Archive for the ‘Securities’ Category

What is the VIX?

Wednesday, October 29th, 2008

The VIX is a measure of market risk, sometimes called the fear index.  It is used to gauge investor sentiment – whether the broad stock market in the United States is bullish or bearish.  VIX actually stands for volatility index.  it is the ticker symbol for one of the volatility indexes created by the Chicago Board Options Exchange (the “CBOE”).  In fact, the VIX is the most widely used volatility index, and was introduced by Duke University Professor Dr. Robert Whalley in 1993.

Volatility is the fluctuation in the market price of an underlying security.  The VIX measures market expectations of near-term volatility conveyed by S&P500 near-term options prices.  Specfically, the VIX presently is calculated by measuring the volatility of out-of-the-money put and call options on S&P500 stocks for the two nearest expiration months.  It anticipates the volatility of the S&P500 over the next 30 days.  A VIX of 30 means, roughly, that over the next 30-day period, the S&P500 will move 30% on an annualized basis (i.e., more info

8.66% over the next 30 days).

Typically, the VIX is inversely related to market tops and bottoms.  For example, a high VIX implies pessimism and usually means a market is bottoming.  Low values imply optimism.  However, using the VIX solely to determine a market bottom or top doesn’t work because the method isn’t foolproof.  However, there’s no cap on how high the VIX can go.  Historically, a VIX reading of 30 has been a high number. but the VIX has traded over 70 in October, 2008.   Consequently, It should not be used in a vacuum, but is best used with other indicators in order to provide investment guidance.

On March 26, 2004, the CBOE began offering futures contracts on the VIX for trading.  On February 24, 2006, the CBE listed options on the VIX for trading.

VIX and More is a blog that follows the VIX.  Volatility Trading is a new book with a CD-ROM on trading the VIX.

The Legal Underpinnings of Annual Meetings

Thursday, July 24th, 2008

A corporation in the United States is a legal entity that typically is formed to conduct business.  Its internal affairs are governed by the law of the state in which it is incorporated.  That means that under state law, a company’s shareholders must annually elect directors and transact other business that may be appropriate at the time.  This may be done at an annual meeting.  However, it is not only state corporate law that governs annual meetings.

The corporation’s organizational documents – the articles of incorporation (AKA certificate of incorporation) and by-laws – also control annual meetings.  For example, they may allow action to be taken without a meeting, upon the written consent of the shareholders.  Organizational documents provide the skeleton of the annual meeting, in that that may provide for the meeting time, date and place (or the way to determine the meeting time, date and place), setting the record date to determine the shareholders who will be eligible to vote and the voting rights of various classes of securities if there is more than one class.

Corporations with securities registered on a national securities exchange also must comply (unless they are exempted securities) with proxy rules, the rules and regulations enacted by the Securities and Exchange Commission (SEC) under Section 14 of the Securities Exchange Act.  Broadly stated, a proxy is a consent or authorization to act for another.  Regarding an annual meeting, the SEC’s proxy rules govern the form of the proxy and the form of the annual report provided to shareholders, regulate the information to be presented in the proxy statement, address the procedures pursuant to which shareholders receive the proxy and annual report before a meeting, and also mandate certain filing requirements.

Finally, national stock exchanges  (e.g., the New York Stock Exchange) have listing requirements which include rules addressing annual meetings.  Corporations with securities listed on a national stock exchange must comply with such rules.

Securities Class Actions

Wednesday, June 18th, 2008

I once read that 1/3 of all publicly-traded U.S. technology companies had been involved in securities class action litigation. This has trended down this decade, but such cases still are being filed.

Stanford Law School, in cooperation with Cornerstone Research, a firm that consults to attorneys involved in complex business litigation, maintains a securities class action clearinghouse. It provides a wealth of information regarding individual federal class action cases alleging or involving securities fraud. This includes copies of litigation documentation as well as the prosecution, settlement and defense of cases, as well as statistical information.

Listing Requirements of U.S. Exchanges

Tuesday, April 8th, 2008

The major exchanges for securities in the U.S. have specific requirements for company that wish to publicly list their shares. These requirements vary depending on the type of security. They include minimum share prices for an initial listing and continued traded as well as an aggregate minimum market value. They also differ depending on whether the company is U.S.-based or is a foreign issuer. The listing requirements for the three major exchanges are as follows:

* New York Stock Exchange

* NASDAQ Exchange

* American Stock Exchange

Securities Offerings on the Internet

Wednesday, March 19th, 2008

In the 1990s, my colleague, Lou Turilli,* and I wrote an article for The National Law Journal about how the Internet might shape securities offerings. I followed that up with an article for Wall Street Lawyer, Securities Offerings Online By Small, Nonpublic Businesses. It specifically focused on whether small companies could viably offer and sell securities on their own via the Internet. I concluded that, “Clearly, selling securities online is a viable concept. Yet until fundamental issues such as the problem of gaining visibility, the lack of secondary markets, the arbitrary pricing and the disinterest of established investment bankers each are addressed, the opportunity for small businesses to raise capital in cyberspace will hold great promise as an idea, but be of limited practicality in the real world.”

I don’t think that my conclusion has changed. Distribution and pricing remain key obstacles for companies that want to promote their own online offerings. Marketing the securities is still a serious issue, and there are credibility concerns for the companies as well. Thus, serious companies will continue to pursue the traditional route.

* Lou and I practiced law together at Day, Berry & Howard. She recently was Vice President and General Counsel of Ryerson.

Federal Securities Laws and SEC Filings and Forms

Friday, February 22nd, 2008

Domestic U.S. and foreign companies that list their securities on U.S. securities exchanges must file registration statements, periodic reports, and other forms with the U.S. Securities and Exchange Commission. They must be filed electronically via the SEC’s EDGAR database.

Here’s a link to the major Federal Acts that govern the securities industry: Federal Securities Laws. This is a good overview of each law and what it covers.

Three of the major Federal Acts are:

*The Securities Act of 1933 (the “33 Act”) regulates the offer and sale of securities (unless an exemption exists). The purposes of the 33 Act are two-fold: to provide disclosure to investors for the offer and sale of securities being sold to the public, and to prevent misrepresentation and fraud in connection therewith.

*The Securities Exchange Act of 1934 (the “34 Act”) primarily deals with the secondary trading of securities after they have been issued or sold. The 34 Act covers corporate reporting, proxy solicitation, tenders orders, insider trading, and the registration of exchanges, associations and others.

*The Investment Company Act of 1940 (the “40 Act”) “regulates the organization of companies, including mutual funds, that engage primarily in investing, reinvesting, and trading in securities, and whose owns securities are offered to the investing public.”

Here’s another excellent resource at the SEC. A list of SEC forms required under each Act and many of the rules, regulations and schedules associated with them are available at the SEC Forms List page.