Jc Series 79 Set A

Front 1

Read more: http://www.investopedia.com/terms/h/hart-scott-rodino-antitrust-improvements-act-of-1976.asp#ixzz1Y4QxcMlc

Back 1

The sale of securities to a relatively small number of select investors as a way of raising capital. Investors involved in private placements are usually large banks, mutual funds, insurance companies and pension funds. Private placement is the opposite of a public issue, in which securities are made available for sale on the open market.

Front 2

What is Stabilization?

Back 2

When a new issue doesn't sell as well as expected, then initial investors may sell their shares in the secondary market for less than the public offering price while the syndicate members still have shares to sell. However, the underwriting syndicate cannot sell the shares for less than the public offering price, so, in this situation, they would not be able to sell their remaining shares.

To prevent a drop in price before all shares have been distributed to the public, the underwriting manager stands ready to buy any issues offered in the secondary market at or slightly below—but never above—the public offering price as a way to stabilize (aka peg, fix) the price of the new offering until it has been fully distributed to the public.

Front 3

Direct Participation Programs

Back 3

A business venture designed to let investors participate directly in the cash flow and tax benefits of the underlying investment. DPPs are generally passive investments that invest in real estate or energy-related ventures.

Also known as a "direct participation plan".

Front 4

a broker-dealer soliciting the approvals from limited partners in connection with a roll-up is entitled to howmuch compensation?

Back 4

limited to compensation of 2% of the value of the newly created securities

Front 5

master limited partnership

Back 5

A type of limited partnership that is publicly traded. There are two types of partners in this type of partnership: The limited partner is the person or group that provides the capital to the MLP and receives periodic income distributions from the MLP's cash flow, whereas the general partner is the party responsible for managing the MLP's affairs and receives compensation that is linked to the performance of the venture.

Front 6

Industry rules require that the outside employment of an employee of a member firm must be approved by whom?

Back 6

Only the member firm

Front 7

SEC Rule 135

Back 7

an issuer is permitted to publish a notice that contains only limited information. Such notices are not required to be filed with the SEC. The notice must have a legend explaining that it does not contain an offer to sell securities.

Front 8

SEC Rule 145

Back 8

applies to situations in which securities are offered as a result of business combinations due to mergers, acquisitions, consolidations, reclassifications of securities, or transfers of corporate assets.

Front 9

What information is permitted to be shown according to SEC Rule 145

Back 9

The name of the person whose assets are to be sold in exchange for the securities to be offered
The names of any other parties to the transaction
A brief description of the business of the parties to the transaction
The date, time and place of the meeting of the security holders to vote on, or consent to the transaction
A brief description of the transaction and the basic terms of the transaction

Front 10

What SEC filing arises from SEC Rule 145?

Back 10

Typically an S-4, which Registration form used when issuing securities in a merger

Front 11

What is an S-4?

Back 11

SEC Registration form used when issuing securities in a merger

Front 12

If a member firm is participating in a distribution of a public offering of its own securities, or of a firm that controls the member firm, what conditions must be met?

Back 12

(1) A qualified independent underwriter must participate in the preparation of the offering documents (registration statement), and any conflicts of interest must be prominently disclosed in the prospectus. (2)A qualified independent underwriter must have served as a manager or comanager in at least three previous public offerings of a similar size and type during the three-year period preceding filing of the registration statement.

Front 13

A private equity company, or any company that is filing for an IPO to become publicly traded, would most likely file what Form?

Back 13

S-1

Front 14

What are exempted from Rule 145?

Back 14

Stock splits, stock dividends, and the resulting changes in par value

Front 15

Enterprise Value =?

Back 15

Market Capitalization + Long-term Debt - Cash and Cash Equivalents

Front 16

Who has authority in general partnership?

Back 16

nless the partnership agreement specifies otherwise, all partners in a general partnership have the authority to transact business on the partnership's behalf. A general partnership is formed by an agreement among the partners.

Front 17

What are tax implications for general partnerships?

Back 17

Most partnerships qualify for flow-through taxation, which means that the partnership is not a taxable entity, while the individual general partners are taxable as individuals (or corporations).

Front 18

What type of liability do general partnerships hold?

Back 18

All the partners are personally responsible for the partnership's debts. This equates to unlimited liability.

Front 19

What is a best efforts agreement?

Back 19

In a best efforts agreement, the underwriter agrees to use all efforts to sell as much of an issue as possible to the public. The underwriter can purchase only the amount required to fulfill its client's demand or the entire issue. However, if the underwriter is unable to sell all securities, it is not responsible for any unsold inventory.

Best effort agreements are used mainly for securities with higher risk, such as unseasoned offerings.

Front 20

An offering of securities that are sold into the secondary market, but are not sold at a fixed price is called

Back 20

At the market offering. An at the market offering of securities is sold (at the prevailing market price) directly into the secondary market through a designated broker-dealer at prevailing market prices, rather than through a traditional offering of a fixed number of shares at a fixed price. Issuers may utilize a shelf registration to initiate an at the market offering, where securities are sold at various prices during the day, reflecting the supply/demand profile for that issuer. Only those issuers registering under Form S-3 or Form F-3 may engage in this type of offering.

Front 21

What type of SEC registration is necessary for an "at the market" secondary offering?

Back 21

Only those issuers registering under Form S-3 or Form F-3 may engage in this type of offering.

Front 22

What is OTCBB? What are listing requirements?

Back 22

A regulated electronic trading service offered by the National Association of Securities Dealers (NASD) that shows real-time quotes, last-sale prices and volume information for over-the-counter (OTC) equity securities. Companies listed on this exchange are required to file current financial statements with the SEC or a banking or insurance regulator. There are no listing requirements, such as those found on the Nasdaq and New York Stock Exchange, for a company to start trading on the OTCBB.

Front 23

What are OTC stocks?

Back 23

In general, the reason for which a stock is traded over-the-counter is usually because the company is small, making it unable to meet exchange listing requirements. Also known as "unlisted stock", these securities are traded by broker-dealers who negotiate directly with one another over computer networks and by phone.

Although Nasdaq operates as a dealer network, Nasdaq stocks are generally not classified as OTC because the Nasdaq is considered a stock exchange. As such, OTC stocks are generally unlisted stocks which trade on the Over the Counter Bulletin Board (OTCBB) or on the pink sheets. Be very wary of some OTC stocks, however; the OTCBB stocks are either penny stocks or are offered by companies with bad credit records.

Front 24

How many round-lot shareholders is required for listing on NYSE, Nasdaq Global Select and Global Markets?

Back 24

Nasdaq Capital Market requires a minimum of 300 round-lot shareholders to apply for initial listing

Front 25

What is ROIC?

Back 25

A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. The return on invested capital measure gives a sense of how well a company is using its money to generate returns. Comparing a company's return on capital (ROIC) with its cost of capital (WACC) reveals whether invested capital was used effective

Front 26

What is formula for ROIC?

Back 26

(NI - Div) / (Debt + Common + pref shares)

Front 27

When ranking companies within an industry sector relative to its ROIC, which of the following choices would be the best method to use?

Back 27

When ranking companies according to relative value, there may be companies with negative earnings that would make any P/E ratio invalid. Such companies might have a very high cost per dollar invested since they provide no returns. Therefore, the earnings yield is a more appropriate valuation method of such companies. The return on invested capital (ROIC) is an important measurement of the efficiency and effectiveness of a company's use of capital.

Front 28

What are Accredited Investors?

Back 28

A term used by the Securities and Exchange Commission (SEC) under Regulation D to refer to investors who are financially sophisticated and have a reduced need for the protection provided by certain government filings.

Front 29

What is Regulation D?

Back 29

A Securities and Exchange Commission (SEC) regulation governing private placement exemptions. Reg D allows usually smaller companies to raise capital through the sale of equity or debt securities without having to register their securities with the SEC.Reg D offerings are advantageous to any private company or entrepreneur because they allow an entity to obtain funding faster and to avoid the costs associated with a public offering.

Even if the transaction only involves one or two investors, the company or entrepreneur wanting to raise capital still needs to provide the proper framework and disclosure documentation; however, these requirements are significantly less than what is required for a public offering.

Front 30

What is the Best Price Rule?

Back 30

Also Called Rule 14d-10. An SEC regulation that stipulates that a tender offer is open to all security holders of that class of security and the amount paid to the security holder is the highest paid to any other holder of the same security.

Front 31

What is Rule 14d-10 also called?

Back 31

Best Price Rule

Front 32

What is Rule 14d-10?

Back 32

Also Called Best Price Rule. An SEC regulation that stipulates that a tender offer is open to all security holders of that class of security and the amount paid to the security holder is the highest paid to any other holder of the same security.

Front 33

What exemption is granted in Rule 14d-10?

Back 33

an exception is granted for changes in compensation arrangements for executives of the company, provided the arrangements are approved by a majority of the independent board members. Most companies have a specific compensation committee that consists of independent members from the board of directors. It will perform this function and approve the additional bonuses or other employment compensation paid to the target company's management.

Front 34

Can Road shows be one on one?

