute cross-market trading halt. There will be no halt if the drop occurs at or after 3:25 p.m. ET.

• Level 3 Halt—a 20% drop in the S&P 500 at any time during the day will result in a cross-market trading halt for the remainder of the day.

These halts apply to securities and options trading on all the exchanges as well as the OTC market. Levels 1 and 2 trading halts are permitted just once a day.

Solomon Exam Prep has helped thousands of financial professionals pass the Series 6, 7, 63, 65, 66, 24, 26, 27, 50, 51, 52, 53, 62, 79, 82 and 99 exams.

For more information call 503 601 0212 or visit http://www.solomonexamprep.com/

Upcoming Series 63, 65 and 66 Changes

The North American Securities Administrators Association (NASAA) has announced that it will implement updates to the Series 63, Series 65 and Series 66 examinations on July 1, 2016. What has changed? Continue reading

The North American Securities Administrators Association (NASAA) has announced that it will implement updates to the Series 63, Series 65 and Series 66 examinations on July 1, 2016.

The changes are aimed at better aligning the skills and knowledge required by professionals in the securities industry.

The new exam outlines are similar to the current exam outlines, but some significant changes have been made.

What has changed?

Series 63                                                         

  1. The weighting of the exam sections has been modified to put more emphasis on the registration of broker-dealers over investment advisers
  2. Several new topics have been added which reflect an emphasis on communications with customers and cyber-security. Specifically, the following topics have been added or amended:
  • Exceptions for foreign B-Ds
  • B-D supervision of agents
  • Prospectus delivery requirements
  • Types of customer accounts
  • B-D and agent commissions
  • Cyber-security and data protection
  • Outside securities accounts
  • Due diligence for B-Ds
  • Regulation A amendment
  • Regulation D amendment

Series 65                                                         

  1. The weighting of the exam sections has been modified to put slightly more emphasis on the characteristics of investment vehicles and slightly less emphasis on rules and regulations.
  2. Several new topics have been added which expand the types of investment products and add regulations on electronic communications, cyber-security, pay-to-play and anti-money laundering. Specifically, the following topics have been added or amended:
  • Valuation of equity securities
  • Real estate investments
  • Viatical and life settlements
  • Structured products
  • Commodities and precious metals
  • QDROs
  • High frequency trading
  • Regulation A amendment
  • Regulation D amendment
  • Electronic communications and social media
  • B-D and agent commissions
  • Cyber-security and data protection
  • Pay-to-play rule
  • Anti-money laundering
  • Business continuity plans

Series 66                                                         

  1. The passing score has been lowered from 75% to 73%.
  2. The weighting of the exams sections has been modified to put slightly more emphasis on the characteristics of investment vehicles and slightly less emphasis on rules and regulations
  3. Several new topics have been added which expand the types of investment products and add regulations on electronic communications, cyber-security, pay-to-play and anti-money laundering. Specifically, the following topics have been added or amended:
  • Valuation of equity securities
  • Technical analysis
  • Real estate investments
  • Viatical and life settlements
  • Structured products
  • Commodities and precious metals
  • QDROs
  • High frequency trading
  • Regulation A amendment
  • Regulation D amendment
  • Electronic communications and social media
  • B-D and agent commissions
  • Cyber-security and data protection
  • Pay-to-play rule
  • Anti-money laundering

How will this affect my Solomon Exam Prep products?

Solomon Exam Prep will be updating all products offered for the NASAA exams. For those students that currently have materials and are testing after July 1, 2016, we have added an addendum to their Resources folder (located on their student account), that includes all rule changes and updates.

Our Online Exam Simulator has already been adjusted to reflect the new changes, so students will see an option to take full exams structured prior to July 1 or after July 1 – this will allow for any and all students to utilize our products regardless of their anticipated exam date. We are always adding new questions to our database and that will be reflected in the Online Exam Simulator.

In the coming weeks we will also be releasing a new/ updated digital Study Guide that will reflect the upcoming changes. Any current students will have the option of having their digital Study Guide changed to the new edition at that time, or they can continue to study with our current edition and the supplied addendum.

