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77 Cards in this Set
- Front
- Back
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Securities Act of 1933 AKA Paper Act |
protect investors who buy new issues by requiring registration of new issues that are to be distribute interstate requiring an issuer to provide full and fair disclosure about itself and the offering requiring an issuer to make available all material information necessary for an investor to judge the issue merits regulating the underwriting and distribution of primary and secondary issue providing criminal penalties for fraud in the issuance of new securities |
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Securities Act of 1934
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Created the SEC Address the secondary trading of securities, personnel involved in secondary trading and fraudulent practices |
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Maloney ACt
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Example FINRA MSRB CBOE |
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Registration Statement
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part of the statement is the prospectus which must be given to the client registration must contain the following: Description of the issuers business name and address of company officers and directors, their salaries and, a five year business history of each amount of corporate securities company officers and directors own and identification of investors who own 10% or more of a company company capitalization, including it equity and debt description of how the proceeds will be used whether the company is involved in any legal proceedings Underwriting can assist with preparing and filing accuracy and adequacy falls on the issuer |
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Cooling Off period
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once statement is filed with the SEC a 20 minimum days period begins during the cooling off period, underwriters may not make offers to sell the securities take orders distribute sales literature or advertising material They may take indication of interest distribute preliminary prospectus publish tombstone advertisement to provide information about the potential availability of the securities |
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Stop order
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demands that all underwriting activities cease
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Preliminary Prospectus aka Red Herring |
allow underwriters and selling groups members to gauge investor interest and gather indications of interest missing from the preliminary prospectus public offering price and effective date |
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Tombstone Advertisement
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announces a new issue but does not offer the securities for sale may appear before or after the effective date issuers are not required to publish tombstone advertisement |
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Due Diligence meeting
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underwriters conduct a meeting to provide the information about the issue, the issuers financial background and the intended use of the proceeds investment bankers must: examine the use of the proceeds perform financial analysis and feasibility studies determines the company's stability determine the risk is reasonable |
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Final prospectus
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final copy of the prospectus must preceded or accompany all sales confirmations must include the following description of the offering offering price selling discounts use of the proceeds description of the underwriting, but not the actual contract statement of the possibility that the issuers price may be stabilized history of business risk to the purchasers description of management material financial information legal opinion concerning the forming of the corporation SEC disclaimer |
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SEC Review
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It does not guarantee the disclosure accuracy nor does it approve the security front of the prospectus |
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Aftermarket Sales by Prospectus
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First Initial Public Offering (IPO's), this period is 90 days if the security is to be quoted on the OTC pink or over the OTCBB(non- Nasdaq) or 25 days if the security is to be listed on an exchange or quote over Nasdaq For additional issue offering, the following apply If the security is listed or quoted Nasdaq- prospectus must be delivered only in connection with the purchases at the public offering price once distribution is complete no obligation to deliver a prospectus on the secondary market no Nasdaq prospectus delivery requirements is 40 days |
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underwriter
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B/D that specializes in investment banking and the distribution of new issues
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underwriting syndicate
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group of the other b/d to assist in the distribution of the new issue |
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investment banking
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Investment banks function may include the following advising corporation on the best ways to raise long term capital raising capital for issuers by distributing new securities buying securities from issuers and reselling them to the public distribution large blocks stock to the public and to institution helping issuers comply with securities laws |
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issuer
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filing registration statement with the SEC filing a registration statement with the state in which it intends to sell securities aka blue sky negotiating the securities price and the amount of the spread with the underwriter |
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Underwriter
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Underwriters consideration included the following stock or bond - debt financing comprises the bulk of corporate financing- interest a corporation pays on its bond tax consequence of the offering-interest a corporation pays on its bond is tax deductible money market financing - money market instrument are a short term financing mechanism typically one year or less capital market financing - markets represent long term financing for a secured bonds debentures and preferred or common stock |
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offering
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identified by who is selling the securities and whether the company is already publicly treaded
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new issue marker
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composed of companies going public by selling common stock to the public for the first time |
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additional issue market
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made up of new securities issued by companies that are already publicly owned |
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Primary offering
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one in which the proceeds of the underwriting goes to the issuing corporation
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secondary offering
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one in which one or more major stockholders in the corporation are selling or a major portion of their holding |
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Split offering
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is a combination of a primary and a secondary offering
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shelf offering
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issuer who is already a publicly traded company can register new securities with selling the entire issue at once |
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public offering
