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118 Cards in this Set
- Front
- Back
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The Securities Act of 1933 is also referred to as
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Paper act, full disclosure act, new issues act, truth in securities act, and prospectus act
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What does the Securities Act of 1934 address
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Secondary trading of securities, personnel involving in secondary trading and fraudulent trading practices, trading on exchanges, issuance of financial reports by corporations
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The Maloney Act of 1938 established
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Self regulatory bodies to police the industry
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What are the three phases of underwriting
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first issuer files registration statement with the SEC second cooling off period and last effective date offering period may begin
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What are underwriters prohibited from doing during the cooling off period
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Making or taking offers to sell about security , distributing sales literature
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What are underwriters permitted to do during the cooling off period
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Take indication of interest, distribute preliminary prospectus and publish tombstone advertisements to provide information about potential availability of the securities
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What is a tombstone advertisement
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It an ounce is a new issue but does not offer the security for sale. It may appear before or after the effective date
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What must investment bankers do during the due diligence process
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Examine the use of the proceeds, perform financial analysis and feasibility studies, determine the company's ability, and determine whether the risk is reasonable
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What happens during the SEC review
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The review does not guarantee the disclosures accuracy nor does it improve the security. It clears the prospectus for distribution
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What is the prospectus delivery requirement period
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In certain offerings a final prospectus must be delivered by all members to buyers in the secondary market for a specified time following the effective date. If a prospectus delivery requirements period exists in the secondary market, a prospectus must be delivered by all dealers, including those that did not participate in the distribution
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What is the prospectus delivery requirement for IPO
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90 days if the security is to be quoted on the OTC pink or over the OTC BB, or 25 days if the security is to be listed on an exchange or quoted over NASDAQ
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What is the prospectus delivery requirements for non IPO
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If the security is listed for quoted over NASDAQ, a prospectus must be delivered only in connection with purchases at the public offering price. If the security is not NASDAQ, the prospectus delivery requirement is 40 days
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Associated person with a prospectus must never
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Mark a prospectus. Doing so by only the federal securities law
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Can additional information be added to a red herring at a later date
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Yes
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What is an underwriter
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A broker-dealer that specializes in investment banking and the distribution of new issues
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What is an underwriting syndicate
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A group of other broker dealers to assist in the distribution of the new issue
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What are the responsibilities of the issuer
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Filing the registration statement with the SEC, filing a registration statement with the states in which it intends to sell securities also known as blue skyng, negotiating the securities price and the amount of the spread with the underwriter
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What is the additional issue market
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It is made up of new securities issued by companies that are already publicly owned.
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What is a primary offering
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One in which the proceeds of the underwriting go to be issuing corporation
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What is the secondary offering
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One in which major stockholders in the corporation are selling all or a major portion of their holdings . The underwriting proceeds are paid to the stockholders rather than the corporation
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What is a shelf offering
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An issue where who is already a publicly traded company can register new securities with out selling the entire issue app. Wants filed, the registration is good for 2 years and a mouse the way to sell portions of a registered security over a three-year period without having to reregister the security
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What is a private placement
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The insurance company with the help of the investment bank sell security to private investors as opposed to the general investing public.
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In competitive bidding when is the syndicate assembled
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First. And syndicate members work together to arrive at the bid
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In negotiated underwriting when is the syndicated assembled
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It may be formed after the issuer and the underwriter manager have negotiated the terms of the offering
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How and when does an underwriter stabilize prices
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When demand is considerably lower than supply for a new issue. The managing underwriter can enter stabilizing bids for the security until the end of the offering period. Stabilizing bids must not be made at a price higher than the public offering price.