Back 34

Yes

Front 35

When Can a road show be conducted?

Back 35

Road shows may be conducted once the registration statement is filed (before the effective date).

Front 36

Does a road show have to be live?

Back 36

No may be either live or electronic

Front 37

What is Regulation FD?

Back 37

Stands for Regulation Fair Disclosure. Regulation FD requires that material nonpublic information disclosed to analysts or other investors must be made public.

Front 38

What must happen if CEO discloses non public information to analysts INTENTIONALLY? According to what regulation?

Back 38

According to Regulation FD (Fair Disclosure), must be disclosed immediately

Front 39

What must happen if CEO discloses non public information to analysts UNINTENIONALLY? According to what regulation?

Back 39

According to Regulation FD (Fair Disclosure), , If the disclosure is unintentional, the public disclosure must be made within 24 hours

Front 40

What is one way to disclose information to public according to Regulation FD?

Back 40

File an 8-k

Front 41

A small change in basis (yield) has the greatest effect on the price of ….

Back 41

Longer Maturity Bonds

Front 42

What is convexity and what is the implication on a bond price's sensitivity to interest rates?

Back 42

or large changes in interest rates (and yields), convexity is used. There is an inverse relationship between convexity and sensitivity. The higher the convexity on a bond, the less sensitive the bond's price is to interest-rate changes. Conversely, the lower the convexity, the more sensitive the bond's price is to interest-rate changes.

Front 43

What is a contingency offering?

Back 43

A contingency underwriting is one in which there are conditions to the deal closing. This requirement would apply to any best-efforts underwritings conducted on an all-or-none or minimum-maximum (mini-maxi) basis.

Front 44

What is Mini-maxi?

Back 44

minimum-maximum (mini-maxi) basis

Front 45

In a contingency offering, what must the underwriter do?

Back 45

A broker-dealer managing an offering sold as a contingency underwriting must deposit the funds PROMPTLY in a separate bank account. Funds for these types of offerings must be placed promptly in a bank that would act as escrow agent.

Front 46

How are most Hedge Funds structured and how do they raise capital?

Back 46

Most hedge funds are structured as limited partnerships and raise capital by selling units or interests in the partnership to investors.

Front 47

What is a limited partnership able to do?

Back 47

A limited partnership is permitted to pass through both income and losses to investors.

Front 48

What can a REIT pass through and what can it not?

Back 48

A REIT and a regulated investment company (for example, a mutual fund) must pass through a minimum percentage (90%) of their income, but are NOT permitted to pass through losses.

Front 49

What does it mean when a company is subject to SEC Secion 12?

Back 49

A company that is subject to SEC Section 12 reporting requirements is one that, due to the number of its shareholders and value of its outstanding securities, is required to file reports with the SEC. This type of company would distribute cash dividends to shareholders and would not be permitted to pass through losses.

Front 50

What does Regulation M refer to?

Back 50

Restricted period rules and stabilization rules for secondary market activities associated with new issues

Front 51

What does Rule 105 of Regulation M state?

Back 51

Rule 105 of Regulation M stipulates that it is a violation for any person to sell short the security that is the subject of an offering and to purchase an offered security from an underwriter if the short sale was executed during the period beginning five business days prior to the pricing of the offering and ending with the pricing of the issue. If the pricing of the offering occurs within five business days of the filing of the registration statement, then Rule 105 applies from the filing date until the pricing of the issue

Front 52

What is Code of Procedure?

Back 52

The Code of Procedure includes rules governing the areas of disciplinary action, arbitration and mediation

Front 53

Under the Code of Procedure, original jurisdiction rests with…?

Back 53

Under the Code of Procedure, original jurisdiction rests with a Hearing Panel. It is the Hearing Panel that holds hearings, considers complaints, and assesses penalties.

Front 54

Under the Code of Procedure, appellate jurisdiction rests with …?

Back 54

If a respondent disagrees with the findings of the Hearing Panel, she may appeal to the National Adjudicatory Council, which has both appellate and review jurisdiction

Front 55

What is restricted stock?

Back 55

Insider holdings that are under some other kind of sales restriction. Restricted stock must be traded in compliance with special SEC regulations. These regulations are outlined under Section 1244 of the Internal Revenue Code. Insiders are given restricted stock after merger and acquisition activity, underwriting activity, and affiliate ownership in order to prevent premature selling that might adversely affect the company. Restricted stock cannot be sold without registration with the SEC (under the Securities Act of 1933) or some other special exemption.

Front 56

What is Rule 144A?

Back 56

Sale of unregistered securities to qualified institutional buyers

Front 57

What securities are ineligible for exemption under Rule 144a?

Back 57

Offers or sales of securities that are the same class as those listed on an exchange or quoted on Nasdaq, including certain convertibles and warrants, are not eligible for the exemption. Also ineligible are securities of registered investment companies.

Front 58

Under what rule does Restricted Stock have a holding period, how long is it?

Back 58

Restricted stock has a six-month holding period under Rule 144, not Rule 144A.

Front 59

What is Rule 144?

Back 59

Sale of restricted and control stock

Front 60

What is Control Stock?

Back 60

1. Equity shares owned by major shareholders of a publicly traded corporation. These shareholders have either a majority of the shares outstanding or a portion of the shares that is significant enough to allow them to exert a controlling influence on the firm's decisions.

2. In situations where companies have more than one class of common shares, shares with superior voting power or vote weighting are considered to be control stocks, relative to the inferior class.

Front 61

What is the Interest Coverage Ratio?

Back 61

EBIT or EBITDA Divided by Interest Expense

Front 62

What does SEC Rule 165 say?

Back 62

According to SEC Rule 165, any written communication after the public announcement, and until the filing of a registration statement, must be filed with the SEC. These communications are referred to as Form 425 filings.

Front 63

What are 425 Filings?

Back 63

According to SEC Rule 165, any written communication after the public announcement, and until the filing of a registration statement, must be filed with the SEC. These communications are referred to as Form 425 filings.

Front 64

High level steps in a friendly merger?

Back 64

A friendly merger transaction between two public companies typically begins with a vote by the respective boards of directors to approve the proposed merger. This occurs prior to a public announcement. Since this is a material event, Form 8-K must be filed at the time of the announcement of the merger. A press release will be issued. According to SEC Rule 165, any written communication after the public announcement, and until the filing of a registration statement, must be filed with the SEC. These communications are referred to as Form 425 filings. For example, a joint press release by the boards of directors of both companies announcing a merger, or an e-mail message from the CEO of the acquiring firm sent to the employees of the target company, would be filed with the SEC. Each document must contain a prominent legend that urges investors to read all relevant information concerning the offering on the SEC's Web site. Since securities will be issued in connection with this merger, the acquiring company is required to file a registration statement with the SEC, usually on Form S-4. The shareholders will then vote on the proposed merger.

Front 65

What is a market maker

Back 65

broker-dealer firm that accepts the risk of holding a certain number of shares of a particular security in order to facilitate trading in that security. Each market maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. Once an order is received, the market maker immediately sells from its own inventory or seeks an offsetting order.

Front 66

What is ADTV?

Back 66

Average Daily Trading Volume

Front 67

What is passive market maker's daily purchase limit?

Back 67

A passive market maker's daily purchase limit is the greater of 30% of its average daily trading volume (ADTV) in the stock, or 200 shares.

Front 68

What is passive market maker's net purchases?

Back 68

(purchases in excess of sales) for that day

Front 69

What happens if passive market maker gets an order that would put it over the limit on trades?

Back 69

Once a passive market maker's net purchases (purchases in excess of sales) for that day are more than its purchase limit, it must withdraw from the market for the rest of the day. However, a passive market maker that is near the limit is allowed to execute any single order, even if the daily limit would be exceeded. It must then withdraw from the market for the rest of the day.

Front 70

COP: What does it stand for? What is it?

Back 70

Code of Procedure – process used to discipline for violations of FINRA/SEC rules

Front 71

CRD: What does it stand for? What is it?

Back 71

Central Registration Depository – FINRA database for registered firms and employees

Front 72

CIP: What does it stand for? What is it?

Back 72

Customer Identification Procedures

Front 73

DEA: What does it stand for? What is it?

Back 73

Designated Examining Authority - the SRO to whom a firm must report

Front 74

DPO: What does it stand for? What is it?

Back 74

Direct Public Offering

Front 75

DPP: What does it stand for? What is it?

Back 75

Direct Participation Program – Business that gets flow through of gains/losses (e.g. Limited partnership)

Front 76

FINRA: What does it stand for? What is it?

Back 76

Financial Industry National Regulatory Association – the new organization created based on the merger of the NASD and NYSE regulatory authorities

Front 77

FWP: What does it stand for? What is it?

Back 77

Free writing prospectus

Front 78

IBR: What does it stand for? What is it?

Back 78

Investment Banking Representative, a person who performs investment banking activities – Series 79

Front 79

IPO: What does it stand for? What is it?

Back 79

Initial public offering

Front 80

LBO: What does it stand for? What is it?

Back 80

Leveraged buy-out

Front 81

LTM: What does it stand for? What is it?

