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110 Cards in this Set

  • Front
  • Back
The Securities Act of 1933
regulates new issues of corporate securities sold to the public and requires securities issuers to provide enough information for investors to make fully informed buying decisions
Securities Exchange Act of 1934
addresses secondary trading of securities, personnel involved in secondary trading and fraudulent trading practices, also created the SEC to oversee the industry
SEC Securities and Exchange Commission
Oversees the securities industry
Maloney Act
amended the Securities Exchange Act of 1934 and provides for the establishment of self regulatory bodies to help police the industry.
Paper Act / Full Disclosure Act / New Issues Act / Truth in Securities Act / and Prospectus Act
What the Securities Act of 1933 is also known as
Requiring registration of newe issues that are to be distributed interstate

requiring an issuer to provide full and fair disclosure about itself and the offering

requiring an issuer to make available all material information for an investor to judge the issue's merit

regulating the underwriting and distribution of primary and secondary issues

providing criminal penalties for fraud in the issuance of new securities
What does the 1933 Act protect investors by doing?
registration statement
What an issuer must file with the SEC disclosing material information about the issue
Prospectus
part of the registration statment which must be provided to all purchasers of the new issue
Description of the issuer's business

Name and addresses of company officers and directors, their salaries, and 5 year business history of each

the amount of corporate securities company officers and directors own and identification of investors who own 10% or more of the company

the company's capitalization, including its equity and debt

a description of how the proceeds will be used

whether the company is involved in any legal procceedings
What must a registration statment contain
cooling-off period for 20 days
Period that begins after the issuer files a registration statement with the SEC
Issuer Files Registration with SEC

Colling off period

Effective date - offering period may begin
What are the 3 phases of an underwriting
Stop order
demands that all underwriting activities cease
preliminary prospectus or red herring
can be used as a prospecting tool, allowing underwriters and selling group members to gauge investor interest and gather indications of interest
The prublic offering price and the effective date
What two items are missing from the preliminary prospectus
Make offers to sell seucirites

Take orders

distribute sales literature or advertising material
During the cool off period underwriters may NOT
Take indications of interest

distribute preliminary prospectuses

publish tombstone advertisements to provide information about th potential availability of the securities
During coll off period underwriters MAY
Advertising and sales literature
Includes any notice, circular, advertisement, letter, or other communication published or transmitted to any person
tombstone advertisement
only advertisement allowed during cool off period

A simple statement of facts regarding the issue
Due diligence meeting
Near the end of cool off period, underwriter holds this meeting. The preliminary studies, investigations, research, meetings, and compilation of information about a corporation and a proposed new issue that go on during underwriting
examine the use of the proceeds

perform financial analysis and feasibility studies

determine the company's stabillity

determine whether the risk is reasonable
As part of the due diligence process, investment bankers must
final prospectus
when registration statement becomes effective, the issuer amends the preliminary prospectus and adds information, including final offering price and underwriting spread for this
dexcription of the offering

offering price

selling discounts

offering date

use of the proceeds

description of the underwriting, but not the actual contract

statement of the possibility that the issue's price may be stabilized

history of the business

risks to the purchasers

description of management

masterial financial information

legal opinion concerning the formation of the corporation

SEC disclaimer
What must the final prospectus contain?
prospectus delivery requirement period
In certain offerings, a final pospectus must be delivered by all members to buyers in the secondary market for a specified time following the effective date
90 days if the security is to be quoted on the OTC pink or over the OTCBB

or 25 days if the security is to be listed on an exchange or quoted over Nasdaq
For inital public offerings the prospectus delivery requirement period is
if the security is listed or quoted over Nasdaq a prospectus must be delivered only in connection with purchases at the public offering price. Once the distribution is complete there is no obligation to deliver a prospectus in secondary market transactions

if security is non-Nasdaq, the prospectus delivery requirement period is 40 days
The proespectus delivery requirement period for additional issue offerings over the initial public offerings
prospectus must be delivered by all dealers, including those that did not participate in the distribution
If a prospectus delivery requirement period exists in the secondary market what must happen?
7.3
7.3
Underwriter
A broker/dealer that specializes in investment banking and the distribution of new issues
underwriting syndicate
A group of other broker/dealers to assist in the distribution of the new issue
Investment bank
A seucrities broker/dealer that underwrites new issues
advising corporations 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

distributing large blocks of stock to the public and to institutions

Helpers issuers comply with securities laws
Investment bank functions may include the following
Issuer
the party selling the securities to raise money
Filing the registration statement with the SEC

