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Chapter 2 Issuing primary market (practice questions/flashcards
Terms in this set (57)
When a company, or issuer, decides to raise capital from the public by issuingsecurities, it is first required to file a registration statement with the SEC. called
(known as an S-1), the company, or issuer, must provide thefollowing information:
A description of the issuer's business;
The shareholdings of issuer stock by officers, directors, and underwriters; andidentification of all control persons (individuals holding at least 10% of thecompany's securities);
Biographical data on officers and directors;
The company's capitalization, supported with certified financial statements; and
Proposed usage of the issue's proceeds.
The underwriting spread
is the difference between what the public customer paysfor each share of the new offering
small issue (two offering tiers);
Securities sold within the borders of one state are allowed an intrastate offeringexemption under Rule 147 of the Securities Act of 1933, provided that one of thefollowing conditions is met:
80% of the corporation's gross revenues are derived from operations within onestate;
80% of the corporation's assets are held in that state;
80% of the offering's proceeds are used to expand operations within that state;or
A majority of the issuer's employees must be based in the state.
an issuer who has at least 100000 in average dail trading voume and 25 million in public float is planning to bring additioanl shares to market, what would the restriction period be?
1 day prior to the effective date
reguarding compensation ran the following in order of size from greatest to least
1: An issuer who has at least $100,000 in average daily trading volume and $25 million inpublic float is planning to bring additional shares to market. What would the restrictionperiod be?
1 day prior to the effective date
XYZ Corporation Primary Distribution Total issue: 1,000,000 shares; Retained for saleby underwriters: 800,000 shares; Reserved for distribution to selling group: 200,000shares. PER SHARE: Public Offering Price: $10.00; Manager's fees and expenses: .10;Underwriter's allowance: .70; Selling Concession: .50; Proceeds to Issuer: 9.20. Theunderwriting spread is
the "underwriting spread" is the difference between the public offering price per share ($10) andthe proceeds to the issuer (9.20).
All are true about a red herring EXCEPT
It includes the price of the security.
ABC is a broker/dealer underwriting its own IPO. ABC is required to hire anindependent underwriter to facilitate the IPO. What are the qualifications for theindependent underwriter?
it must employ at least one qualified independent underwriter. The qualification of thisunderwriter is that it has done at least three offerings of this type that are at least 50% of this offering's size inthe last 3 years. The independent underwriter's function is to help price the security.
Which of the following is exempt from FINRA Rule 5130, which prohibits the purchaseof IPOs by member firms and associated persons?
An associated person with a limited registration is not a restricted person. The other associated persons arerestricted. Whether an associated person plans to sell the IPO and whether the member firm is involved withthe offering is irrelevan
The legislation that regulates the sale of securities at the state level is known as the
Blue Sky laws.
A coffee producer, an OTC traded company, did an add-on offering to update itsroasting facility and expand into the tea market. The prospectus must be delivered within
90 days after the effective date
The announcement that must be filed in connection with a Regulation D offering is
An offering memorandum
All of the following are required to register under Rule 145 for mergers andacquisitions EXCEPT
Stock splits or stock dividends
In order to be considered an accredited investor, in each of the past 2 years theinvestor's income must exceed
his or her income in each of the past 2 years exceeded$200,000 and it is reasonable to expect the same income level in the current year. If it is a joint account, theincome test increases to $300,000
Under Rule 144, when does an affiliate need to file a Notice of Proposed Sale with theSEC?
If the sale involves more than 5,000 shares
A Rule 144 filing for the sale of restricted securities by control persons is subject towhich of the following time limitations
The purpose of a Rule 144 filing is to
Alert the SEC that a control person is offering securities for sale.
what is the term for the date when the sec recieves a registration statment from an issuer
what rule sets own the requirements for the resale of restricted stock to the public
what is the largest componet of the underwriting spread
ubderwritier is also know as what
shelf offering for a unseasined issuer
type of securites offerings cannot be advertised to the public
the syndicated letter agreement is between what parties
THE UNDERWRITERS IN A SYDNDICATE
under regulation A of the sec exchange act 1933 new issues valued at what amount may be exempt from registration
5 million or less
what is the disclosuer document for private placment called
regulation M requires the seperation and the control of information between invetement banking act of broker dealers and its tradin and market making activites. waht is this seperation called
when is the red herrring prospectus distributed
cool off periode
which act is most concerned with disclosure
securities act of 1933
SEC stands for
securities and exchange commission
the investent banker bears all the risk of unsold shares of a new issue security in which situation
firm commitment underwritting
the agreement aong underwriters als know as syndicate letter is a document that
is an agreement between participating broker and dealers who assume liability for any unsld shares and specifeis the underwriters responsibilites and participation percentages
a well know seasn issuer is issuing securites in an apo. to meet act 33 disclouser requirments the issuer may use a
free writing prospectus
which act os designed to prevent fraud in the issue of securites
the securites act of 1933
under rule 144A a qualified institutional buyer has
at east 100 million in assets under discretinay managment
uner red D rule 506 how much money can be raised within 12 months
which of the following must be sold by prospectus
bank holding companys
under red D rule 504 hw much money may be raised within 12 months
not an exempt transcation
which regulation requites distribuation of an ffering circular to prospective investorus
Some securities are exempt from the registration and prospectus requirements ofthe Securities Act of 1933. All of the following securities are among this exempt classEXCEPT
A security offered for sale in only one state.
Offering all the securities in one state is an exempt transaction (Rule 147). The security offered through theexempt transaction is NOT an exempt security. The other securities listed are exempt securities. Municipalsecurities are also exempt.
According to the Securities Act of 1933, when new securities are sold in an IPO of acompany that qualifies for listing on the NYSE, the final prospectus is to be delivered
Within 25 days of the effective date.
A $200 million new issue is being underwritten by a syndicate. A "tombstone" ad hasbeen placed in the Wall Street Journal listing the manager of the syndicate and thesyndicate's members. The placing of the ad was required by the
No one requires an underwriter to publish a tombstone ad
a director of a public corporation wishes to sell some of hos stock in the compnay. Under sec rule 144 how long is the holding period?
Under Rule 144 when does an affilliate need to file a notice of proposed sale with the SEC
if the sale involves more than 5,000 shares or if the aggregated dollar amount is greater than 50,000 in any 90-day period. affiliates must file a notice with sec
utilizing stablization efforts on a new stock issue
is permitted if reported in the prospetus of the new stock issue
what is true reguarding restricted stock?
the purchase mst be paid for in its entirerty
what term would be used to describe a pre offering solicitation under Reg A+
Testing the waters
Not a method to register a security at the state level
guaranteed bond is one that is guaranteed by another company or entity. We wouldtypically see a guaranteed bond used in which of the following situations?
An analyst includes ABC's 6% debenture in his newsletter. The analyst's employer iscurrently underwriting an ABC stock offering. This is permissible
If the bonds are not convertible.
Because the bond is a different security than the stock, including it in the newsletter is permissible if it is notconvertible into stock.
Who of the following are restricted persons associated with an IPO? I. An uncle of aregistered representative; II. The father-in-law of a registered representative; III. Abroker/dealer not involved in the syndicate; IV. A new registered representative'sgrandparents
father in law / brker dealer not invlved in syndicated
FINRA Rule 5130 states that broker/dealers and associated persons are not allowed to purchase IPOs from asyndicate. The broker/dealer's involvement in the syndicate is irrelevant. This restriction extends to a registeredrepresentative's in-laws, siblings, children, parents and spouses. Aunts, uncles, cousins and grandparents areexcluded. Additionally, anyone financially supported by the registered representative or associated person isalso a restricted person.
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