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When is stabilization illegal
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If stabilizing done at a price higher than the public offering price. It is called pegging or fixing
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What happens in a stock offering when the demand is lower than the supply and public buying interest does not increase
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The managing underwriter may have no choice but to abandon the POP, public offering price, pull the stabilizing bid, and let the stock find its own price
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What is an underwriting agreement
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A negotiated agreement between an issuer and investment banker that is establishes the relationship, setting for their rights and obligations and terms and conditions upon which the issuer is required to sell and the underwriters are required to purchase
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What is a selling group
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Other firms dinner in listed to help distribute securities Without commitment
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What is negotiated underwriting
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A process in which both the purchase price and the offering price for a new issue is negotiated between the issuer and the underwriters . The underwriter pays the Issuer a purchase price, and the public pays the offering price. Spread between the purchase price and the public offering price represent proceeds to the underwriter.
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What is the standard for underwriting most municipal securities
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Competitive bid arrangements. In a competitive bid, a municipal government invites investment bankers to bid for a new issue of bond. That issuer awards the securities tounder writer with the lowest cost
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What securities are exempt from the registration statement prospectus requirements of the 1933 act
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Government securities, municipal bond, st commercial paper and bankers acceptance, insurance , charity issues , bank securities, and any interest in a railroad equipment trust certificates
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What are the major exempt transactions under 1933 act
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Regulation A, Regulation D, rule 147 regulation S, rule 144, 144a, 145
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What is rules regulation A
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Permit issuers to raise up to $5,000,000 in a 12-month period Without full registration. The issuer files an abbreviated notice of sale for offering circular with the SEC. The cooling off period is 20 days between the filing date and effective date. The issuer need not provide audited financial information. Individuals buying securities in a regulation a offering must receive title offering circular at least 48 hours before sale
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What is Regulation D private placement
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No registration is required if an offering is privately placed with the accredited investors or a maximum of 35 individual non accredited investors. There is no limit to the number of shares that can be issued nor the number of accredited investors who made purchase the shares
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What is an accredited investor
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Has a net worth of 1 million or more not including primary residence. Has an annual income of $200,000 or more in each of the two most recent years or 300,000 with spouse
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What are the four terms that may be used to describe private placement
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Restricted--because it must be held for 6 months. Unregistered. Letter stock--investor agreed to terms by signing an investment later. Legend-- a special inscription on the stock certificate indicates restricted transfer
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What is rule 147 intrastate offerings
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Under Rule 147 offering that take place entirely in one state are exempt from registration if at least 80% of the issuer assets are located in the state, the issuer has principal office and receives 80 percent of income in the state, a broker-dealer is a resident of the state and has an office in that state, all purchases are residents of the state
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What is rule 144
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Rule 144 regulates the sale of control and restricted security. Rule 144 does not pertain to primary offerings. It affects secondary market transactions in restricted or control securities
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What are restricted securities
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Never had been registered by the SEC. These are usually private placement securities as well as those securities acquired by an ESOP.
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What is a control stock
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Control securities are those owned by directors, officers, or persons who owned or controlled 10 percent or more of the issuers voting stock.
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What are the volume limits under Rule 144
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In a 90 day period, investor may sell the greater of 1% of the total outstanding shares of the same class, or the average weekly trading volume in the stock over the past 4 weeks all exchanges or as reported through NASDAQ
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What are the two things to look for in a rule 144 question
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What kind of stock is being sold restricted or controlled and who is selling it insider or outsider
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Under rule 144 what is the major difference between restricted stock and control stock
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Only restricted stock (both affiliates and nonaffialites) have a holding period. Control stock can be sold immediately but volume limits always apply
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When required, form 144 must be filed no later than concurrently with the sale of the stock, and the filing is good for 90 days. When will a form 144 not be required
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if sale is ar or below deMinimus filing threshold. Sales in amounts not exceeding 5000 shares for $50,000
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Insiders can not
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Short
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What is rule 144a
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It regulates the sale of restricted stock to institutional investor. Allows non-registered foreign and domestic security to be sold to certain qualified institutional buyers. QIB must have a minimum of $100 million in assets
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What is Rule 145
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Rule 145 requires that stockholders be sent a full disclosure document to inform them of the reclassification of securities, merger, transfer of assets for another company securities, acquisitions, and consolidations
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What is regulation s
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Offers and sales made outside the United States by us issuers are excluded from the registration provisions of 1933 act
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What is FINRA rules 5130
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The rule prohibited member firms from selling a new issue to any account where restricted persons are beneficial owners. Restricted persons are defined as member firms and their employees, fiduciaries, portfolio managers any person owning 10 percent or more of a Member firm
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What is that the de minimis exemption
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If the beneficial interest of restricted person do not exceed 10 percent of an account the account may purchase a new equity issue
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What is spinning
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The practice of allocating highly sought after IPOs shares to individuals who are in a position to direct security business to the firm
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New issues of common stock may not be sold at the public offering price to any account in which
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a restricted person has a beneficial interest. Prior to buying an IPO, a customer must prevent a representation letter stating they are not a restricted person
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What securities do not require issuance by prospectus
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The Securities Act of 1933 does not require US government securities to be issued by prospectus.