Filing a registration statement with the states in which it intends to sell securities (blue skying)

negotiating the securites' price and the amount of the spread with the underwriter
What is the issuer responsible for?
Underwriter
assists with registration and distribution of the new security and may advise the corporate issuer on the best way to raise capital
Stocks or bonds

tax consequences of the offering

money market financing

capital market financing
What are the underwriter's considerations?
offering
identified by who is selling the securities and whether the company is already publicly traded
new issue market
composed of companies going public by selling common stock to the public for the first time in an initial public offering
additional issue market
made up of new securities issued by companies that are already publicly owned
primary offering
one in which the proceeds of the underwriting go to the issuing corporation
secondary offering
one in which one or more major stockholders in the corporation are selling all or a major portion of their holdings. Paid to stockholder rather than corporation
split offering
combination of a primary and a secondary offering. Corporation issues a portion of the stock offered and existing shareholders offer the balance
Shelf offering
issuer who is already a publicly traded company can register new securities without selling the entire issue price at once
public offering
securities are sold to the investing public t hrough one or more broker/dealers
private placement
occurs when the issuing company usually with the assistance of its investment bank, sells securities to private investors as opposed to general investing public
Competitive bidding
the syndicate is assembled first and syndicate members work together to arrive at the bid
negotiated underwriting
syndicate may be formed after the issuer and the underwriting manager have negotiated the terms of the offernig
Indications of interest from the underwriter's book

prevailing market conditions, including recent offerings and the prices of similar new issues

price that the syndicate members will accept

PE ratios

the company's dividend payment record and financial heath

company's debt ratio
What variables may be considered when pricing new issues
Price to earnings ratios PE
ratio of what the the company earns to what is should be sold for
effective date
when the security begins to trade
syndicate penalty bid
Happens if syndicate members' clients turn in shares on a stabilizing bid after the issue is sold out
Pegging or fixing
if the stabilization bid is made at a price higher than the public offering price
7.4
7.4
negotiated agreement between the issuer and investment banker
what does corporate underwriting normally take the form of
underwriting agreement
the negotiated agreement between isuuer and investment banker that is signer before the effective date
underwriting agreement UA
the contract that establishes the relationship between the issuer and the underwriters, setting forth their respective rights and obligations and the terms and conditions upon which the issuer is required to sell and the underwriters are required to purchase the securities
syndicate or joint account
what the underwriter may form for the purposes of the underwriting,
underwriting manager or syndicate manager
the investment banker who negotiates with the issuer
syndicate agreement or syndicate letter
what syndicate members sign that describes the participants' responsibilites and allocation of syndicate profits if any
Selling group
these members act as agents with no commitment to buy securities
selling group agreement
what selling group members sign with the underwriters
statement that the manager acts for all 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

provisions as to how and when payment for shares is to be made to the managing underwriter

legal provisions limiting each selling group member's liability in conjunction with the underwriting
What does the selling group agreement contain
syndicate members take on financial liability and act in a principal capactity

selling group members have no financial liability and act as agents because have no commitment to buy securities from the issuer
what is difference between syndicate members and selling group members
negotiated underwriting
the issuer and the investment banker negotiate the offering terms, including the amount of securities to be offered, offering price or yield, and underwriting fees
competitive bid
a state or municipal government invites investment bankers to bid for a new issue of bonds
7.5
7.5
firm commitment
widely used type of underwriting contract, the underwriter contracts with the issuer selling investors or both to buy the securities described in the contract at a specified price and quanitity range on or about a given date
LOI letter of intent
What the terms in a commitment are detailed in, which is signed by the underwriter and the issuer during the early stages of negotiation
Market-out clause
this is done to limit risks in the underwriting agreement and specifies conditions under which the offering may be canceled
standing by
what a corporation has an underwriter do to purchase whatever shares remain unsold as a result of rights expiring
best efforts underwriting
calls for the broker to buy securities from the issuer as agent, not as principal. Means the underwtier is not committed and is therefor not at risk
All-or-none AON underwriting
the issuing corporation has determined that it wants an agreement outlining that the underwriter must either sell all of the shares or cancel the underwriting
Mini-max offering
best efforts underwriting with a floor and a ceiling on the dollar amount of securities the issuer is willing to sell
In a firm commitment underwriting the underwriter takes on the financial risk because the securities are purchased from the issuer. Acting in a principal capacity

Best effort underwriting the underwriter sells as much as possible without liability for what cannot be sold. Underwriter is acting in an agent capacity with no financial risk
What are the differences of firm commitment underwriting vs best efforts underwriting
underwriting proceeds
the price the issuer receives from underwriter
public offering price POP
the price investors pay
the difference between the underwriting proceeds and the POP public offering price
underwriting spread
Manger's fee
for negotiating the deal and managing the underwriting and distribution process
underwriting fee
for assuming the risk of buying securities from the issuer without assurance that the securities can be resold
selling concession
for placing the securities with investors
manager's fee

underwriting fee

selling concession
What does the underwriting spread consist of
Type of commitment

