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63 Cards in this Set
- Front
- Back
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What two ways can securities be offered or issued?
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Public Offering or a private placement
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Follow-on Offering
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When a company has already gone public and intends to raise additional capital through a sale of common stock
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Combined (Split) Offering
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Some of the shares are offered by the issuer while the remainder are offered by selling shareholders. This may be a VC seeking to cash out or scale back
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Private Investment in Public Equity (PIPE)
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A private placement of securities where a B-D assists an issuer by distributing unregistered securities to a small group fo accredited investors (hedge funds). The company's share price will often decline because the number of shares is diluted and the perception is the comp needs money
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Spin-Off Transaction
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A parent company distributes shares of a subsidiary company to the parent company's shareholders
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Underwriter
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A B-D that helps corps or municipalities that are interested in raising capital through distribution of their stocks or bonds
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Underwriting Syndicate
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A group of B-D's that put together a sale of a public offering
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Firm-Commitment
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A syndicate agrees to purchase the entire issue and absorb any securities that are not sold. Most risk for syndicate
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Best-Efforts
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Underwriters sell as much of the new offering as they are able to, and can return any unsold securities to the issuer. Sometimes the corporation will require a minimum to be sold or they will cancel the offering
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All-or-None
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If the entire issue is not sold the corporation will cancel the IPO |
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Mini-Maxi
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Minimum threshold of sales to be met for the offering, once its met additional sales can be met up to a certain amount but the offering will 100% happen
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Escrow Account
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Because these offerings may be cancelled if not everything is sold, the money received for shares is held in escrow so that it can be returned in case of cancellation
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Standby Agreements
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If a corp wants to sell additional shares it can conduct a preemptive rights offering. In this agreement the syndicate will purchase the unsubscribed shares on a firm-commitment basis
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Shelf Registration
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Securities are sold on a delayed or continuous basis, no more than three years. This allows the company and its underwriters to wait for favorable market conditions
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Market-Out Clause
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This clause allows the syndicate to cancel an agreement based on market events
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Selling Group
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Other B-D's recruited by the syndicate to assist in the sale of an offering. Selling Group members have no financial liability
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Public Offering Price (POP)
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Price set by the underwriters of an IPO, and members of syndicate cannot sell shares below this price unless released by the underwriter
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Underwriting Spread
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The difference between the amount paid by the investing public and the amount received the issuing corporation. This represents the syndicate's gross profit`
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How is the underwriting spread broken up?
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Manager's Fee: portion paid to the managing underwriter for each share of the offering Member's/Underwriter's Fee: portion paid to the syndicate member assuming risk or liability for the shares Concession: portion paid to the firm that sells the shares |
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Registration Statement
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Provides investors with relevant information about an offering to make an informed investment decision - as required by Securities Act of 1933. It must include: Character of the issuer's business A balance sheet created 90 days prior Financial statements that show P&L's for 3 fiscal years Amount of capitalization and use of proceeds Monies paid to affiliated persons or businesses of issuer Shareholdings of senior officers, directors, underwriters, and ID of individuals holding at least 10% of company's securites |
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Prospectus
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An abbreviated version of the registration statement with provides investors with a full picture of the securities they are thinking about buying |
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What makes up the registration process?
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The preregistration period The cooling-off period The post-effective period |
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Preregistration Period
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The issuer prepares their regisration statement, when the statement is filed this period ends. This period begins the due diligence process for the managing underwriter
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Cooling Off Period
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20 day period while the SEC reviews the registration statement. The SEC does not judge the merits of the issue, just whether the statement is complete
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Red Herring
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B-D's are able to send a condensed registration statement to potental buyers during cooling-off period. Cannot include a final offering price
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What can underwriters do during the cooling off period?
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Discuss the issue Provide the red herring to potential purchasers Record the names of persons providing an indication of interest |
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Three methods of state securities registration:
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Notification (filing): submitting an application with the state Administrator requesting approval to offer securities in state Coordination: form completed at same time as federal registration Qualification: meeting the specific requirements of one state and becomes effective at discretion of state administrator |
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Effective Date
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Represents the end of the cooling-off period and beginning of post-effective period (typically 20 days after cooling off period begins)
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Due Diligence Meeting
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Held right before determination of effective date, involves underwriters, syndicate members, officers of the issuer, attorneys and accounts to make sure everything has satisfied federal and state laws
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Post-Effective Period
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The POP is set and sales can begin on offering
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Prospectus Delivery Requirements
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For a non-listed IPO: 90 days For a non-listed follow-on offering: 40 days For an IPO of a security listed on NYSE: 25 days For an NYSE or Nasdaq listed follow-on: No req |
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Tombstone Ad
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Underwriting syndicate publishes ad as a means of announcing the sale of securities
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Exempt Securities
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These securities do not need to follow registration and prospectus requirements. U.S Gov't securities, muni securities, non-profits, small business investment companies, short-term corporate debt instruments
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Regulation A
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If an issuer offers a new issue of securities valued at 5 mill or less sold over a 12-month period they are exempt from registration but they still need to file an offering statement to the SEC and provide an offering circular to prospective purchasers
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Regulation D
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Issuer's private placement of securities is exempt if: Issuer believes buyer is a sophisticated investor Buyer has access to a private placement memorandum (like a prospectus) Issuer is assured buyer does not intend to quick sale securities (lock-up agreement) Securities may not be sold to more than 35 nonaccredited investors |
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What is an Accredited Investor?
