Focus Chapter review- 6 New issue Marketplace for securities

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Which TWO of the following statements are TRUE concerning the Securities Act of 1933?

Registration provisions apply if the securities beings sold are listed on the NYSE
Antifraud provisions do not apply if the securities being sold are listed on the NYSE
Registration provisions do not apply to securities issued by a municipality
Antifraud provisions do not apply to securities issued by a municipality

Registration provisions apply if the securities beings sold are listed on the NYSE

Registration provisions do not apply to securities issued by a municipality

Your client is president of XYZ Corporation and is selling XYZ shares pursuant to Rule 144. A filing must be made with the SEC:

15 days before the sale
At the time of the sale
30 days after the sale
90 days after the sale

At the time of the sale

In a rights offering, an underwriter offers to purchase all the shares the issuing corporation may not be able to sell. This is known as a(n):
Firm-commitment underwriting
Best-efforts underwriting
Standby underwriting
All-or-none underwriting

Standby underwriting

This is close to a Firm-commitment, but differs that the underwriter only purchases the shares may not be able to sell.

in a firm commitment, An underwriter's agreement to assume all inventory risk and purchase all securities directly from the issuer for sale to the public at the price specified.

3 A firm that is planning an offering of common stock has not filed a registration statement. Which of the following actions on the part of a registered representative are NOT a violation of the Securities Act of 1933?

Having the registered representative contact an investment banker at the firm
Informing a customer that he may receive as many shares as he desires
Accepting orders for the shares to be offered
Attempting to obtain indications of interest for the shares to be offered

Having the registered representative contact an investment banker at the firm

XYZ Corporation will need to borrow funds in the bond market soon. While current interest rates are not attractive from its viewpoint, the company knows that interest rates could drop suddenly. The company would like to be ready to sell the bonds quickly. It would also like the bonds to be as liquid as possible in order to attract investors. Which of the following choices is most appropriate for its needs?

A private placement under Regulation D
An intrastate offering under Rule 147
A traditional registration statement
A shelf registration under Rule 415

A shelf registration under Rule 415

The Key here vs. Private placement is that current market conditions are not favorable, and the company would like to be ready to sell quickly at their choosing.

An underwriting syndicate that offered a new issue at $21 could stabilize the offering at which TWO of the following prices?

$20.90
$21.01
$21.20
$20.20

$20.90
and
$20.20

A registered representative's broker-dealer is an underwriter of an initial public offering of stock. The RR's father-in-law may purchase:

The IPO from a different broker-dealer
The IPO from the RR's broker-dealer
Only a limited quantity of the IPO from any broker-dealer
The IPO but only from a member of the selling group

The IPO from a different broker-dealer

There are 2,600,000 shares of XYZ Corporation outstanding, which are listed on the NYSE. Mr. Smith owns 300,000 shares of restricted securities, which he has held for more than six months. He is not an affiliate of XYZ. Mr. Smith would like to sell some of his securities under Rule 144. The weekly trading volume for the last six weeks is:

1 week ago 25,000 shares
2 weeks ago 26,000 shares
3 weeks ago 27,000 shares
4 weeks ago 28,000 shares
5 weeks ago 27,000 shares
6 weeks ago 27,000 shares

How many shares of XYZ Corporation is Mr. Smith able to sell according to Rule 144?

26,500 shares

XYZ Corporation has 4,000,000 shares of common stock authorized and 2,500,000 shares issued, of which 100,000 shares are treasury stock. The corporation is issuing an additional 1,000,000 shares through a standby underwriting. If only 600,000 shares are subscribed to in the corporation's offering, the number of outstanding shares will:

Remain the same since the entire issue was not fully subscribed
Increase by 600,000 to 3,000,000 shares
Increase by 600,000 to 3,100,000 shares
Increase by 1,000,000 to 3,400,000 shares

Increase by 1,000,000 to 3,400,000 shares

All of the following statements are TRUE concerning preconditions for sale requirements under the New Issue Rule, EXCEPT:

The verification may be made through electronic communication
The verification may be made through oral communication
The verification must be conducted prior to the sale of new issues
After the initial verification, an annual negative consent letter will be permitted

The verification may be made through oral communication

Fred's Auto Centers is looking to raise $10 million to expand its business. The company has entered into an agreement to raise the capital through Winco Securities, a local investment banking firm. Winco Securities has made no guarantee that it will be able to raise the full amount of the offering. Which TWO of the following statements regarding this scenario are TRUE?

This is an example of a firm-commitment underwriting
This is a best-efforts underwriting
Winco is acting as an agent for Fred's Auto Centers
Winco is acting as principal in this underwriting
I and III
I and IV
II and III
II and IV

This is a best-efforts underwriting
Winco is acting as an agent for Fred's Auto Centers

A client has a brokerage account with a broker-dealer in New York City. She decides to move to Montana to retire. She still intends to maintain the account with the broker-dealer, which is registered only in New York. Which of the following statements is TRUE?