If you have any questions about the changes or our materials, please do not hesitate to call our office at 503.601.0212 or email info@solomonexamprep.com.

Currency Hedging in International Investing: Smart Investing or Just Smart Marketing?

Investing internationally has never been easier, especially if you don’t want to invest directly in a foreign market. Today, US investors have an enormous range of mutual fund, ETF and ADR options from which to choose. However, when making a foreign investment it’s important to know that, unless currency hedging is employed, returns depend not only on the performance of the investment but also on the currency exchange rate. Continue reading

Currency HedgingInvesting internationally has never been easier, especially if you don’t want to invest directly in a foreign market. Today, US investors have an enormous range of mutual fund, ETF and ADR options from which to choose. However, when making a foreign investment it’s important to know that, unless currency hedging is employed, returns depend not only on the performance of the investment but also on the currency exchange rate. To understand this, imagine you buy shares in a Brazilian company. Time passes and the share price has gone up 5%. But at the same time the value of the real, the Brazilian currency, has depreciated 10%. Since the Brazilian shares, and any returns, are denominated in real, and must be converted to dollars, the value of your Brazilian investment has declined. Instead of a gain, you have a loss. This foreign exchange (“FX”) risk is the risk that the currency of a foreign investment will decline in relation to the value of the US dollar (or, said another way, that the US dollar will appreciate relative to the value of the currency of the foreign investment).

To protect against currency or exchange risk, a US investor can hedge using various FX products such as forward currency contracts, swaps and options. These products allow an investor to lock in an exchange rate and thereby minimize the effect of currency fluctuations. Recently, many ETF and mutual fund companies have begun to use FX products and strategies to reduce the effect of currency volatility in their international offerings. BlackRock’s iShares web site says that this allows investors to “take command of currency risk.” WisdomTree’s website says that by hedging currencies their ETFs allow investors to “participate more fully in the local equity returns of international markets.”  Vanguard urges “investors to consider fully hedging their portfolios’ fixed income allocation” and “investors should consider hedging at least a portion of the foreign-currency exposure within their equity allocation.”

Sounds good. But everything has a cause and effect, not to mention a cost. Is currency hedging really a good idea for investors with international investments?

A brief review of the information available online indicates the following:

• Currency hedging helps returns when the US dollar is rising. But when the dollar is falling, unhedged does better.

• Short-term changes in exchange rates are difficult, perhaps impossible, to predict. In the long run, currency swings even out.

• Studies seem to indicate that hedging reduces short-term volatility. This may be particularly beneficial for those investing in international bonds. In the long-term, however, it’s not clear that currency hedging reduces volatility, especially in equity investing.

• Hedging costs, which cuts into returns. Hedging costs more in times of economic uncertainty and stress, often exactly when hedging may be most desirable.

• Currency hedging makes it easier to track the local return of an international equity index.

• Long-term, unhedged international stock and bond portfolios perform better than hedged international stock and bond portfolios.

• Currency exposure means greater volatility and greater diversification.

• Hedged foreign investments have a higher correlation with US investments than un-hedged foreign investments.

On balance, if you are investing in foreign securities and you are concerned with short-term volatility, particularly if you are a fixed income investor, currency hedging may be for you. But if short-term volatility is not a concern, the lower returns, greater costs and reduced diversification of currency hedging may outweigh any benefit.

Studying for the FINRA Series 7 exam or the NASAA Series 65 exam?

You need to know that in times of home currency strength, the value of a foreign investment will be negatively impacted. When the dollar appreciates, US investors with overseas holdings will earn less. Conversely, if the home currency weakens, the Series 7 or Series 65 exam will expect you to know that the returns on international investments will be higher. That means that US investors with foreign holdings will see higher returns on their international assets when the US dollar depreciates.

A related question that may come up on your securities licensing exam, such as the Series 7 or Series 65, is what effect will a rising or falling US dollar have on the share price of a US company with international sales? Remember, a rising US dollar means overseas sales will be worth less since they will convert into fewer US dollars, while a falling US dollar means overseas sales will be worth more since they will convert into more US dollars.  However, if a company hedges its currency exposure, that may dampen the effect of currency fluctuations.