Back 81

Last twelve months

Front 82

Nasdaq: What does it stand for? What is it?

Back 82

NASD Automated Quotation System - Level I inside market; Level II trading desk; Level III market maker, now a securities exchange

Front 83

NBBO: What does it stand for? What is it?

Back 83

National Best Bid and Offer

Front 84

NTM: What does it stand for? What is it?

Back 84

Next twelve months

Front 85

NYSE: What does it stand for? What is it?

Back 85

New York Stock Exchange – Physical stock exchange for listed securities

Front 86

OFAC: What does it stand for? What is it?

Back 86

List maintained by Treasury Dept. Office of Foreign Asset Control naming suspected terrorists and criminals

Front 87

OSJ: What does it stand for? What is it?

Back 87

Office of Supervisory Jurisdiction

Front 88

OTCBB: What does it stand for? What is it?

Back 88

Over The Counter Bulletin Board - electronic quotes of non-Nasdaq (non-listed) stocks

Front 89

PE: What does it stand for? What is it?

Back 89

Private equity

Front 90

POP: What does it stand for? What is it?

Back 90

Public offering price

Front 91

QIB: What does it stand for? What is it?

Back 91

Qualified Institutional Buyer – Institutions defined under Rule 144A (i.e. $100 million)

Front 92

RR: What does it stand for? What is it?

Back 92

Registered representative, a person involved in general securities business – Series 7

Front 93

SIC: What does it stand for? What is it?

Back 93

Securities Information Center - Reports for stolen, forged or missing securities

Front 94

SIPC: What does it stand for? What is it?

Back 94

Securities Investor Protection Corporation - protects against broker dealer failure

Front 95

SRO: What does it stand for? What is it?

Back 95

Self-Regulatory Organization – NYSE, FINRA and MSRB

Front 96

U/W: What does it stand for? What is it?

Back 96

Underwriter

Front 97

WKSI: What does it stand for? What is it?

Back 97

Well Known Seasoned Issuer

Front 98

Same day:

Back 98

Settlement cash transaction

Front 99

One business day:

Back 99

Restricted period if market cap > $25MM

Front 100

One business day:

Back 100

Filing deadline to FINRA corp. finance review for listed securities

Front 101

Next business day settlement:

Back 101

Treasuries and options

Front 102

2-business days after transaction:

Back 102

Form 4 filed by insiders

Front 103

3rd business day (T+3):

Back 103

Regular way settlement

Front 104

Five business days:

Back 104

Restricted period if market cap < $25MM

Front 105

5th business day:

Back 105

Payment for securities according to Regulation T (settlement + 2 business days)

Front 106

Within 10 days:

Back 106

Management response to a tender offer

Front 107

10-days after use:

Back 107

Filing of advertising for Investment Companies

Front 108

10-business days:

Back 108

Minimum time to keep open a revised tender offer

Front 109

15-days prior:

Back 109

Filing deadline to FINRA corp. finance review for un-listed securities

Front 110

20-days:

Back 110

Cooling off period for new issues

Front 111

20-days:

Back 111

Effective date for SB-1 or SB-2

Front 112

20-business days:

Back 112

Minimum duration of tender offer

Front 113

20-business days:

Back 113

Penalty for unexcused withdrawals by market makers

Front 114

25-days:

Back 114

Prospectus delivery requirement for Nasdaq and listed securities

Front 115

30-days:

Back 115

Wait period for failing a regulatory exam the first and second time (e.g. Series 79)

Front 116

Within 30 days:

Back 116

B/D required to make restitution after arbitration proceedings

Front 117

40-days:

Back 117

Prospectus delivery for new issues of non-listed (non-Nasdaq) securities

Front 118

90-days

Back 118

Time period during which restricted or control stock may be sold under Rule 144

Front 119

90-days:

Back 119

Prospectus delivery for IPO's of non-listed (non-Nasdaq) securities

Front 120

90-days:

Back 120

Maximum time to settle syndicate accounts

Front 121

90-days:

Back 121

Amount of time a customer account is frozen (based upon a Regulation T violation)

Front 122

180-days:

Back 122

Wait period for failing a regulatory exam the third time

Front 123

9 months:

Back 123

Stop transfer to out-of-state resident of securities acquired through 147

Front 124

1-year:

Back 124

Frequency of inspection of an OSJ

Front 125

1-year:

Back 125

Frequency of verification for purchasers of equity IPOs

Front 126

3-years:

Back 126

Maximum time allowed for a shelf-registration (from 2 to 3 years)

Front 127

5-years:

Back 127

Time as investment banker to be a Qualified IB (Schedule E underwriting)

Front 128

10-years:

Back 128

Statutory disqualification if convicted of a securities related misdemeanor or any felony

Front 129

Regulation A:

Back 129

Small dollar offering (no more than $5,000,000)

Front 130

Regulation D (506):

Back 130

Private placements (unlimited accredited; no more than 35 non-accredited)

Front 131

Regulation S:

Back 131

Offshore offering to non-U.S. persons

Front 132

Regulation M:

Back 132

Restricted period rules and stabilization rules for secondary market activities associated with new issues

Front 133

Regulation T:

Back 133

Establishes initial margin requirements for non-exempt securities

Front 134

Regulation TO:

Back 134

Tender offer rules

Front 135

Regulation U:

Back 135

Credit extension for securities by non-broker dealers

Front 136

Regulation FD:

Back 136

Fair disclosure rules applying to issuers (reporting companies)

Front 137

Regulation M-A:

Back 137

Communication/disclosure rules for firms involved in merger activities

Front 138

Regulation SHO:

Back 138

Created uniform order marking, locate and close-out procedures for short selling

Front 139

Regulation SP:

Back 139

Privacy Notice required for firms sharing customer information with other institutions

Front 140

Regulation S-K:

Back 140

Guidelines for presenting projections in nonfinancial statements

Front 141

Regulation S-X:

Back 141

Establishes accounting requirements for SEC filings (e.g. 10-Ks)

Front 142

Rule 135:

Back 142

Rule for preliminary announcements not offering securities

Front 143

Rule 137:

Back 143

Rule for non-participants in an underwriting publishing research reports

Front 144

Rule 138:

Back 144

Rule for an underwriting participant publishing research on non-equivalent securities

Front 145

Rule 139:

Back 145

Rule for an underwriting participant continuing regular coverage for a security

Front 146

Rule 144:

Back 146

Sale of restricted and control stock

Front 147

Rule 144A:

Back 147

Sale of unregistered securities to qualified institutional buyers

Front 148

Rule 145:

Back 148

Registration rule for issuing securities in a business combination transaction

Front 149

Rule 147:

Back 149

Intrastate offering

Front 150

Rule 163A:

Back 150

Rule for communications made by or on behalf of issuer during the quiet period

Front 151

Rule 415:

Back 151

Shelf registration (permits sale of registered issues for up to 3 years in certain securities)

Front 152

Rule 10b-18:

Back 152

Rule for issuers purchasing their own securities in the secondary market

Front 153

Act of 1933:

Back 153

Requires registration of new issues (i.e. primary market)

Front 154

Act of 1934:

Back 154

Regulates the secondary market, exchanges and broker-dealers

Front 155

Form D:

Back 155

Filed for (Regulation D) private placements

Front 156

Form TO:

Back 156

Filed by purchaser in a tender offer

Front 157

Form S-1:

Back 157

Registration form used for IPOs and small issuers

Front 158

Form S-3:

Back 158

Registration form used by WKSIs and seasoned issuers

Front 159

Form S-4:

Back 159

Registration form used when issuing securities in a merger

Front 160

Form F-1:

Back 160

Registration form used for foreign IPOs and small issuers

Front 161

Form F-3:

Back 161

Registration form used by foreign WKSIs and season issuers

Front 162

Form 3:

Back 162

Initial statement of beneficial interest by and insider within 10 days

Front 163

Form 4:

Back 163

Changes in equity positions by insiders

Front 164

Form 10-Q:

Back 164

Quarterly report of financial condition by issuers

Front 165

Form 10-K:

Back 165

Annual report of financial condition

Front 166

Form 8-K:

Back 166

Statement of material changes by issuers

Front 167

Form 10-C:

Back 167

Changes of name or 5% amounts in class of securities by Nasdaq issuers

Front 168

Form 13-D:

Back 168

Filed within 10 days of exceeding 5% ownership in a corporation

Front 169

Form 13-G:

Back 169

Alternative to 13-D, where purchaser has no intention to control issuer

Front 170

Form 13-F:

Back 170

Quarterly filing for institutional money managers who have control over $100 mill

Front 171

Form 14-A:

Back 171

Filing report for proxies

Front 172

Form 14D-9:

Back 172

Issuer’s opinion of a tender offer

Front 173

Form 144:

Back 173

Filed at the time of sale for restricted and control stock

Front 174

Form N-1A:

Back 174

Registration form used by open-end investment companies

Front 175

Form SB-1 or SB-2:

Back 175

Registration form filed by small businesses with SEC

Front 176

Form SB-1:

Back 176

SB-1: For issuers raising $10 million or less over 12 months

Front 177

Form SB-2:

Back 177

SB-2: For issuers raising an unlimited amount of capital

Front 178

Form U4:

Back 178

Registration form for individuals in the securities industry

Front 179

Form U5:

Back 179

Form used to notify the FINRA of an individual’s withdrawal of registration

Front 180

Conversion Ratio:

Back 180

Par/Conversion Price

Front 181

Current Yield:

Back 181

Annual Interest/Current Market Price

Front 182

Balance Sheet:

Back 182

Total Assets = Total Liabilities + Shareholder Equity

Front 183

Working Capital:

Back 183

Current Assets – Current Liabilities

Front 184

Gross Profit:

Back 184

Revenue – Cost of Goods Sold (COGS)

Front 185

Operating Profit:

Back 185

Gross Profit – Operating Expenses

Front 186

Operating Income (EBIT):

Back 186

Operating Profit +/- Other Income or Expenses

Front 187

Net Income:

Back 187

Operating Income – Interest – Taxes

Front 188

Earnings Available to Common:

Back 188

Net Income - Preferred Divs

Front 189

Book Value Outstanding:

Back 189

Com. Shareholder Equity/Number Common Shares Outstanding

Front 190

Tangible Book Value:

Back 190

Total Assets – Total Liabilities – Intangible Assets – Goodwill

Front 191

Price to Book Ratio:

Back 191

Market Price Common/Book Value

Front 192

Current Ratio:

Back 192

Current Assets/Current Liabilities

Front 193

Quick Ratio:

Back 193

(Cash + Cash Equiv. + Acct Rec)/Current Liabilities

Front 194

Days Sales Outstanding:

Back 194

(Acct Rec/Total Credit Sales) x Number of Days

Front 195

Operating Profit Margin:

Back 195

Operating Profit/Sales or Revenue

Front 196

Return on Equity:

Back 196

Earnings Available to Common/Ave. Com. Shareholder Equity

Front 197

Common Shareholder Equity:

Back 197

Total Shareholder Equity – Preferred Shareholder Equity

Front 198

Gross Profit Margin:

Back 198

Gross Profit/Sales or Revenue

Front 199

Net Profit Margin:

Back 199

Net Income/Sales or Revenue

Front 200

Debt to Total Cap. Ratio:

Back 200

Total Debt/Total Capital

Front 201

Debt to Equity Ratio:

Back 201

Total Debt/Total Shareholder Equity

Front 202

Interest Coverage Ratio:

Back 202

EBITDA/Interest Expense

Front 203

Debt to EBITDA Ratio:

Back 203

(Short + Long Term Debt)/EBITDA

Front 204

Accounts Receivable Turnover:

Back 204

Sales on Credit (current year)/Average Acct Rec.

Front 205

Inventory Turnover Ratio:

Back 205

COGS/Average Inventory

Front 206

EBITDA Margin:

Back 206

EBITDA/Sales or Revenue

Front 207

EBITDAR Margin:

Back 207

EBITDAR/Sales or Revenue note: “R” is for rent

Front 208

Return on Assets:

Back 208

Net Income/Average Assets

Front 209

Basic EPS:

Back 209

Earnings Available to Common/Ave. Com. Shares Outstanding

Front 210

P/E Ratio:

Back 210

Market Price Common/EPS

Front 211

Dividend Yield:

Back 211

Annual Dividend/Market Price Common

Front 212

Dividend Payout Ratio:

Back 212

Annual Dividend/EPS

Front 213

Earnings Yield:

Back 213

EPS/Market Price Common

Front 214

P/E to Growth (PEG) Ratio:

Back 214

P/E Ratio/Annual Growth Rate note: Growth Rate is an integer

Front 215

CAGR:

Back 215

Arithmetic Mean (Average) of growth rates given. The answer for CAGR is the choice on the exam that is slightly lower.

Front 216

Price to Free Cash Flow:

Back 216

Market Price Common/Free Cash Flow per Share

Front 217

Free Cash Flow Yield:

Back 217

Free Cash Flow per Share/Market Price Common

Front 218

Price to Sales Ratio:

Back 218

Market Price Common/Sales or Revenue

Front 219

Enterprise Value (EV):

Back 219

Market Cap Com. and Pref. + LT and ST Debt + Cap. Leases + Minority Interest – Cash and Equivalents

Front 220

Market Value per Share:

Back 220

Market Cap Com./Number Com. Shares Outstanding

Front 221

Enterprise Value (EV) to EBITDA:

Back 221

EV/EBITDA

Front 222

Enterprise Value (EV) to Sales:

Back 222

EV/Sales or Revenue

Front 223

After Tax Cost of Debt (WACC):

Back 223

Pretax Cost x (1-Tax Rate)

Front 224

Cost of Equity (CAPM):

Back 224

Ri = Rf + β(Rm-Rf)

Front 225

Risk Premium (Excess Mkt Return):

Back 225

Rm-Rf

Front 226

Cost of Equity (Gordon Growth):

Back 226

k* = D1/P0 + g

Front 227

WACC:

Back 227

Cost of Equity xWeight of Equity + Cost of Debt x Weight of Debt

Front 228

Free Cash Flow to Firm (FCFF):

Back 228

EBIT x(1-Tax Rate) + Deprc. and Amort. – Capital Exp. +/- Change to Working Capital

Front 229

What is book value? Formula?

Back 229

1. The value at which an asset is carried on a balance sheet. To calculate, take the cost of an asset minus the accumulated depreciation. Includes Intangible assets and Goodwill. BV=common stock holders equity - Liabilities

Front 230

What is tangible book value? Formula?

Back 230

A company's tangible book value looks at what common shareholders can expect to receive if the firm goes bankrupt and all of its assets are liquidated at their book values. Intangible assets, such as goodwill, are removed from this calculation because they cannot be sold during liquidation. Companies with high tangible book value per share provide shareholders with more insurance in case of bankruptcy. Total Assets – Total Liabilities – Intangible Assets – Goodwill

Front 231

What is a prospectus?

Back 231

A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details about an investment offering for sale to the public. A prospectus should contain the facts that an investor needs to make an informed investment decision.

Also known as an "offer document".

Front 232

prospectus delivery requirement (in days) for new issue by company on Nasdaq already trading?

Back 232

Prospectuses must be delivered for 40 days after the effective date in the case of issuers with publicly traded securities already outstanding, or 90 days for IPOs.

Front 233

prospectus delivery requirement (in days) for IPO by company on Nasdaq?

Back 233

90 days for IPOs.

Front 234

Two Exceptions to prospectus delivery requirement (in days) for new issue of company securities?

Back 234

If an issuer was subject to the reporting requirements of the Securities Exchange Act of 1934 prior to the filing of the registration statement, there is no prospectus delivery requirement for dealers.
If the issuer was not a reporting company prior to filing, but will be listed on an exchange or on Nasdaq as of the effective date, the requirement applies for 25 days.

Front 235

Securities Exchange Act of 1934?

Back 235

What Does Securities Exchange Act Of 1934 Mean?
The Securities Exchange Act of 1934 was created to provide governance of securities transactions on the secondary market (after issue) and regulate the exchanges and broker-dealers in order to protect the investing public.
-----
All companies listed on stock exchanges must follow the requirements set forth in the Securities Exchange Act of 1934. Primary requirements include registration of any securities listed on stock exchanges, disclosure, proxy solicitations and margin and audit requirements.

Front 236

What is a proxy statement?

Back 236

A document containing the information that a company is required by the SEC to provide to shareholders so they can make informed decisions about matters that will be brought up at an annual stockholder meeting.
-
Issues covered in a proxy statement can include proposals for new additions to the board of directors, information on directors' salaries, information on bonus and options plans for directors, and any declarations made by company management.

Front 237

What is cumulative preferred Stock?

Back 237

A type of preferred stock with a provision that stipulates that if any dividends have been omitted in the past, they must be paid out to preferred shareholders first, before common shareholders can receive dividends.

Front 238

What is convertible preferred stock?

Back 238

Preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares, usually anytime after a predetermined date.

Also known as "convertible preferred shares"

Front 239

What is convertible Bond?

Back 239

A bond that can be converted into a predetermined amount of the company's equity at certain times during its life, usually at the discretion of the bondholder.

Convertibles are sometimes called "CVs".

Front 240

Why would a comoany issue convertible bond?

Back 240

Issuing convertible bonds is one way for a company to minimize negative investor interpretation of its corporate actions. For example, if an already public company chooses to issue stock, the market usually interprets this as a sign that the company's share price is somewhat overvalued. To avoid this negative impression, the company may choose to issue convertible bonds, which bondholders will likely convert to equity anyway should the company continue to do well.

From the investor's perspective, a convertible bond has a value-added component built into it; it is essentially a bond with a stock option hidden inside. Thus, it tends to offer a lower rate of return in exchange for the value of the option to trade the bond into stock

Front 241

When can convertible bond or stock be converted?

Back 241

Convertible bonds and convertible preferred stock may be converted into common stock at any time by the holder.

Front 242

What is parity?

