Glossary

Securities Investor Protection Act of 1970

What is the Securities Investor Protection Act of 1970?

The Securities Investors Protection Act of 1970 amended the Securities Exchange Act of 1934 and authorized the creation of the Securities Investor Protection Corporation (SIPC). Sponsored by the U.S. government, the SIPC is a non-profit, independent corporation that requires the membership of most registered brokers and dealers under the Securities Exchange Act of 1934.

Enacted in 1970, the Securities Investors Protection Act, or SIPA, was intended to build public confidence in securities markets by covering customers for any broker-responsible losses or failures. The SIPC maintains funds which are intended to protect investors against brokers who misappropriate their funds, as well as pay them in the event that their broker or dealer goes bankrupt. The SIPC funds are made possible as a result of assessments paid to the SIPC by members based on the gross business they generate from the sale of securities.

The SIPC insures investors for up to $500,000 with cash claims limited to $250,000. This insurance program does not protect against losses due to market conditions. However, when a brokerage firm fails, the SIPC facilitates the transfer of accounts from the failed brokerage to a different member brokerage firm. If the transfer doesn’t go through, then the SIPC pays the investors for the market value of the lost shares or certificates for the stock, and the failed brokerage firm is liquidated. For support and additional information, explore our SEC reporting solutions.  

Securities Offering

What is a securities offering?

To raise funds for expansion, businesses often opt to raise capital through a securities offering. Many small companies offer equity in the form of common stock, while more established companies may also offer bonds representing their debt obligations. To offer equity or debt securities in the U.S., companies must either be registered with the SEC or exempt from registration in accordance with the federal Securities Act and state securities laws. Equity securities grant partial ownership interest to the purchaser, or stockholder. For equity offerings, a company files articles of incorporation specifying the amount and type of stock it plans to issue. To protect investors, state and federal regulations also require companies to disclose specific information to stockholders. Unless specifically exempt under the Securities Act, companies are required to file a registration statement with the SEC providing key information about the company, its securities and the offering. Once the SEC declares the registration statement effective, the company is allowed to make its IPO. When a company registers an offering with the SEC, it officially becomes a public company. Registration statements have two parts. The first is the prospectus, which is the legal offering made by a company issuing securities. The prospectus covers key facts about the issuer’s business operations, risks, daily operations and management in addition to audited financial statements. The issuer must deliver a prospectus to everyone who buys or offers to buy its securities. The second part of the registration statement includes confidential company information the issuer is not obliged to provide to investors, but must file with the SEC. Companies typically use the SEC Form S-1 to prepare the registration statement for a securities offering. Rules for regulation statement disclosures are outlined in Regulation S-K, and financial statements must be prepared for registration statements in compliance with Regulation S-X. Completed registration statements are filed using the SEC’s EDGAR computer system for the receipt, acceptance, review and dissemination of documents submitted in electronic format to the Commission. For support and additional information, explore our solutions here.

Security Act of 1934

What is the Security Act of 1934?

The Securities Exchange Act of 1934 created the U.S. Securities and Exchange Commission (SEC) and authorized it to govern the secondary market trading of company securities in the U.S. Secondary trading is the buying or selling of company securities (stock) typically through brokers or dealers. Often shortened to the Exchange Act of 1934 or the ‘34 Act, this landmark legislation laid the foundation for the financial regulation of public companies listed on stock markets including the New York Stock Exchange, American Stock Exchange and Pacific Stock Exchange.

SEDAR+

What is SEDAR+?

The System for Electronic Document Analysis and Retrieval (SEDAR+) is Canada’s electronic filing system for disclosures by public companies and investment funds. This system allows regulated company and securities information to be consistently collected, shared and filed with the 13 provincial and territorial securities regulatory authorities — the Canadian Securities Administrators, or CSA — in the SEDAR+ filing system.

Public company and investment fund profiles are available to investors and others on the SEDAR+ website. Online SEDAR+ profiles include information that most public companies, investment funds and investment fund groups are required to make public in Canada, including addresses, contact information and stock exchange listing.

However, not all SEDAR+ filings are automatically made public. Some documents filed only with Canadian exchanges are not publicly available. When a prospectus is filed through SEDAR+, it’s reviewed by securities regulatory authorities who then make the appropriate documents available via the SEDAR+ Data Distribution Service.

Some documents don’t require review and are immediately distributed via the SEDAR+ Data Distribution Service, particularly continuous disclosure documents such as annual reports, financial statements and news releases. No matter whether SEDAR+ filings are scrutinized by investors or Canadian regulators first, they must be exact, accurate and on time. For support and additional information, explore our SEDAR+ regulatory compliance solutions.

