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110 Cards in this Set
- Front
- Back
The Securities Act of 1933
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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
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Securities Exchange Act of 1934
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addresses secondary trading of securities, personnel involved in secondary trading and fraudulent trading practices, also created the SEC to oversee the industry
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SEC Securities and Exchange Commission
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Oversees the securities industry
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Maloney Act
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amended the Securities Exchange Act of 1934 and provides for the establishment of self regulatory bodies to help police the industry.
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Paper Act / Full Disclosure Act / New Issues Act / Truth in Securities Act / and Prospectus Act
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What the Securities Act of 1933 is also known as
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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?
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registration statement
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What an issuer must file with the SEC disclosing material information about the issue
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Prospectus
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part of the registration statment which must be provided to all purchasers of the new issue
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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
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cooling-off period for 20 days
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Period that begins after the issuer files a registration statement with the SEC
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Issuer Files Registration with SEC
Colling off period Effective date - offering period may begin |
What are the 3 phases of an underwriting
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Stop order
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demands that all underwriting activities cease
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preliminary prospectus or red herring
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can be used as a prospecting tool, allowing underwriters and selling group members to gauge investor interest and gather indications of interest
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The prublic offering price and the effective date
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What two items are missing from the preliminary prospectus
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Make offers to sell seucirites
Take orders distribute sales literature or advertising material |
During the cool off period underwriters may NOT
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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
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Advertising and sales literature
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Includes any notice, circular, advertisement, letter, or other communication published or transmitted to any person
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tombstone advertisement
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only advertisement allowed during cool off period
A simple statement of facts regarding the issue |
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Due diligence meeting
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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
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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
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final prospectus
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when registration statement becomes effective, the issuer amends the preliminary prospectus and adds information, including final offering price and underwriting spread for this
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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?
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prospectus delivery requirement period
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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
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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
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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
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prospectus must be delivered by all dealers, including those that did not participate in the distribution
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If a prospectus delivery requirement period exists in the secondary market what must happen?
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7.3
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7.3
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Underwriter
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A broker/dealer that specializes in investment banking and the distribution of new issues
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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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Investment bank
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A seucrities broker/dealer that underwrites new issues
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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
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Issuer
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the party selling the securities to raise money
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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 (blue skying) negotiating the securites' price and the amount of the spread with the underwriter |
What is the issuer responsible for?
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Underwriter
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assists with registration and distribution of the new security and may advise the corporate issuer on the best way to raise capital
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Stocks or bonds
tax consequences of the offering money market financing capital market financing |
What are the underwriter's considerations?
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offering
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identified by who is selling the securities and whether the company is already publicly traded
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new issue market
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composed of companies going public by selling common stock to the public for the first time in an initial public offering
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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 go 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 all or a major portion of their holdings. Paid to stockholder rather than corporation
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split offering
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combination of a primary and a secondary offering. Corporation issues a portion of the stock offered and existing shareholders offer the balance
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Shelf offering
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issuer who is already a publicly traded company can register new securities without selling the entire issue price at once
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public offering
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securities are sold to the investing public t hrough one or more broker/dealers
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private placement
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occurs when the issuing company usually with the assistance of its investment bank, sells securities to private investors as opposed to general investing public
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Competitive bidding
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the syndicate is assembled first and syndicate members work together to arrive at the bid
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negotiated underwriting
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syndicate may be formed after the issuer and the underwriting manager have negotiated the terms of the offernig
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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
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Price to earnings ratios PE
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ratio of what the the company earns to what is should be sold for
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effective date
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when the security begins to trade
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syndicate penalty bid
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Happens if syndicate members' clients turn in shares on a stabilizing bid after the issue is sold out
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Pegging or fixing
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if the stabilization bid is made at a price higher than the public offering price
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7.4
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7.4
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negotiated agreement between the issuer and investment banker
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what does corporate underwriting normally take the form of
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underwriting agreement
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the negotiated agreement between isuuer and investment banker that is signer before the effective date