Back 242

In general, a situation of equality. Parity can occur in many different contexts, but it always means that two things are equal. In other words…Par Value.

Front 243

When evaluating convertible bonds and the common stock to which it may be converted, what situation would create a profitable arbitrage opportunity?

Back 243

If stock is selling above parity, the value of the stock received from converting the bond would be more than the value of the bond. An investor could sell short the stock and buy the bond and then convert the bond and use the stock to cover the short position.

Front 244

What is tender offer? When is discolusre necessary?

Back 244

An offer to purchase some or all of shareholders' shares in a corporation. The price offered is usually at a premium to the market price.
-
Tender offers may be friendly or unfriendly. Securities and Exchange Commission laws require any corporation or individual acquiring 5% of a company to disclose information to the SEC, the target company and the exchange\

Front 245

What scenarios constiture "owning" a stock?

Back 245

(1) has title to the stock (or her agent has title to the stock), (2) has entered into an unconditional contract to buy the stock but has not yet received it, (3) owns a call option and has exercised the option, or (4) is entitled to receive the stock upon conversion or exchange of an equivalent security (a convertible security issued by the company). In order to tender securities, a person must have a net-long position

Front 246

What is "short tendering"? And is it OK in a tender offer? Why or Why not?

Back 246

It is considered manipulative or fraudulent to tender securities that a person does not own (short tendering). To be considered the owner of securities that are the subject of a tender offer, an individual must own the stock (have a long position) and be prepared to deliver it to the person making the tender offer

Front 247

What must happen to settle disputes? According to what form? Is there an exception?

Back 247

FINRA rules require that disputes between firms, a firm and its employee, or a firm and a clearing corporation must go to arbitration. When you sign the U-4? ------------ An exception exists when the dispute involves statutory discrimination claims, such as sexual harassment. The aggrieved party (the employee) may choose mediation, or may pursue his claim in either arbitration or the court system.

Front 248

Do you include Prefered Shares and cost in WACC?

Back 248

Yes

Front 249

What is Dividend Exclusion?

Back 249

A rule that allows corporations to subtract dividends received from income for tax purposes. Dividend exclusion is permitted for domestic corporations in the United States and allows for the exclusion of a percentage of dividend income received from other domestic corporations under income tax provisions.

Front 250

What are two types of investments that are eligible for dividend exclusion and two types that are not?

Back 250

Corporations are allowed an exclusion on dividends received from investments in common and preferred stock. Real estate investment trusts (REITs) make distributions in pretax dollars. The payout from a REIT normally results from collections of rent or mortgage interest. Money-market fund dividends are distributions of interest earned on short-term debt securities.

Front 251

What is Rule 101? What Regulation does it refer to and what is that regulation mean?

Back 251

f a broker-dealer is participating in the distribution of a security subject to Rule 101 of Regulation M, it may not solicit orders from its customers to purchase already-outstanding securities of the same issuer. This rule applies whether the firm is acting in an agency or dealer capacity. Unsolicited transactions are always permitted. A broker-dealer is permitted to solicit an offer to buy the (new) securities being distributed. The firm must notify FINRA by way of a Restricted Period Notification Form (aka regulatory wire) if it is changing its market-maker status based on an upcoming offering, or if it is engaged in stabilizing transactions.--------Regulation M refers to Restricted period rules and stabilization rules for secondary market activities associated with new issues.

Front 252

What is an exception to Rule 145 in business mergers?

Back 252

Under SEC Rule 165, written communications are permitted once there is a public announcement of a business combination (a merger, acquisition, exchange, or reclassification). If the securities to be issued are required to be registered with the SEC, usually Form S-4 is used. Any written communications made in connection with, or relating to, the transaction must be filed with the SEC in accordance with SEC Rule 425. Most firms err on the side of caution and file most communications with the SEC during this period. If both companies are publicly traded, each must file the documents with the SEC. An exception to the rule is based on nonpublic communications among participants, such as the notes of a meeting between the boards of directors and their investment bankers to review the benefits of the proposed merger

Front 253

When is a 13d filed? And in how long?

Back 253

This is triggered when a person or group of persons acquires ownership exceeding 5% of a company's equity (i.e. Tender Offer....TO must be filed before too). (The filing is required within 10 days of the transaction.) If a person acquired more than 5% of the shares through other means (e.g., open-market purchases). Schedule 13D would still need to be filed.

Front 254

When is a 13g filed? And in how long?

Back 254

This is triggered when a person or group of persons acquires ownership exceeding 5% of a company's equity......Schedule 13G is an alternative to Schedule 13D. It is usually filed by institutional investors that have no intention to influence or control the issuer. 10 days

Front 255

What does Section 14 say?

Back 255

According to Section 14 (Proxies) of the Securities Exchange Act of 1934, any person who makes a tender offer and becomes the owner of more than 5% of the shares of a company is required to file a Schedule TO (tender offer).

Front 256

What stituation must a TO be filed and in how long?

Back 256

According to Section 14 (Proxies) of the Securities Exchange Act of 1934, any person who makes a tender offer and becomes the owner of more than 5% of the shares of a company is required to file a Schedule TO (tender offer). ---------- This schedule must be filed as soon as practical on the commencement date.

Front 257

When is Schedule 13E-3 filed? How long?

Back 257

SEC Rule 13e-3 applies to going private transactions by certain issuers or affiliates. It involves transactions where an issuer (or an affiliate of the issuer) is purchasing its own common stock and this will likely cause the company to become delisted from an exchange, or to be no longer considered a reporting issuer. --------------When the effect of the repurchase is to cause any class of equity security to be held by less than 300 persons or to cause the delisting of the stock on
an exchange or Nasdaq. Must be filed within 10 days.

Front 258

What is Treasury Stock?

Back 258

Treasury stock is stock that is issued by a corporation and is repurchased at a later point in time. It is no longer considered to be outstanding, does not receive dividends, and has no voting rights

Front 259

When is S-4 filed? What is the exception?

Back 259

In situations where SECURITIES (if cash, then exempt) are offered as a result of business combinations due to mergers, acquisitions, consolidations, reclassifications of securities, or transfers of corporate assets, the SEC requires the issuer to file Form S-4. The SEC believes that investors should be afforded the protection of securities laws when securities are offered in this manner.

Front 260

When is item 14 on proxy statement? Who files it? Why?

Back 260

ccording to SEC rules, certain information is required in a proxy statement that is filed with the SEC and provided to shareholders. Item 14 on this form concerns mergers, consolidations, and acquisitions. Since the shareholders of the target company will be voting on the terms of the acquisition, the TARGET company is required to file this information, regardless of whether the offer consists of cash, cash and securities, or securities. If the transaction is for cash, the filing of Form S-4 is not required. (Securities will not be issued in connection with the transaction.) Since Union First shareholders will not be voting on the merger, the company is not required to file proxy information on Schedule 14A.

Front 261

What are listing requirements for NYSE?

Back 261

(1) 400 U.S. round-lot shareholders
(2) 1,100,000 outstanding shares
(3) Atotal market value of all public shares of$140 million
(4) Astock price of at least $4 at the time of listing
(5) At least one of several alternative financial tests
- does not minimum time listed on exchange or SEC approval

Front 262

Who is restricted from buying IPO? What are some exemptions?

Back 262

Restricted persons include finders and fiduciaries (such as attorneys and accountants) involved in the new issue and portfolio managers who buy and sell securities on behalf of institutional investors. The New Issue Rule also provides a number of general exemptions.

The exemptions allow a new issue defined under the rule to be sold to the following accounts.

Investment companies registered under the Investment Company Act of 1940
The general or separate account of an insurance company
A common trust fund
An account in which the beneficial interest of all restricted persons does not exceed 10% of the account. (This is a de minimis exemption that allows an account owned in part by restricted persons to purchase a new issue if all restricted persons combined own 10% or less of the account.)
Publicly traded entities other than a broker-dealer or its affiliates that engage in the public offering of new issues
Foreign investment companies
ERISA accounts, state and local benefit plans, and other tax-exempt plans under IRS Code 501(c)(3)

Front 263

What is Investment Company Act of 1940?

Back 263

Created in 1940 through an act of Congress, this piece of legislation clearly defines the responsibilities and limitations placed on fund companies that offer investment products to the public.

Front 264

What is Rule 14e-3? What are exemptions?

Back 264

SEC Rule 14e-3 prohibits a person from trading while in possession of material nonpublic information concerning a tender offer. In addition, a person (e.g., an investment banking representative) who acquires material nonpublic information concerning a tender offer is prohibited from disclosing this information.

An exception is provided if the communication is made in good faith to:
--Officers, directors, employees, or advisers of the person making the tender offer. The adviser's role would involve the planning, financing, preparation, or execution of the tender offer.
--Officers, directors, employees, or advisers of the person that is the subject of the tender offer (the target company). The adviser's role would involve the planning, financing, preparation, or execution of the tender offer.

Front 265

Who is the 13F filing? Who must file it? Must be registered with SEC?