SOX (Sarbanes-Oxley Act)

What is SOX, the Sarbanes-Oxley Act?

The Sarbanes-Oxley Act of 2002, also known as Sarbanes-Oxley, Sarbox or SOX, was passed by Congress to require public companies and their top management to fully disclose their financial and accounting practices and activities. Sarbanes-Oxley, which comprises 11 sections, also contains provisions that address privately held companies.

Major corporate and accounting scandals that shook investor confidence, such as those surrounding Enron and Worldcom, were the impetus for Sarbanes-Oxley. Sponsored by Senator Paul Sarbanes and Representative Michael G. Oxley, SOX requires that senior management certify the accuracy of their company’s financial statement. It also exacts harsh penalties for fraudulent financial activity and increases oversight by the company board of directors. SOX ensures the independence of outside auditors reviewing corporate financial statements.

In addition, the Sarbanes-Oxley Act requires the Securities and Exchange Commission (SEC) to publish rules and regulations as well as deadlines for compliance by public corporations. Since SOX’s passing, the SEC has set up numerous rules to administer Sarbanes-Oxley. It also created the Public Company Accounting Oversight Board (PCAOB) to oversee, inspect and govern accounting firms acting as auditors of the internal control practices of public companies.

Smaller companies with a market cap of less than $75 million are exempt from SOX requirements, according to the Dodd-Frank Act. For support and additional information, explore our automated SOX compliance solution.

SOX Section 302

What is SOX Section 302?

SOX Section 302 of the Sarbanes-Oxley (SOX) Act is effective with the first Securities Exchange Act of 1934 (Exhibit 31 of your 10-K or 10-Q) and requires personal statements from the principal executive and financial officers of the company. These statements include information such as the financial statements have been reviewed and are correct, the signee and additional employees involved are responsible for disclosure of all information necessary, and not aware of any fraud. For support and additional information, explore our automated SOX compliance solution. 

SOX Section 409

What is SOX Section 409?

SOX Section 409 of the Sarbanes-Oxley (SOX) Act outlines that enterprises have a responsibility to disclose to the public additional information concerning material changes in the financial condition or operations of the issue, in plain English.

Real-time issue disclosures can be supported by qualitative information and graphical presentations to help the public understand the situation better. The core intent behind this Section 409 is for organizations to stay transparent for the public and investors. Information on financial conditions must be in clear terms so that it can be easily understood by the reader. For support and additional information, explore our automated SOX compliance solution. 

SOX Section 906

What is SOX Section 906?

SOX Section 906 of the Sarbanes-Oxley (SOX) Act requires a written statement from the CEO and CFO declaring that the financial report fairly presents, in all material respects, the financial condition and results of operations of the issuer. Section 906 also outlines that there are criminal penalties for failing to produce a report that matches these requirements and potential prison time for those who deliberately attempt to obfuscate information. For support and additional information, explore our automated SOX compliance solution. 

Spin-Off

What is a spin-off?

A spin-off happens when a company separates a division or component of its business into an entirely new business entity. There are many reasons for a spin-off. Spin-offs can assist in growth trajectory through the development of a high-growth division or business. This could be done to sell a part of the business. The part was not related to the company’s focus.

Some occur when a company wants to sell a portion of itself and can’t find a buyer. No matter the situation, when a spin-off transpires, shareholders in the parent company are compensated through the issuance of new company stock equivalent to their equity loss from the spin-off

General Electric has recently undergone a spin-off, which divided it into three separate entities. These entities focus on aviation, healthcare, and energy. The aviation business will keep the General Electric name. The reasons given for the spin-off by General Electric included greater strategic business-specific focus and flexibility to drive long-term growth and value for the three business units.. For support and additional information, explore our Capital Markets Transactions solutions.

Summary of Benefits and Coverage

What is the Summary of Benefits and Coverage (SBC) document? 

Specific to plans offered under the Affordable Care Act (ACA), the Summary of Benefits and Coverage (SBC) is a required document based on a model template issued by Centers for Medicare & Medicaid Services (CMS) to outline in plain language information about each health plan’s benefits and coverage. This document serves as a standardized health plan comparison tool with coverage examples similar to the Nutrition Facts label required for packaged goods. These examples illustrate how the insurer would cover care for common benefits scenarios. The SBC is not to be confused with the Summary of Benefits document, which is required for Medicare Advantage and Part D plans, and other plans subject to the Medicare Communications and Marketing guidelines. For support and additional information, explore our solutions for Health Plans Regulated Communications.