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securities are sold to the investing public through one or more b/d |
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private placement
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tends to be institutional investors may be sold to small group of wealthy individuals exempt from the Securities Act of 1933 |
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competitive bidding
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syndicate is assembled first member work together to arrive at the bid |
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negotiated underwriting
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syndicate may be formed after underwriting manager have negotiated the terms of the offering |
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pricing the new issue of publicly traded securities
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may considering the following when pricing new issues: Indication of interest from the underwriters books Prevailing market condition, including recent offering and the prices of similar new issues Price that the syndicate members will accept Price to earning (PE) ratios of similar companies and the company most recent earning report(at which the shares must be offered so that he PE ratio is in line with the PE ratios of other similar publicly traded stock) Company's dividend payment record (if any) and financial health Company debt ratio issue price or yield must be determined by the effective date of the registration |
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effective date
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security begin to trad
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Stabilizing price |
under writer can stabilize the security by bidding on share in the open market bids must be at or below the public offering price Managing underwriter can enter or appoint a syndicate a member to enter bids |
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Syndicate Penalty Bid
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Negotiated Agreement
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between the issuer and investment banker
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Underwriting Agreement
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signed before the effective date
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underwriting agreement (UA)
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is the contract that establishes the relationship between and the issuer and the underwriters set forth their respective right and obligation and the terms and condition upon which the issuer is required to sell underwriters are required to purchase signed by all underwriters |
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underwriting manager
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direct the entire underwriting process include the following signing the underwriting agreement with the issuer directing the diligence meeting distribution process |
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Syndicate member
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sign a syndicate agreement or syndicate letter that describes the participants responsibilities and allocation of syndicate profits |
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agreement among underwriters
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agreement among underwriters detail each underwriting commitment Liability particularly for any shares that remain unsold ( Western/divided, eastern/Undivided) designates the syndicate manager and authority to manage the underwriting establish the offering price with the issuer, timing of the offer, controlling advertisement and making all required filing comes via this agreement |
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selling group
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members act as a agents with no commitment to buy securities sign a selling group agreement includes: statement that the manager acts of the underwriters the amount of securities each selling group member will be allotted and the tentative public offering price at which the securities will be sold(price is firmed up just before the offering date) provision as to how and when the payment for shares is to be made to the managing underwriter legal provision limiting each selling group member liability in con junction with the underwriting |
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negotiated underwriting
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include the following securities to be offered offering price or yield underwriting fees standard in the underwriting corporate securities because of close business relationship between corporation and investment banking firms |
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competitive Bid
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often required by law state or municipal government invites the investment bankers to bid for a new issue bond award the securities to the underwriters whose bid result in the lowest net interest cost to the issuer |
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firm commitment
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specified price and quantity range on or about a given date any losses incurred due to unsold securities are prorated among the underwriting firm according to their participation |
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letter of intent
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the underwriter is committing to buy securities from the issuer and paying the underwriting proceeds to the company |
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market out clause
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risk beyond the underwriters control
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underwriter may suspend or abort an offering if a material adverse event occurs that affects the issuing corporation and impairs the investment quality of the securities being offered
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stand by
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company current stockholders did not exercise their preemptive right purchase whatever shares remain unsold as a result of right expiring |
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best efforts underwriting
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underwriting is not committed no risk act as agent contingent on the underwriters ability to sell shares in either a public offering or a private placement |
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all or non underwriting(AON)
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during the offering period offer is held in escroww pending disposition of the underwriting |
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mini max offering
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once the minimum is met the underwriter can expand to offer the max found in limited partnership |
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underwriting compensation
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price at which underwriters buy stock from issuers always differs from the price at which they offer the shares to the public
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underwriting proceeds
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price the issuer recieves |
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public offering price (POP)
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price the investor pays |
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writing spread
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consist of manager fee - negotiating the deal and managing the underwriting and distribution process underwriting fee - assuming the risk of buying securities from the issuer with out assurance that securities can be resold selling concession - placing the securities with investors |
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over allotments
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allows the underwriters to sell up to 15% more then the original number set by the issuer would normally be done if the demand for the security issue proves higher than expected |