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On the interstate offering ruler 147 exemption must be registered where
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With the one state. Blue sky registration, uniform securities Act registration, means the same thing as state registration
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What is the agreement among underwriters
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The agreement among underwriters is also called The Syndicate letter. It is signed by representatives of all syndicate members and establishes a joint account to sell newly issued securities
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What are examples of restricted persons
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Restricted persons include FINRA members, employees of member firms, finders and fiduciaries acting on behalf of the managing underwriter, portfolio managers, and any person owning 10% or more of a member firm. Also included are a restricted person immediate family members
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How many times may an affiliate or insider holding unregistered shares sell them under rule 144
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4 times per year. Rule 144 allows an affiliate to sell the greater of 1% of the outstanding shares or the average of the last 4 weeks of trading volume with each form 144 filing. The filing is good for 90 days, which will allow for as many as four filings per year
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The Securities Exchange Act of 1934 does not cover what
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The issuance of corporate securities
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The final meeting before the end of the cooling off period is known as
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Due diligence meeting and it is always held before the effective date of the new offering
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What securities are exempt from the registration from the Security Act of 1933
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Commercial paper and bankers acceptances that had maturities of no more than 270 days, state and municipal bonds, National and State Bank securities.
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Do commercial bank holding companies have to register with the SEC
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Yes. They are corporations
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What act requires corporate public users to send an annual reports to their shareholders
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The Securities Act of 1934 requires public issue worth to inform the shareholders of their operation at least on an annual basis. These reports should include a statement of the natural condition. After that requires public companies to provide proxies do all shareholders regarding any action that requires a vote of the shares outstanding
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For new issues that qualify for listing on an exchange NASDAQ , the prospectus delivery requirements in the aftermarket is
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25 days.
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For new issues that are nonlisted and non NASDAQ , the prospectus delivery requirements in the aftermarket is
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40 days
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For new issues that will be specifically quoted on the OTC BB or the electronic OTC pink, the prospectus delivery requirements in the aftermarket is
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90 days
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Which firms can a member grant concessions or other allowances
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Another member firm or a foreign nonmember broker dealer ineligible for FINRA membership. A suspended member must be treated like a member of the general public,i.e. no discount or concessions.
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What is regulation U
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Regulation u regulates loans from lenders other than broker dealers for that purpose of purchasing securities and is not related to exempt transactions under the Securities Act of 1933
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What is the difference between an agreement among underwriters and a underwriting agreement
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The agreement among underwriters or syndicate letter details the participation and obligations of each syndicate member. It is used in connection with a municipal security underwriting.