This is permitted provided the client maintains a P.O. Box in New York
This is permitted since the account was opened in New York prior to the client's move to Montana
The client can maintain the brokerage account if the firm registers as an investment adviser in Montana
The client can maintain the brokerage account if the firm registered as a broker-dealer in Montana

The client can maintain the brokerage account if the firm registered as a broker-dealer in Montana

Which TWO of the following persons may be permitted to purchase issuer-directed shares of an equity IPO?

An employee of a FINRA member whose spouse is a director of the issuer
A portfolio manager of a mutual fund purchasing for his personal account
Employees of the issuer if the issuer is a FINRA member
An outside attorney assisting in the IPO
I and III
I and IV
II and III
II and IV

An employee of a FINRA member whose spouse is a director of the issuer

Employees of the issuer if the issuer is a FINRA member

3 Which of the following factors is the MOST important concerning an initial public offering?

The dollar amount of the issue
The exchange where the company shares will be listed
The type of corporation and the kind of industry it is in
The overall condition of the equity market

The overall condition of the equity market

When raising capital, which TWO of the following securities are required to be registered with the SEC under the Securities Act of 1933?

Common stock in a software company that will be listed on Nasdaq
Debentures issued by a finance company sold only to qualified institutional buyers
An American Depositary Receipt issued by a Canadian company
A revenue bond issued to finance a stadium

Common stock in a software company that will be listed on Nasdaq

An American Depositary Receipt issued by a Canadian company

The volume of trading in ABC Company is as follows.

Last week 15,000 shares traded
Two weeks ago 17,200 shares traded
Three weeks ago 19,600 shares traded
Four weeks ago 18,100 shares traded
Five weeks ago 17,100 shares traded

A customer owns 200,000 shares of restricted stock of ABC Company. ABC Company has 1,840,000 shares outstanding. If the customer wanted to sell his shares today, what is the maximum number of shares he could sell according to Rule 144?

17,475
18,000
18,400
20,000

18,400

Your firm is the managing underwriter of an initial public offering. How many days must the firm's research analyst wait before issuing a research report on this IPO?

There is no waiting period and research may begin anytime after the effective date
10 days
40 days
90 days

40 days

A broker-dealer is underwriting an initial public offering (IPO) for a company that will be listed on the NYSE. The broker-dealer is required to deliver prospectuses:
Only on purchases made, at the public offering price
For 25 days after the effective date
For 40 days after the effective date
For 90 days after the effective date

For 25 days after the effective date

Which TWO of the following activities are normally functions of the investment banking department of a broker-dealer?

Working with issuers to raise capital
Selling securities to institutional investors
Assisting companies with mergers and acquisitions
Making a secondary market for new issues
I and III
I and IV
II and III
II and IV

Working with issuers to raise capital

Assisting companies with mergers and acquisitions

What is the maximum allowable percentage that may be sold above the original size of the offering through a Greenshoe option?
10%
15%
20%
25%

15%

The Taft Food Company intends to distribute shares of its grocery business to existing stockholders. The shares of this company will be traded separately from Taft. This is an example of a(n):

Stock dividend
Reverse merger
Spinoff
Initial public offering

Spinoff

A charity has received restricted stock from the director of a corporation. The director owned the stock for two years before giving it to the charity. According to SEC Rule 144, the charity may sell the stock:

Only if sold to a qualified institutional buyer
Freely under Rule 144
After holding the stock for an additional six months, subject to the volume restrictions of Rule 144
After holding the stock for an additional six months, but not subject to the volume restrictions of Rule 144

Freely under Rule 144

In a Rule 144A transaction, which of the following statements is NOT TRUE?

The seller, or any person acting on its behalf, such as a broker-dealer, must reasonably believe that the purchaser is a qualified institutional buyer (QIB)
The buyer must be able to establish its credentials as a QIB, through relevant documentation
The only documentation acceptable for establishing that the purchaser is a QIB is audited financial statements (or their equivalent, for foreign issuers)
If the seller has no reason to question the accuracy of documentation provided by the purchaser, it has no duty to inquire further about the purchaser's status as a QIB

The only documentation acceptable for establishing that the purchaser is a QIB is audited financial statements (or their equivalent, for foreign issuers)

Rule 145 applies to a(n):
Stock split
Stock dividend
Adjustment in par value
Merger or acquisition

Merger or acquisition

Which TWO of the following statements are TRUE regarding the trading restrictions placed on a director of a publicly traded company?