Security's marketability

Issuer's business

offering size
The amount of the underwriting spread is influenced by what?
US government securities

municipal bonds

commercial paper and banker's acceptances that have maturities of less than 270 days

insurance policies and fixed annuity contracts (but not variable annuities

national and state bank securities

building and loan securities

charitable, religious, educational, and nonprofit association issues
What securities are exempt from the securities act of 1933
Regulation A corporate offerings of less than 5 million

Reg D: private placements

Rule 147 securities offered and sold exclusively intrastate

Reg S offers and sales made outside the US by Us issuers

Other exempt transactions uncluding rule 144 144a 145
How can securities offered by industrial, financial and other corporations qualify for exemption from the registration statement and prospectus requirements of the 1933 act?
Regulation A
permits issuers to raise up to $5 million in a 12 month period without full registration
notice of sale or offering circular
In a regulation A offering, issuer files this and investors are provided this rather than a full prospectus
accredited investors that do not need SEC protection

maximum of 35 individual (nonaccredited) investors
SEC does not require registration of an offering if it is privately placed with who?
Accredited investor
defined as one who has a net worth of $1 million or more or has had an annual income of $200,000 or more in each of the two most recent years and who has a reasonable expectation of reaching the same income level during the current year
Lettered stock or legend stock
What private placement stock is referred to as
Restricted

Unregistered

Letter stock

Legend stock
What terms are synonymous with private placement stock?
Rule 147
Offerings that take place entirely in one state are exempt from registration under this rule
The issuer has its principal office and receives at least 80% of its income in the state

at least 80% of the issuer's assets are located within the state

at least 80% of the offering proceeds are used within the state

the broker/dealer acting as underwriter is a resident of the state and has an office in the state

all purchasers are residents of the state
When does Rule 147 apply?
Rule 144
regulates the sale of control and restricted securities, stipulating the holding period
control securities
those owned by directors, officers, or persons who own or control 10% or more of the issuer's voting stock (Includes immediate family members)
Restricted securities
those acquired through some means other than a registered public offering. Ex. security purchased in a private placement
In any 90 day period an investor may sell the greater of:

1% of the total outstanding shares of the same class at the time of sale or

the average weekly trading volume in the stock over the past four weeks on all exchanges or as reported through Nasdaq
According to Rule 144, after holding restricted stock fully paid for 6 months, an affiliate may begin selling shares but is restricted to the volume restriction rules which are what?
6 month hold

sell freely thereafter
What does Rule 44 apply for selling Restricted stock held by a nonaffiliate
6 month hold

volume limits thereafter
What does Rule 44 apply for selling Restricted stock held by a affiliate
no hold

volume limits always apply
What does Rule 44 apply for selling control stock held by a affiliate
Insiders under Rule 144
these are not allowed to enter short sales in the securities of companies in which they are insiders
Rule 144a
Allows nonregistered foreign and domestic securities to be sold to certain institutional investors in the US without holding period requirements
Qualified institutional buyer (QIB)
To qualify for the Rule 144a exemption, buyer must be this and have a minimum of $100 million in assets
Rule 145
Intended to protect stockholders of any company that proposes to reorganize its ownership structure, acquire another company, or merge with another company
Reclassification

Merger or consolidation

Transfer of assets
What transactions do Rule 145 cover?
Reclassification
when one class of securities is to be exchanged internally for another class in a way that shifts ownership control
Merger or consolidation
when stockholders in a target company are offered securities in another company in exchange for the surrender of their stock
Transfer of assets
when all or some of one company's business assets are exchanged for another company's securities; stockholders thus solicited are being asked to approve their company's dissolution
Rulation S
Under this, offers and sales made outside the US by US issuers are excluded from the registration provisions of the Securities Act of 1933
FINRA Rule 5130
Rule that is disigned to protect the integrity of the public offering process by ensuring that members make a bona fide public offering of securities at the public offering price,

members do not withold securities ina public offering for their own benefit

and industry insiders do not take advantae of their insider status to gain access to new issues for their own benefit

-Rule only applied to a new issue
Member firms

employees of member firms

findaers and fudiciaries acting on behalf of the managin underwriter

portfolio managers

any person owning 10% or more of a member firm
FINRA Rule 5130 prohibits member firms from selling a new issue to what Restricted persons are defined as
Spinning
the practice of allocating highly sought after IPO shares to individuals who are in a position to direct securities business to the firm