The underwriting agreement is the contract that establishes the relationship between the issuer and the underwriters setting for both parties rights and obligations |
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Are private placements exempt from registration
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Yes under the Securities Act of 1933
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A member firm broker-dealer wishing to go public may sell a new equity issue of its own securities to everybody except
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Employees of OTHER full service member firms. Rules regarding restricted persons generally prohibited member firms from selling new issue securities to employees of member firms InCLUDING their own. However when member firm sell their own securities, rules regarding the restricted persons do not apply to the issuer's own employees but still apply to the employees of other full service member firm
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What is the maximum amount of security that can be offered under Regulation A
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Under Regulation A, the dollar limit on sales is $5 million per issue or any 12-month.. Persons affiliated with the issuer may sell up to $1.5 million each
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Under FINRA rules what should a member firm do if it receives an order to buy a new equity issue on behalf of an undisclosed principal from a bank
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The member must make an inquiry as to whether the purchaser is restricted. It is not necessary to determine the identity and business affiliation of the purchaser
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What is regulation S and what is a holding period for regulation S securities
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Regulation S securities are offered by us issuers to nonUS residents. The securities must be held for 12 months before they can be resold in the United States
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The Securities and Exchange Act of 1934 prohibited company insiders from
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Making purchases through the exercise of options, selling short or using insider information. A corporate Insider is defined as Officer, director, 10% stockholder, or family member of an insider. Insiders are required to report any changes in their holdings to the SEC within 2 business days
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If an officer of a public company buys shares of the company's registered stock in the open market does he have to file Form 144 to sell it
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No.If purchased in the open market, the transaction is not a private placement and there is no required holding period. However the officer is an affiliate and is therefore subject to the reporting and volume limitations under Rule 144.
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How and when may a preliminary prospectus be used
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A preliminary prospectus, or red herring, is used only during the cooling off. It may be used to obtain indications of interest. Their use ends when the offering becomes infected It does not contain the final price, offerings our price immediately before the effective date.
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ABC corporation is offering 500,000 units to the public at $5 per unit. Each unit consists of two shares of ABC preferred stock and one perpetual warrant for 1/2 share of ABC exercisable a $5. How much capital was raised by the initial sale of this issue
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2.5 million dollars
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Under the interstate offering rule 147, when may a resident purchaser of securities resell them to a non resident
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9 months from the end of the distribution. In and intrastate offering, a purchaser of the issue may not sell the security to a resident of another state for at least 9 months from the end of the distribution
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At what price may stabilizing bids be entered
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Stabilizing bid s must be entered at a price no higher than the public offering price. It cannot be used to raise the market price of an issue.
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The smallest component of a corporate underwriting spread is
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The manager fee
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What is the largest component of a corporate underwriting spread
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The selling concession
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What can the underwriter do if the demand is far less than anticipated for a new issue of common stock
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Stabilize the issue by placing bids in the open market slightly below the public offering price
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What organization are SROs
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FINRA, and the stock exchanges. Like FINRA, the exchanges are registered with the SEC. FINRA regulates the OTC market and members of the New York Stock Exchange. Other exchanges regulate transactions occurring on their trading floor. The SEC is not an SRO. All SRO's are subject to SEC oversight
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Filing an updated prospectus would come under the requirement of what securities Act
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1933 because of new issues
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What terms are synonymous with private placement stock
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Restricted-because it must be held for 6 months, unregistered because no registration statement on file with the SEC, letter stock-Investor agrees to terms by signing an investment letter, and legend stock-- A special inscription on the stock certificate indicates it transfer
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Regulation A does not require a prospectus but it does require an offering circular. When should that offering circular be provided to purchasers
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At least 48 hours before the confirmation of the sale
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From the point of view of a corporate issuer, the most conservative means of raising capital would be the issuance of
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Common stock. Common stock issues add to the capital of a corporation and do not settle it with additional cash flow demands. This approach is the most conservative
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If the customers of a selling group member sell into a stabilizing bid, the selling group member must pay back to the underwriter
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Concession. If selling group members liquidate into the stabilizing bid, they may be required to return the concession they were originally paid
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A tombstone advertisement does not include
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Net proceeds to the issuer. Under SEC rule134, a tombstone advertisement may be placed by the syndicate manager on or before the effective date and is limited to the name of the issuer, type of security being offered, number of shares to be sold, public offering price, and names of the Syndicate member
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In the case of an unsolicited order, a prospectus must be delivered to the purchaser of a unit investment trust when
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With the purchase confirmation. A unsolicited purchaser of a newly issued security must receive a prospectus no later than by receipt of the purchase confirmation. However any solicitation must be preceded or accompanied by a prospectus
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A customer purchases a new issue of stock from a syndicate member. The customer will be paying the public offering price and
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No markup or commission. New issues are sold at the public offering price without a commission or mark up. In the secondary market, securities are traded on an agency basis (commission) or on a principal basis (mark up and down).