There is a limit on the amount of registered stock the director may purchase
There is no limit on the amount of registered stock the director may purchase
There is a limit on the amount of unregistered stock the director may sell
There is no limit on the amount of unregistered stock the director may sell
I and III
I and IV
II and III
II and IV

There is no limit on the amount of registered stock the director may purchase

There is a limit on the amount of unregistered stock the director may sell

An insider of XYZ Corp. buys company stock in the open market at $63/share. Ten months later, the insider wishes to sell the stock at the current market price of $68/share. Which TWO of the following statements are TRUE regarding this transaction?

The sale is subject to the six-month holding period under Rule 144
This sale is not subject to the six-month holding period under Rule 144
The sale is subject to the volume limitations under Rule 144
The sale is not subject to the volume limitations under Rule 144

I and III
I and IV
II and III
II and IV

This sale is not subject to the six-month holding period under Rule 144

The sale is subject to the volume limitations under Rule 144

A Securities and Exchange Commission rule that sets the conditions under which restricted, unregistered and control securities can be sold. These are the five conditions that must be met for these securities to be sold:

1. The prescribed holding period must be met.
2. There is an 'adequate' amount of current information available to the public regarding the historical performance of the security.
3. The amount to be sold is less than 1% of the shares outstanding and accounts for less than 1% of the average of the previous four weeks' trading volume.
4. All of the normal trading conditions that apply to any trade have been met.
5. If wishing to sell more than 500 shares or an amount worth more than $10,000, the seller must file a form with the SEC before the sale.

Pickette Financial Services is participating in the IPO of Swank Tanks, Inc., as the managing underwriter. If a research analyst at Pickette wants to initiate coverage on Swank Tanks, she:

Must wait 10 calendar days after the offering date
Must wait 25 calendar days after the offering date
Must wait 40 calendar days after the offering date
May not issue a research report due to a conflict of interest

Must wait 40 calendar days after the offering date

Which TWO of the following new issues may be purchased by an employee of a broker-dealer under the New Issue Rule?

An exchange-traded fund
An initial public offering in which the RR's firm is not an underwriter
A new issue of common stock in which the broker-dealer is the managing underwriter
Convertible debt

I and III
I and IV
II and III
II and IV

An exchange-traded fund

Convertible debt

An equity security that is distributed under Regulation S may be resold by:
Immediate sale within the U.S. market
Immediate sale in a designated offshore market
Regulatory approval from SROs
Waiting six months, then selling within the U.S. market

Immediate sale in a designated offshore market

Which of the following securities are considered nonexempt according to the Securities Act of 1933?

U.S. government and municipal securities
Securities of a publicly held finance company
Securities of a small business investment company
Securities of a nonprofit organization

Securities of a publicly held finance company

As a general rule, any security backed by or insured by a government, or government institution, is usually exempt.

Morris Investments is working a leveraged buyout deal to purchase Simon Entertainment Group. The fundamental financing for the deal will consist mostly of:

Debt issued using the assets of Simon Entertainment Group as collateral
Debt issued using the assets of Morris Investments as collateral
Equity issued by Simon Entertainment Group
Equity issued by Morris Investments

Debt issued using the assets of Simon Entertainment Group as collateral

The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital.

There are 2,600,000 shares of XYZ Corporation outstanding, which are listed on the NYSE. Mr. Smith owns 300,000 shares of restricted securities, which he has held for more than six months. He is not an affiliate of XYZ. Mr. Smith would like to sell some of his securities under Rule 144. The weekly trading volume for the last six weeks is:
1 week ago 25,000 shares
2 weeks ago 26,000 shares
3 weeks ago 27,000 shares
4 weeks ago 28,000 shares
5 weeks ago 27,000 shares
6 weeks ago 27,000 shares

According to Rule 144, Mr. Smith would need to file with the SEC a notice of intent to sell which is valid for:

Four weeks
90 days
6 months
Whatever amount of time is necessary to complete the offering

Whatever amount of time is necessary to complete the offering

A broker-dealer is underwriting an initial public offering (IPO) for a company that is not eligible to be listed on an exchange. The broker-dealer is required to deliver prospectuses:

Only on purchases made, at the public offering price
For 25 days after the effective date
For 40 days after the effective date
For 90 days after the effective date

For 90 days after the effective date

In order to have an issuer of securities exempt from the provisions of the Securities Act of 1933 under Regulation D, which TWO of the following statements are TRUE?

The purchasers must sign an investment letter restricting the resale of the securities
The size of the offering must be limited
The number of accredited buyers is unlimited
The issuer must file an offering document with the SEC
I and III
I and IV
II and III
II and IV

The purchasers must sign an investment letter restricting the resale of the securities

The number of accredited buyers is unlimited

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