Back 265

SEC Rule 13f-l of the Securities Exchange Act of 1934 requires quarterly filings when institutional investment managers (for example, investment companies, holding companies, and hedge funds) exercise investment discretion over at least $100,000,000 in equity securities. The schedule includes information concerning the securities owned by the filer. This form must be filed REGARDLESS of whether the filer (e.g., a hedge fund) is registered with the SEC.

Front 266

What is Regulation M-A? What type of transaction is exempt from it?

Back 266

Regulation M-A applies to disclosure documents for domestic and cross-border mergers, acquisitions, tender offers, and company privatization transactions. Regulation M-A does not apply to IPOs, new issues, or other transactions unrelated to the M&A process. [61044]

Front 267

What is the Quiet Period and when it relevant?

Back 267

n terms of an IPO, the period where an issuer is subject to a SEC ban on promotional publicity. For IPOs, the quiet period that applies to managers and comanagers is 40 calendar days following the date of the offering; for secondary offerings, the quiet period is 10 calendar days following the date of the offering. The quiet period for secondary offerings does not apply to issuers whose securities are actively traded as defined under Regulation M of the Securities Exchange Act of 1934.

There is also a 25-day quiet period in effect for a broker-dealer (other than a manager or comanager)
that has agreed to participate as an underwriter or dealer in an initial public offering.

Front 268

When is the exemption that a reserch analyst can publish a research report during the quiet period?

Back 268

Under the significant news or events exceptions to quiet periods, firms that would otherwise be restricted from publishing or distributing research reports, or whose analysts would be restricted from making public appearances, may publish or distribute research reports and make public appearances with the authorization of the firm's legal compliance department. Significant news or events are things that have a material impact on or render a material change in a company's financial condition, operations, or earnings and would require the filing of SEC Form 8-K.

Bankruptcy and acquisition requires the filing of Form 8-K. However, an ordinary announcement that a firm will not meet its earnings expectations, or an announcement that its executive officers will remain the same, does not require the filing of Form 8-K.

Front 269

The maximum underwriting compensation associated with the sale of a limited partnership public offering is

Back 269

The maximum underwriting compensation for selling partnership units in a public offering is 10%. This is based on the gross dollar amount of the unit sold. The 10% limit applies to all compensation, regardless of the source, if it is in connection with the offering.

Front 270

Shortcut to compute CAGR?

Back 270

To apply a shortcut to estimate the compounded annual growth rate (CAGR), add the percentage changes and then divide that figure by the periods of change. This would slightly overestimate the CAGR.

Front 271

When a firm attempts to "stabilize", what is the maximum offer it can stabilize at and what must conditions must be met? What if those conditions are not met?

Back 271

After the opening of quotations in a security's principal market, stabilization may be initiated at a price no higher than the last independent transaction in the principal market if (1) the security has traded in its principal market (Nasdaq in this case) on the day stabilizing is initiated or on the preceding day, and (2) the current asked price in the principal market is equal to or greater than the last independent transaction price. Since both (1) and (2) are true in this question, stabilizing can be initiated at a price no higher than the last independent transaction.

If either condition (1) or (2) is not satisfied, stabilizing may start after the opening of quotations at a price no higher than the last independent bid for the security on Nasdaq. The maximum stabilizing bid is the public offering price; however, a lower ceiling may apply.

Front 272

What is proxy that can be used to figure out the amount of debt a company can issue?

Back 272

The present value for the company's cash flow for the next three years may be used as a proxy to estimate the additional amount of debt the company can incur. The after-tax cost of debt is used as the discount rate.

Front 273

Can companies issue stock with out a business plan? What are they called?

Back 273

Companies are permitted to conduct offerings of securities without a specific business plan. Such entities are called a blank check companies

Front 274

Which conditions must be met for a broker-dealer to represent a primary offering of an OTC Bulletin Board security as being at-the-market?

Back 274

A member firm that is participating in the primary or secondary distribution of a security that is not admitted to trading on a national securities exchange may not represent that the security is being offered at-the-market (i.e., priced based on the current secondary market value) unless the member firm has reasonable grounds to believe that an independent market for the security exists. To describe an offering as at-the-market when the firm controls that market would be misleading and fraudulent.

Front 275

What is a negotiated offering?

Back 275

Negotiated sales allow for greater flexibility to when the issue is released so that it can be better timed in the market to get the best rate.

Very small municipal issues are often financed on a negotiated basis.

Front 276

What are General Obligation Bonds? How are they typically Issued?

Back 276

A municipal bond backed by the credit and "taxing power" of the issuing jurisdiction rather than the revenue from a given project. Most general obligation (GO) bonds and many larger revenue issues are sold through a competitive process.

Front 277

How are US Treasuries typically issued?

Back 277

Treasuries are sold using a competitive Dutch Auction system.

Front 278

What is a dutch auction?

Back 278

A public offering auction structure in which the price of the offering is set after taking in all bids and determining the highest price at which the total offering can be sold. In this type of auction, investors place a bid for the amount they are willing to buy in terms of quantity and price.

A type of auction in which the price on an item is lowered until it gets a bid. The first bid made is the winning bid and results in a sale, assuming that the price is above the reserve price. This is in contrast to typical options, where the price rises as bidders compete

Front 279

Can securities that are received as part of a merger be sold right away? What rule applies?

Back 279

Securities that are subject to Rule 145 may not always be resold freely. If the shares that were held prior to the business combination were restricted, then the shares received as a result of the business combination would be restricted and subject to resale under Rule 144

Front 280

According to Rule 144, when can securities received in a merger be sold?

Back 280

Securities that are subject to Rule 145 may not always be resold freely. If the shares that were held prior to the business combination were restricted, then the shares received as a result of the business combination would be restricted and subject to resale under Rule 144. These securities are usually received by affiliates of one of the companies involved in a merger, reclassification, consolidation, or transfer of assets.

The securities can be resold according to any one of the following three conditions.
-The person sells the securities in accordance with the conditions prescribed in Rule 144 for public information, limitations on the amount sold, and the manner of sale (through a broker's transaction, or directly with a market maker).
-The person is not an affiliate of the issuer, has held the securities for at least six months, and the public information condition is met.
-The person has not been an affiliate of the issuer for at least three months and has held the securities for at least one year.

Front 281

Which bonds would increase most in price if interest rates decline?

Back 281

When interest rates decline, bond prices will rise. The longer maturities will rise more than the shorter maturities due to market risk. Bonds selling at a discount will rise more sharply than those selling at a premium

Front 282

Under code of arbitration, how many people on arbitration panel must come from outside industry? Is there an exception?

Back 282

Under the Code of Arbitration, if a public customer takes a member firm to arbitration to resolve a dispute, the majority of the panel must come from outside the securities industry, unless the customer requests a panel with a majority of industry arbitrators. Neither the broker-dealer nor the customer may actually pick the arbitrators. Arbitrators do not need to be attorneys.

Front 283

What is Schedule 14d-9? When is it filed? What are exemptions?

Back 283

SEC Rule 14d-9 concerns recommendations or solicitations by the subject company and other parties related to a tender offer. The rule requires Schedule 14D-9 or Schedule TO be filed by certain persons such as:

The subject company, any officer or director, employee, or affiliate of the subject company
Any owner of any security of the subject company, the bidder, or any affiliate of the bidder
Any other person who makes a solicitation or recommendation to shareholders on behalf of any of the previously mentioned persons
Exceptions to this rule apply to:

Attorneys, banks, broker-dealers, and investment advisers who are not participating in the tender offer and who are furnishing information only on an unsolicited basis to their customers
The subject company, if it is providing a "stop-look-and-listen communication," which only identifies the tender offer by the bidder, states that the tender offer is under consideration by the subject company's board of directors, and states that, on or before a specified date (no later than 10 business days from the commencement of the offer), the subject company will advise its shareholders.

Front 284

How much must deposited in escrow account for "best-efforts" deals? Are expenses included in the escrow?

Back 284

A broker-dealer managing any offering that is sold on a contingency basis (best-efforts) must deposit the funds promptly in a separate bank account. In contingency underwritings, the payment of sales commissions and underwriting expenses occurs after the deal closes. Any release of funds to the underwriters earlier than the closing date of the issuer violates SEC rules. These rules were created to ensure that investors will have their entire subscription funds returned in the event the offering is unsuccessful.

Front 285

If the Federal Reserve Board increased the discount rate, you would expect:

Back 285

If the discount rate was increased, interest rates in general would increase. Long-term bonds have greater price sensitivity (greater duration) than short-term bonds and would be expected to sustain a greater decline in price if interest rates increase.

Front 286

What is fed funds rate? Is it long term and volatile?

Back 286

Federal funds are excess reserves one bank lends to another (usually overnight) when the borrowing bank must make up a deficit reserve position. The rate of interest charged is called the federal funds rate. The federal funds rate fluctuates daily making it the most volatile money-market (short-term) rate

Front 287

An investment banking representative sent a private equity client written information concerning the oil and gas sector. The representative followed up with an e-mail to see if the client had any interest in meeting to discuss possible acquisitions in this sector. The investment banking representative's broker-dealer is required to:

Back 287

Industry rules classify e-mail as a form of correspondence. All correspondence sent by representatives to customers is subject to review by a supervisor. The record-keeping requirement for correspondence is three years.