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Financial Institutions, Directors or partners of issuer, individuals who have either a net worth over 1 mil or a gross income of at least $200,000 ($300,000 if a couple)
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Lock-Up Agreement
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Dictates the amount of time that pre-IPO investors must wait to sell their shares following IPO. Typically it is 6 months
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Rule 144
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Regulates sale of restricted stock and control stock. Restricted stock must be held for 6 months, no mandatory holding period for control stock. But to sell either stock the individual needs to file form 144 with the SEC
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Restricted Stock
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Unregistred stock typically acquired by an individual through a private placement
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Control Stock
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Registered stock aqcuired by an affiliated person in the secondary market
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Rule 144 Volume Limitation
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For NYSE or Nasdaq stock, the maximum sold over a 90-day period is the greater of 1% of total shares or average weekly trading volume for past four weeks
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Rule 144A
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Permits sale of restricted securities to sophisticated investors wihout being subject to Rule 144. To qualify, the purchasers need to be a Qualified Institutional Buyer
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What is a QIB?
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A qualified Institutional Buyer is: An insurance, registered investment, small biz dev, private/public pension plan, bank trust Buyer must be purchasing for own account or that of another QIB Buyer must own and invest at least $100 mil of securites of issuers that are not affiliated |
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Rule 145
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Reclassifications in which: An issuer substitutes one security for another A merger with one corp is exchanged for other A transfer of assets from one corp to other These are subject to Securities Act of 1933 and as S-4 needs to be filed |
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Tender Offer`
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An entity offers to buy a corporation's shares normally for the purpose of acquiring control of the company. Price is typically higher than market price
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Leveraged Buyout
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Acquisition of a company by primarily using debt to finance purchase. Assets of acquired company are typically used as collateral for borrowed funds. This is done by a private equity firm
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Rule 147
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Registration exemption for securities sold within one state. Avaiable to companies which have: 80% of gross revenues derived from ops in state 80% of assets located within state 80% of proceeds expand facilities in the state 100% of purchasers are residents of that state Stock may not be sold to nonresidents for 9 months |
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Regulation S
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US companies who issue securities outside of the country are not held to US laws. To qualify all transactions must take place offshore. There is a holding period to resell securities in US: 40 days for debt and 1 year for equities
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New Issue Rule
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FINRA member firm is required to offer new issues to the public and can't withold shares for own accounts
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Preconditions for selling under New Issue Rule
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A firm must satisfy preconditions for sale requirement by getting verification through an affirmative written statement that the buyer is in accordance with the New Issue rule
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Which employees are restricted by new issue rule?
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Member firms and associated people Portfolio manager purchasing for own account Immediate family member of a member firm EE if: EE gives or receives more than 25% of person's income or shares house EE is employed by member firm EE can control allocation of new issue |
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Exemption to New Issue Rule
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Anti-dilution provision that allows restricted person who owns shares to purchase new shares to keep equity at same level. Buyer must have owned shares for at least one year and new shares cannot be resold for three years
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What constitutes a conflict of interest with a public offering?
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Member firm is issuer of securities Issuer controls or is under control of member firm At least 5% of net proceeds, not including underwriting comp, are intended to reduce or retire balance of a loan |
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What is an affiliate?
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Any entity that controls, is controlled by, or is under common control with the member
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What is control?
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having ownership of 10% or more of the common or preferred equity or subordinated debt or another entity or having a right to 10% or more of the P&L of a partnership
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What is common control?
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A situation in which the same person or entity controls two or more entities
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A member firm with a conflict of interest cannot participate in an offering unless..
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The securities offered have a bona fide public market If they are fixed-income securities, they must be of investment-grade |
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Qualified Independent Underwriter
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If the underwriter is selling its own stock or that of an affiliate it cannot perform due diligence, so FINRA will bring in a B-D that acts as a QIU
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Green Shoe Clause
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If the issue is oversubscribed, underwriters can buy additional shares (15% maximum) to sell to meet the new demand
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Regulation M
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Restricts underwriters/issuers from bidding for/purchasing stock in the secondary market currently being offered for distribution. Restriction extends for a limited time around effective date
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Stabilization
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If an issue lacks investor interest, the underwriter can place a bid for securities in secondary market at or below public offering price. This bid cannot be higher than the highest independent bid
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Penalty Bid
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Placed by a managing underwriter to reclaim a selling concession from a syndicate member. This occurs if a selling group member customer buys a bid and then sells it back to the syndicate at the stablizing price
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Limitations on Research
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For IPOs, no research from underwriter can be published on company for 40 days (25 days for syndicate members, selling group) For follow-on, underwriter is subject to 10-day calendar restriction |