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underwriting agreement UA
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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
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syndicate or joint account
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what the underwriter may form for the purposes of the underwriting,
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underwriting manager or syndicate manager
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the investment banker who negotiates with the issuer
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syndicate agreement or syndicate letter
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what syndicate members sign that describes the participants' responsibilites and allocation of syndicate profits if any
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Selling group
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these members act as agents with no commitment to buy securities
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selling group agreement
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what selling group members sign with the underwriters
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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
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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
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negotiated underwriting
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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
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competitive bid
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a state or municipal government invites investment bankers to bid for a new issue of bonds
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7.5
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7.5
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firm commitment
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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
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LOI letter of intent
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What the terms in a commitment are detailed in, which is signed by the underwriter and the issuer during the early stages of negotiation
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Market-out clause
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this is done to limit risks in the underwriting agreement and specifies conditions under which the offering may be canceled
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standing by
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what a corporation has an underwriter do to purchase whatever shares remain unsold as a result of rights expiring
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best efforts underwriting
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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
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All-or-none AON underwriting
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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
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Mini-max offering
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best efforts underwriting with a floor and a ceiling on the dollar amount of securities the issuer is willing to sell
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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
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underwriting proceeds
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the price the issuer receives from underwriter
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public offering price POP
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the price investors pay
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the difference between the underwriting proceeds and the POP public offering price
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underwriting spread
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Manger's fee
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for negotiating the deal and managing the underwriting and distribution process
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underwriting fee
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for assuming the risk of buying securities from the issuer without assurance that the securities can be resold
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selling concession
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for placing the securities with investors
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manager's fee
underwriting fee selling concession |
What does the underwriting spread consist of
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Type of commitment
Security's marketability Issuer's business offering size |
The amount of the underwriting spread is influenced by what?
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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
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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?
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Regulation A
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permits issuers to raise up to $5 million in a 12 month period without full registration
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notice of sale or offering circular
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In a regulation A offering, issuer files this and investors are provided this rather than a full prospectus
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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?
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Accredited investor
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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
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Lettered stock or legend stock
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What private placement stock is referred to as
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Restricted
Unregistered Letter stock Legend stock |
What terms are synonymous with private placement stock?
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Rule 147
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Offerings that take place entirely in one state are exempt from registration under this rule
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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?
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Rule 144
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regulates the sale of control and restricted securities, stipulating the holding period
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control securities
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those owned by directors, officers, or persons who own or control 10% or more of the issuer's voting stock (Includes immediate family members)
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Restricted securities
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those acquired through some means other than a registered public offering. Ex. security purchased in a private placement
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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?
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6 month hold
sell freely thereafter |
What does Rule 44 apply for selling Restricted stock held by a nonaffiliate
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6 month hold
volume limits thereafter |
What does Rule 44 apply for selling Restricted stock held by a affiliate
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no hold
volume limits always apply |
What does Rule 44 apply for selling control stock held by a affiliate
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Insiders under Rule 144
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these are not allowed to enter short sales in the securities of companies in which they are insiders
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Rule 144a
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Allows nonregistered foreign and domestic securities to be sold to certain institutional investors in the US without holding period requirements
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Qualified institutional buyer (QIB)
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To qualify for the Rule 144a exemption, buyer must be this and have a minimum of $100 million in assets
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Rule 145
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Intended to protect stockholders of any company that proposes to reorganize its ownership structure, acquire another company, or merge with another company
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Reclassification
Merger or consolidation Transfer of assets |
What transactions do Rule 145 cover?
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Reclassification
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when one 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 assets
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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
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Rulation S
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Under this, offers and sales made outside the US by US issuers are excluded from the registration provisions of the Securities Act of 1933
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FINRA Rule 5130
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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 |
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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
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Spinning
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the practice of allocating highly sought after IPO shares to individuals who are in a position to direct securities business to the firm
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