56 terms

Series 7 - 1 Primary Market

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accredited investor
certain financial and nonprofit institutions, and persons who meet established net worth or annual income criteria
agreement among underwriters
contract among members of a syndicate, stating their committment and the structure of the fees
authorized stock
amount of stock a corporation's charter allows it to sell
blue sky laws
state laws with which a company must comply in order to sell its securities within the state's boundaries
committment
degree and kind of responsibility an underwriter assumes for the sale of a securities issue
control stock
securities owned by a director or officer of a corporation, or by a shareholder with 10% or more of the company's stock
cooling-off period
period following the filing date (minimum of 20 days), during which the corporation and its underwriter must fulfill certain obligations while waiting for the registration to become effective
due diligence meeting
meeting held at the end of the cooling-off period, in which the issuer, lead underwriter, and syndicate members make sure that all securities laws have been met
eastern account (undivided account)
underwriting syndicate in which each member is responsible for selling a specific portion of the issue, plus that same portion of any shares left unsold by other members
effective date
date on which the SEC tells the issuer that the registration statement is effective and that the offering can begin
filing date
day the SEC receives a corporation's registration statement to sell a new issue
final prospectus
document that describes the issuer and the offering, including the public offering price. This document is delivered to buyers.
freeriding
illegal practice in which an underwriter allocates shares of a hot issue to business associates, friends, family members, or other proscribed individuals
green shoe clause
provision of most underwriting agreements stating that, in the face of strong public demand for an offering, the corporation will issue an additional number of shares
hot issue
public offering for which demand is so great (or the price so low) that the security quickly sells out of the primary market and starts selling in the secondary market at a premium
initial public offering (ipo)
company's first attempt to raise capital by selling securities to the public
investment banking
business of helping companies carry out mergers, acquisitions, reorganizations, other financial matters, and the underwriting of security issues
investors
people, institutions, and businesses who buy securities (or other assets) in hopes of seeing the value of heir holdings increase
issued stock
stock that has been sold to investors
letter of intent
underwriter's plan for making a public offering of a company's securities
new issue
securities that have not been offered for sale previously; sold either in an initial public offering or in a primary offering
outstanding stock
stock that is currently owned by investors
over-the-counter (otc)
system for trading securities by means of individual negotiations, usually over computer and telephone lines
penalty bid clause
provision of many underwriting agreements that cancels the fee earned by a member of an underwriting syndicate if its customers are found to be selling their shares back to the lead underwriter (who has just placed a stabilizing bid)
preemptive right
right of existing shareholders to maintain their proportionate share of equity during a new issue
preliminary prospectus (red herring)
document, prepared by a lead underwriter, that describes a public offering and is intended to elicit the interest of other underwriters and potential customers
primary market
market where corporations raise capital by selling their equity (or debt) securities to investors
primary offering
any subsequent attempt by a company to raise capital in the primary market
private placement (reg d)
issue sold through private channels, mainly to accredited investors. because it is not offered on the public market, this placement is not subject to the normal SEC requirements
proxy
means by which a shareholder who does not attend the annual corporate meeting can vote via mail-in ballot
public offering price
price per share of a new issue
regulation A (small issue exemption)
regulation allowing companies to make public offerings of up to $5 million without meeting the normal SEC registration requirements
restricted stock
unregistered securities, normally purchased in a private placement
road show
presentations to develop interest in a new offering, made by the issuer and lead underwriter to members of the investment community around the country
rule 144 (dribble rule)
SEC regulation permitting company insiders to sell a limited number of restricted and control shares to the public--at a "dribble"--every 90 days
rule 144a
provision of federal securities law that enables large institutional investors to trade unregistered securities among themselves without abiding by the limits of rule 144
rule 147 (intrastae exemption)
securities law provision allowing a corporation to sell securities within the borders of a state (if the company is based primarily in that state) without meeting the normal SEC registration requirements
secondary market
market where investors buy and sell securities among themselves
Securities Act of 1933
federal law that sets the rules and procedure for selling new issues
Securities and Exchange Commission (SEC)
federal agency charged with enforcing the rules and regulations of the securities markets
Securities Exchange Act of 1934
main body of federal laws regulating the stock exchanges and the trading of already-issued securities
selling group
broker-dealers organized by the lead underwriter to sell a portion of a public offering. these members receive a smaller compensation than syndicate members but carry no financial liability
selling out
the point at which, according to the terms of the underwriting contract, an issue has been fully placed on the primary market and can therefore begin trading in the secondary market
shelf registration
process in which a company registers a new issue with the SEC but can delay selling all or part of the stock for up to two years
stabilizing bid
tactic used by a lead underwriter to support a sticky issue by setting a price floor at or just below the pubilc offering price (without exceeding any independent bid in the market)
sticky issue
offering that has been priced too high (or for which demand is too low), meaning that it will sell in the secondary market at a discount--if it reaches the secondary market
stock (equity security)
ownership of a corporation, which sells shares to investors in the primary market
stock exchange
place where brokers and dealers gather to take part in auctions to trade securities
syndicate of underwriters
group of underwriters working together to sell a company's securities
taking indication
process of shopping around a red herring to underwriters, dealers, and clients to gauge interest
tombstone advertisement
notice placed in a financial newspaper that announces a new issue of securities. it names the issuer, the size of the offering, the price of a share, and the syndicate members
treasury stock
stock that has been issued and then repurchased by the corporation
underwriter
firm that assists a company to issue its securities, often by purchasing them (taking on risk) and then reselling them. they can be a full-fledged investment bank or, in some cases, a smaller firm engaged only in this one aspact of investment banking
underwriting spread
difference between the public offering price of a security and the amount the issuing company receives
western account
underwriting syndicate in which each member is responsible for selling a specific portion of the issue
withholding
illegal practice in which an underwriter holds back part of a hot issue in order to resell it later at a price above the initial public offering