How might a US company with international sales hedge FX risk? A US company can do several things.  It can enter into a forward contract that locks in a specific exchange rate. This is highly effective as long as the transaction is likely to occur. It’s also low cost. A standardized and exchange-traded version of a forward is a futures contract.  An exporter can also use options to hedge currency risk.  An exporter could buy a put on a foreign currency in order to hedge FX risk.  Conversely, a US company that imports from overseas is exposed to the risk that the foreign currency will rise in value and if that happens it will cost more US dollars to pay foreign suppliers. To hedge such a risk, a US importer could buy a call on the foreign currency.

*For your Series 7 or Series 65 exam, remember the mnemonic: EPIC which stands for Exporters use Puts, Importers use Calls.

Of course, there are ways to mitigate foreign currency risk without using options or entering into forward contracts.  If you’re an exporter, you can ask your customer to pay in dollars. This transfers all exchange risk to the foreign buyer.  However, this will limit a company’s overseas sales.  Also, you can set up a foreign subsidiary and keep the foreign sales revenue overseas.


Sources and suggested links:

Currency Hedging: 5 Things You Need to Know
http://www.schwab.com/public/schwab/nn/articles/Currency-Hedging-5-Things-You-Need-to-Know

Currency Risk Does Not Belong in Your Bond Portfolio
https://www.betterment.com/resources/investment-strategy/why-international-bonds-but-not-currency-risk-belong-in-your-portfolio/

To hedge or not to hedge? Evaluating currency exposure in global equity portfolios
https://personal.vanguard.com/pdf/ISGCMC.pdf

To Hedge or Not to Hedge: Currency Hedging and International Investing
http://gersteinfisher.com/wp-content/uploads/2015/06/GF_Research_ToHedgeOrNot.pdf

Hedge of least regret: The benefits of managing international equity currency risk with a 50% hedging strategy
http://www.nylinvestments.com/polos/ME39a-071555414.pdf

Study Question of the Month – November

This month’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, 7, 62, 65 and 79. –ANSWER POSTED– Continue reading

This month’s study question from the Solomon Online Exam Simulator question database is now available.

***Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.***

Study Question

Question (Relevant to the Series 6Series 7Series 62Series 65 and Series 79): A few years back ABC Corporation issued callable bonds yielding 6%. The call price is 104, and the call protection period has ended. The bonds are trading at 105 today. Which of the following are true:

I. The current yield on these bonds is 6.3%

II. The current yield on these bonds is 5.7%

III. There is a good chance the bonds will be called

IV. There is a good chance the bonds will not be called

Answers: 

A. I and III

B. I and IV

C. II and III

D. II and IV

Correct Answer: C. II and III

Rationale: The formula for calculating current yield is the annual interest on the bond ($60) divided by the current price of the bond ($1050) which is equal to 5.7%. Because ABC can finance the debt at a lower interest rate than they are currently paying there is a good chance that they will call the bonds.

Congratulations Stephen Z., this month’s Study Question of the Month winner!

All study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Month – October

This month’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, 52, 62, 65 and 66. –ANSWER POSTED– Continue reading

This month’s study question from the Solomon Online Exam Simulator question database is now available.

***Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.***

Study Question

Question (Relevant to the Series 7, Series 52, Series 62Series 65 and Series 66):

The interest rate on a SLGS certificate or bond can never fall below:

Answers:

A. The Treasury rate

B. One basis point above the Treasury rate

C. One basis point below the Treasury rate

D. Zero

Correct Answer: D. Zero

Rationale: The SLGS interest rate is always one basis point below the Treasury security that has a comparable maturity, unless the Treasury rate itself equals zero, which is the floor below which the interest rate on a SLGS cannot go. In this case the Treasury rate and the SLGS rate will be equal.

 

All study questions are from Solomon’s industry-leading Online Exam Simulator.