Front 288

Binion & Cortez Group is participating as an underwriter in the IPO of Thirteenth Century Beagle Studios. Geoffrey is a research analyst at Binion & Cortez Group. If there is an internal meeting regarding the offering, Can Geoffrey attend and, if so, under what stipulations:

Back 288

Geoffrey is permitted to attend the meeting and discuss the offering only if there are no personnel from the investment banking department or personnel from the issuing company present. A research analyst may educate personnel and clients of his firm about a particular investment banking transaction as long as his presentation is fair, balanced, and not misleading and there are no members of the investment banking department or issuing company present. Without members of the investment banking department or the issuing company present, the research analyst is under less pressure to give an overly optimistic review of the transaction.

Front 289

What is Free writing Prospectus?

Back 289

A free writing prospectus is any communication that does not meet the standards of a statutory prospectus. It is a written communication that constitutes an offer to sell or a solicitation to buy the securities related to a registered offering that is used after the registration statement has been filed. It may be used as a disclosure document for new issues by seasoned issuers and well-known seasoned issuers. As such, issuers of securities are classified as eligible issuers and ineligible issuers of free writing prospectuses. As was previously described, a penny stock issuer, a shell company, and a blank-check company are all examples of ineligible issuers regarding the use of a free writing prospectus. Examples of free writing prospectuses would include press releases, e-mails, preliminary or final term sheets, and marketing materials.

Front 290

What filiings must a WKSI file when using a shelf registration?

Back 290

A Well-Known Seasoned Issuer (WKSI) is permitted to use an automatic shelf registration. The issuer must file an S-3 registration form for a specified dollar amount and type(s) of securities that it is planning to offer. Each time the issuer offers securities, it will file both a preliminary and then a final prospectus supplement with the SEC (for the specific securities being issued). According to SEC Rule 433, the issuer is permitted to use a term sheet for each offering, provided it is filed as a free writing prospectus.

Front 291

What are qualifications to be a WKSI?

Back 291

An issuer that qualifies as a well-known seasoned issuer is required to file reports under Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934
and must meet the following requirements.
• Eligible to register on Form S-3 (short form of the registration statement) or Form F-3 (registration statement for certain foreign private issuers)
• Within 60 days of the determination of eligibility, must have either:
- A worldwide market value of outstanding voting and nonvoting common equity held by nonaffiliates of $700 million or more, or
- In the last three years, issued at least $1 billion aggregate principal amount of nonconvertible securities, other than common equity, in primary offerings for cash, not exchange, registered under the Securities Act of 1933
• May not be an ineligible issuer

Front 292

What is a term sheet?

Back 292

A non-binding agreement setting forth the basic terms and conditions under which an investment

Front 293

The tendering of securities is permitted if an individual is:

Back 293

Short tendering of stock (i.e., tendering stock that one does not own) is prohibited. Securities may be tendered only if the investor is long the stock, or long an equivalent security. Equivalent securities include rights, warrants, and other securities issued by the company that is the subject of the tender offer. All of these are immediately convertible into, or exchangeable or exercisable for, the subject security. Standardized call options are not equivalent securities, unless the option has been exercised

Front 294

If the (omitted) information is not contained in a subsequent prospectus, what should they do?

Back 294

If the (omitted) information is not contained in a subsequent prospectus filed with the Commission under the '33 Act; the omitted information must be disclosed in a POST-EFFECTIVE AMENDMENT to the registration statement.

Front 295

What is a CMO?

Back 295

Collateralized Mortgage.Obligations.- ACMO is a mortgage-backed security that takes the principal and interest payments from underlying mortgages and creates various classes of bonds called tranches. Each tranche has a different rate of interest, repayment schedule, and priority level. They have become very popular because investors can choose the yield, maturity structure, and risk exposure that best meets their needs.

Front 296

How are CMOs taxed?

Back 296

The INTEREST received from collateralized mortgage obligations (CMOs) is FULLY taxable (federal, state, and local taxes). The PRINCIPAL payments are considered a return of capital and are NOT taxable. Investors receive their principal payments each month instead of receiving the entire amount of principal at maturity.

Front 297

Calculate conversion ratio bond--> stock?

Back 297

is found by dividing the par value of the bond ($1,000) by the conversion price ($40)

Front 298

The sale of restricted securities by an officer of the issuer would be in compliance with SEC Rule 144 if, among other things, the: (what about ole of dealer-broker, does it also have to be listed on exchange? Is there a holding period? Can dealer broker solicit?)

Back 298

Restricted stock may be sold if it has been held for at least 6 months and was paid for in full at least 6 months prior to sale. The broker-dealer handling the sale under Rule 144 may do so through a broker's transaction that does not involve a solicitation. The securities do not need to be listed on an exchange.

Front 299

What is Form 4 for? When must it be filed?

Back 299

Form 4 is filed by insiders of a corporation when they buy or sell shares of their company. The form must be filed no later than the second business day following the transaction.

Front 300

What is Form 5 for? When must it be filed?

Back 300

Form 5 is filed annually by insiders about their transactions.

Front 301

What document must investors receive if company spinoffs of division and allots them shares? According to what rule?

Back 301

Rule 145 defines certain types of reclassifications of securities as sales, subject to the registration and prospectus requirements of the Act. Shares acquired through mergers, consolidations, and spinoffs involving exchanges of stock are all covered under the Rule. It requires holders of securities to receive information concerning a new investment decision. The amount of shares offered is irrelevant.

Front 302

When calculating EV, do you include capital lease obligations, investments in treasury bills, or preferred shares?

Back 302

Enterprise value includes the market capitalization of both common and preferred shares. For the common stock, this totals $1,360,000,000 (40,000,000 x $34). For the preferred, since it is trading at a 20% discount to par, the market capitalization totals $368,000,000 (4,600,000 x $80). Enterprise value also includes long- and short-term debt, cash, and equivalents. Long-term lease obligations are included in enterprise value. Investments in Treasury bills are considered a cash equivalent

Front 303

What is rule 165?

Back 303

Under SEC Rule 165, written communications are permitted once there is a public announcement of a business combination (a merger, acquisition, exchange, or reclassification). If securities will be issued in connection with this transaction, the acquiring company will be required to register the offering with the SEC, usually on Form S-4. Any written communication made in connection with, or relating to, the transaction must be filed with the SEC according to SEC Rule 425. If both companies are publicly traded, each must file with the SEC.

Front 304

Explain written communication as it results to an annoucement of a takeover without registration? With whom must registration be made?

Back 304

Under SEC Rule 165, written communications are permitted once there is a public announcement of a business combination (a merger, acquisition, exchange, or reclassification). If securities will be issued in connection with this transaction, the acquiring company will be required to register the offering with the SEC, usually on Form S-4. Any written communication made in connection with, or relating to, the transaction must be filed with the SEC according to SEC Rule 425. If both companies are publicly traded, each must file with the SEC.

Front 305

Explain Registration D and Accredited investors?

Back 305

Under Regulation D, a private placement may be offered to an unlimited number of accredited investors but only 35 nonaccredited investors. Both officers and directors of an issuer, choice (a), and institutional investors (e.g., a registered investment adviser) are considered accredited investors. Officers and directors of Bonnie's Industrials are more likely to be accredited investors than employees of the issuer due to the income and net worth requirements of Regulation D.

Front 306

What is a no-shop provision

Back 306

Aprovision contained in a preliminary proposal, which allows the target to seek out other bidders, is
called a go-shop provision. Ano-shop provision would prohibit the target from this type of activity.

Front 307

What is a go-shop provision?

Back 307

Aprovision contained in a preliminary proposal, which allows the target to seek out other bidders, is
called a go-shop provision. Ano-shop provision would prohibit the target from this type of activity.

Front 308

what is a 363 sale?

Back 308

Deals During Bankruptcy The sale of assets outside the normal course ofbusiness can be accomplished through a Section 363 sale. The benefits of this form of sale include simplicity and avoidance of the requirement to obtain majority shareholder approval. Assets sold via this process will generally be free and clear ofliens and encumbrances. The trustee, or debtor, must file a motion with the bankruptcy court seeking the court's approval of an asset sale. Opponents of the transaction will have a period of time to object to the proposed sale. If approved, the debtor or trustee can proceed with the sale.

Front 309

What is a stalking horse?

Back 309

An initial bid on a bankrupt company's assets from an interested buyer chosen by the bankrupt company. From a pool of bidders, the bankrupt company chooses the stalking horse to make the first bid.

Front 310

In the TO process, is A definitive proxy statement filed by the issuer to provide information to shareholders.

Back 310

The proxy statement would be provided only if shareholders would be voting on the M&A transaction.

Front 311

What are the rules concerning the audit committee of an SEC reporting company?

Back 311

here are a few different rules concerning the audit committee of an SEC reporting company.

According to SARBOX, in general, each member of the audit committee must be a member of the BOD of the issuer and be independent.