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exemption from the securities act of 1933
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These exempt securities include: U.S government securities municipal bonds commercial paper and banker acceptance that have maturities of less than 270 days insurance policies and fixed annuity contracts ( but not variable annuities) national and state bank ( not bank holding company) securities building and loan ( S&L) securities charitable, religious, educational , and nonprofit association issues banks are exempted from SEC registration of their securities |
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exempt transaction under the 1933 act |
Regulation A: corporate offering of less than 5 million Regulation D: private placement Rule 147: securities offered and sold exclusively interstate Regulation S: offer ad sales made outside the United States by U.S issuers Other exempt transaction, including Rule 144, Rule 144a and Rule 145 |
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Regulation A: Small Offering
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allows a small company access to the capital market to raise a small amount of money with incurring prohibitive cost provided with this offering circular rather then a full prospectus 20 days cooling off period between the filing and effective date issuer need not provide audited financial informtion |
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Regulation D: Private Placement
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SEC does not require registration of an offering if it is privately placed with: Accredited investors that do not need SEC protection Maximum of 35 individual (nonaccredited) investor An accredited investor is defined as one who has a net worth of 1 million or more: not including primary residence has had an annual income of $200K or more in each of the two most recent years($300K jointly with a spouse) who has a reasonable expectation of reaching the same income level during the current year officer and directors are accredited |
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General Solicitation and Advertising Private Placement
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All purchase of an advertise securities must be accredit investor or business must believe that the investor is accredited at the time of the sale in order to solicit or advertise - all purchases must be accredited business must take reasonable steps to verify that all purchasers are accredited |
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Rule 147 - interstate offering
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issuer has its principal office and receives at least 80% of its income in the state at least 80% of the issuers assets are located with in the state the B/D acting as underwriting is a resident of the state and has an office in the state all purchasers are resident of the state purchase of an intrastate issue may not resell to any other resident of another state for atleast 9 month after the last sale |
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Rule 144
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regulates the sales of control and restricted securities, stipulation the holding period, quantity limitation, manner of sale and filing procedures |
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Control securities
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are those owned by directors, officer or person who own control 10% more of the issuers voting stock |
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Restricted Securities
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acquired through some means other then a registered public offering surety purchase in a private placement is a restricted security may not be sold for a full 6 months after 6 months may sell shares subject to the volume restriction rules |
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in any 90 day period an investor may sell the greater of
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1% of the total outstanding shares of the same class at the time of sale the average weekly trading volume in the stock over the past four weeks on all exchanges or as reported through Nasdaq affiliated person are subject to volume restriction unaffiliated investor may be sold completely unrestricted after six month holding period has been satisfied |
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restricted stock (unregistrered) held by a nonaffiliate (noninsider) |
six month hold sell freely therefter |
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restricted stock unregistered) held by an affiliate (insider) |
volume limits thereafter |
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Control (registered) Held by an affiliate (insider) |
volume limits always apply |
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Rule 144 Insiders
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restricted from participating in speculative options transaction if insider profit from a sale held for less ten 6 month profits are to be returned to the company must be reported to SEC with two business days |
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Rule 144a
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must be a qualified institutional buyer (QIB) - minimum of $100 million in assets |
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Rule 145 of the act 1933 act
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is intended to protect stockholder of any company that proposes to reorganize it ownership structure, acquire another company or merge with another company requires that a proxy statement be sent to the stockholders |
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Reclassification
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when on class of securities is to be exchanged internally for another class in a way that shifts ownership control
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merger or consolidation
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when stockholders in a target company are offered securities in another company in exchange for the surrender of their stock |
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transfer of asset
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stockholders thus solicited are being asked to approve their company dissolution |
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Regulation S: Offers and Sales Outside the United States
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issuers are excluded from the registration provision of the securities act of 1933 must be an off shore transaction no direct selling efforts in the United States securities that are sold to non US citizen cannot be resold in the United States for 12 months |
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Antifraud regulation of act 133 and 1934
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is not exempt from Acts 1933 and 1934
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protecting the public and restricted person prohibitions ( FINRA Rule 5130)
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designed to protect the integrity of the public process by ensuring that member make a bona fide public offering of securities at the public offering price member do not withhold securities in a public offering for their own benefits or use such securities to reward person whoa are in a position to direct future business to the member industry insider, such as members and their associated person do not take advantage of their insider status to gain access for their own benefits at the expense of public applies to new offerings |
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protecting the public and restricted person prohibitions ( FINRA Rule 5130) #2
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Restricted person are as follows: member firms Employees of member firm Finders and Fiduciaries acting on behalf of the managing underwriter, including attorneys, accountants, financial consultants and so on Portfolio manager including any person who has the authority to buy or sell securities for a bank, saving and loans association, insurance company or investment company Any person owning 10% or more of a company immediate family members are restricted |