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What factors are considered when determining whether underwriting compensation is fair and reasonable
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Relevant factors considered by Sandra in determining the fairness of underwriting compensation include the size of the offering, the type of commitment, the type of security, the form of compensation, the total value of all forms of compensation, the underwriters relationship to the issuer, and any form of potential conflicts of interest
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What must be part of a registration statement
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A statement as to whether the company is involved in legal proceedings, a prospectus, the signatures of CEO, CFO, CAO and majority of the board, and it must identify investors who owns 10 percent or more of the company
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What does it mean when the SEC Rules that in offering has become effective
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That the offering was cleared for sale. And offering is effective when released by the SEC for sale. The SEC does not approve or disapprove of new offerings. It releases them for sale after determining that enough information is available for public investors to make sound investment decisions
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Under what circumstances may a member firm sell a new equity issues to one of its non registered employees
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Under no circumstances. Member firm and employees of members are prohibited from buying a new equity issue at the public offering price
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what is a stop order
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underwriting stopped by sec because of fraud
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what is market out clause
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a way that underwriting can be canceled
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what is an issuer binding documents
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underwriting agreement
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Under Rule 144 what are the rules for the sale by an affiliate of a non reporting issuer
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holding period is 1 year and then may resell under rules 144
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What is an affiliate under Rule 144
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A person that directly or indirectly is controlled by issuer .
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When do the volume limits end under Section rule 144
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Never for insiders. Non insiders after one year for restricted stocks
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What is the green shoe clause, aka over allotment provision
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Underwriters may purchase maximum 15% more shares from an issuer to meet the demands of an oversubscribed offering
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What is an accredited investor
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Net worth of at least 1 million dollars. Pre-tax income in each of the last two years of 200,000
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Under Rule 144 if affiliate person sales restricted security what are the rules
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6 months holding. Then resell with volume limitations
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Under Rule 144 if nonaffiliate person sales restricted security what are the rules
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Six month holding period only and 144 form and must provide public information. Not subject to volume restrictions after holding period. It's held for one year unlimited public resale allowed
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Under rule 144 what is a reporting issuer
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For the last 90 days the issuer is subject to the reporting requirements of 1934 at
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Under Rule 144 what is an affiliate
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A person that directly or indirectly is controlled by or is under common control with the issuer. Generally at holding will qualify in executive as a control person
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Under Rule 144 what are the sales restrictions for a non reporting issuer
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Holding period one year. May resell in accordance with all who want war requirement.
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The holder of restricted securities may sell them through a broker or directly to a dealer. The SEC must be notified when the order is placed. The executing broker is prohibited from
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Soliciting buy orders. The broker can obtain indications of interest from other broker dealers. The broker can contact customers who had indicated an unsolicited interest in the security within the last 10 business days
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What is a riskless transaction
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A transaction where a game is guaranteed by the structure of the transaction. Markups and markdowns should not exceed 5%
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The 5% markup policy does not apply to securities sold at a specific price and with a prospectus. A transaction in common stock customarily has what type of markup compared to a bond transaction of the same size
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Common stock usually has a higher percentage markup than a bond transaction of the same size
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A corporation's control persons must report changes in holdings of securities of
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Their own company
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Insiders are required to report any changes in their holdings to the SEC within
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2 business days
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What is the smallest percentage of the underwriting spread
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The manager's fee
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Under SECRule 134, a tombstone advertisement includes
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Names of the syndicate members, public offering price, number of shares to be sold
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When a member of the syndicate sells a bond they are entitled to the
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Total takedown. The concession would only go to those who are not members of the syndicate but are part of the selling group instead
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The 5% markup policy does not apply to
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Mutual funds & new issues
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