According to Regulation S-K, the issuer must disclose either:
-The issuer has at least one audit committee financial expert serving on its audit committee, or
-The issuer does not have an audit committee financial expert serving on its audit committee.
-If the issuer has a financial expert(s) on its audit committee, it must disclose the name(s).
-A financial expert is generally defined as someone who understands GAAP and financial statements, has audit experience, can evaluate financial statements, can understand internal controls over reporting systems, and understands the audit committee functions.

According to the listing requirements of the NYSE and Nasdaq, an issuer must have at least one person on the audit committee who meets the definition of a financial expert.

As a matter of practice, most reporting issuers have at least one financial expert serving on its audit committee.

Front 312

What Regulation covers the meetings of the board of directors? What info must be disclosed?

Back 312

Under Regulation S-K, an issuer is required to disclose the following information in its annual filing with the SEC. This information is usually found in the company's annual proxy statement to shareholders.

-The number of meetings of the BOD, including regular and special meetings held during the last fiscal year
-The name of each director who, during the last fiscal year, attended less than 75% of the meetings

Front 313

An investment banking representative employed in the M&A department of a member firm has committed an offense that makes the person subject to statutory disqualification. The firm would MOST likely take which of the following actions?

Back 313

As a general rule, a person subject to statutory disqualification may not be associated with a FINRA member firm in any capacity, even in a nonregistered capacity. The firm is also required to report the event to FINRA. The member firm may request an eligibility hearing by filing a Form MC-400, but there is no guarantee the request will be granted. If the employee is terminated, the firm would file a U5

Front 314

What is a block trade and what type of risk does it have?

Back 314

A block trade occurs when the investment banking firm purchases shares at a discounted price from one or more of its large shareholders. This type of transaction would impose a large financial risk on the firm since it would be acting in a principal capacity. The firm would need to use its capital to purchase the shares and would need to liquidate the shares without causing the stock price to decline below the price it paid to acquire the shares. In the other transactions, the firm may act in an agency capacity and not risk its capital.

Front 315

What considerations should underwiter take when allocating new issues of IPOs?

Back 315

When allocating shares of a new issue, a broker-dealer may take into consideration whether the client is:
an institutional or retail investor,
the size of the client's order,
or whether the client has quickly flipped previous allocations of IPOs.

Broker-dealers may not base the allocation decision on a client's commitment to purchase additional shares in the secondary market.

Front 316

What is a roll up transaction?

Back 316

A limited partnership rollup transaction is one that involves the
combination or reorganization of one or more limited partnerships. Typically, several similar
partnerships are combined into a new entity, usually a corporation, REIT, or new partnership.

Front 317

Who pays roll up transaction solicitation expenses?

Back 317

In addition, the general partner or sponsor proposing the transaction must agree to pay all solicitation
expenses (iIlcluding expenses associated with preparatory work), even if the proposal is rejected.

Front 318

What are the FINRA regulations for COMPENSATION of member firms who help rollup limited partnerships?

Back 318

Member firms are sometimes compensated for soliciting the votes or tenders of customers who are
investors in the partnerships to be rolled up. FINRA requires that such compensation be:
• No more than 2% of the exchange value of the newly created securities
• Paid regardless ofwhether or not the partners reject the proposal
• Payable in an equal amount regardless of whether the partners vote for or against the rollup proposal

Front 319

In a limited partnership rollup, how are the assets valued?

Back 319

Independent 3rd party appraisar

Front 320

How are dissenting partners (who vote against roll up) compensated in a limited roll up?

Back 320

Dissenting limited partners (investors who vote against the rollup transaction) must receive compensation that is based on an appraisal of the partnership's assets conducted by an independent appraiser, rather than by the general partners or an affiliate.

Front 321

Do investors of a limited partnership rollup have similar voting rights? What does typically include as well?

Back 321

Generally, investors in the new entity should have voting rights that are similar to the ones that they had in the original entity, including the right to remove the general partner, or board of directors

Front 322

What is Sarbanes-Oxley Act ?

Back 322

An act passed by U.S. Congress in 2002 to protect investors from the possibility of fraudulent accounting activities by corporations. The Sarbanes-Oxley Act (SOX) mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud. SOX was enacted in response to the accounting scandals in the early 2000s

Front 323

What is SOX? What are two key provisions?

Back 323

Sarbanes-Oxley.

1. Section 302: A mandate that requires senior management to certify the accuracy of the reported financial statement

2. Section 404: A requirement that management and auditors establish internal controls and reporting methods on the adequacy of those controls. Section 404 had very costly implications for publicly traded companies as it is expensive to establish and maintain the required internal controls.

Front 324

What does SOX require CEO and CFO to do? Are 3rd parties involved?

Back 324

Sarbanes-Oxley requires the CEO and CFO (or their equivalents) to personally certify that the financial information contained in the company's annual (10-K) and quarterly (10-Q) reports provides an accurate picture of the company's operations during the relevant period.

The CEO and CFO are also responsible for establishing and testing the company's disclosure controls and procedures, but there is no requirement for outside consultants to perform this function.

Front 325

Why is information collected from a customer when they open a new account?

Back 325

This is done so that the member firm can make a determination as to whether certain trading, such as options and margin, is suitable for a customer based on financial means and investment objectives.

Additionally, information is obtained to determine if a particular recommendation is suitable for the customer.

Front 326

What is an "inside market" on the OTC? What else is it known as?

Back 326

The highest quoted bid and the lowest offer price among competing market makers in a security trading on the Nasdaq market. Also known as the "market maker spread".

Front 327

What is "OW" on the OTC?

Back 327

Offer Wanted

Front 328

What is "BW" on the OTC?

Back 328

Bid Wanted

Front 329

What is necesaary to create an inside market on the OTC?

Back 329

If at least two market makers are displaying two-sided quotations on the OTCBB for a security, the system will calculate and display the inside market based on all the priced quotes in the system for that security, including any one-sided priced quotes.

Front 330

During a repurchase, how does the increase in the market value of shares affect companies ROE and BV/share?

Back 330

The buyback of stock will affect the balance sheet (increasing the treasury stock account and reducing cash). The income statement will not be affected by the company buyback. Earnings available to common stockholders will remain unchanged, while the number of shares of common stock outstanding will decline. This will result in a higher level of earnings per share. The book value per share of Nitrozene will decline if the company increases the treasury stock account by repurchasing shares at a higher price than the current book value. Conversely, if a company repurchases stock below book value, the book value per share will increase.

Front 331

As a Series 79 investment banking representative, you may engage in which of the following activities to show your appreciation to an attorney who referred your firm to issuers? What can you NOT do?

Back 331

You can invite to dinner. A Series 79 representative may not offer to pay underwriting fees, or make any other financial arrangements to pay for referrals. Representatives should not offer guarantees of any kind, whether based on the performance of a specific issue, or the ability to participate in an upcoming distribution.

Front 332

Who typically signs a confidentiality agreement in a proposed merger?

Back 332

Both potential buyers and sellers.Typically, both the disclosing party and the party receiving the information sign the agreement. Attorneys and accountants who are already working for the seller are normally ALREADY bound by nondisclosure requirements as part of their ongoing relationship

Front 333

What is stapled financing?

Back 333

A pre-arranged financing package offered to potential bidders in an acquisition. Staple financing is arranged by the investment bank advising the selling company and includes all details of the lending package, including the principal, fees and loan covenants. The name is derived from the fact that the financing details are stapled to the back of the acquisition term sheet.

Front 334

Who typically provides the funds in a stapled financing transaction?

Back 334

Stapled financing is a prearranged financing package offered by an investment bank to potential bidders in an acquisition. The investment bank (advising the selling company) includes all details of the lending package, including the principal amount of the offer, loan covenants, and applicable fees. The financing offer is attached, or stapled, to the acquisition term sheet.

Front 335

What constitutes a "public appearance" by a research analyst?

Back 335

A public appearance is defined as:
any conference call, seminar, or public speaking engagement delivered to 15 or more persons,
or with one or more representatives of the media (radio, TV, or print media) in which a research analyst makes a recommendation,
or offers an opinion concerning an equity security.

It would also include any article where the analyst makes a recommendation, or offers an opinion concerning an equity security.

A television interview is a public appearance regardless of how many people are interviewing the analyst.

An internal meeting is NOT a public speaking engagement and is not viewed as a public appearance.

Front 336

What is a Line of Credit when used for an acquistion in relation to the current ratio?

Back 336

It is a current liabilityin CA/CL

Front 337

Which of the following features are benefits of being classified as a seasoned issuer under the Securities Act of 1933?

Back 337

A seasoned issuer does not meet the financial requirements to be classified as a WKSI, or well known seasoned issuer. The financial requirements relate to the market value of voting and non voting common equity, which must be at least $700 million, or the issuance of at least $1 billion of bonds in the last three years. A seasoned issuer can benefit from shelf registration, but not the automatic shelf registration afforded WKSI status, where there is no SEC staff review (choice b).

Front 338

What are the differences between a WKSI and seasoned issuer in terms of benefits?

Back 338

A seasoned issuer does not meet the financial requirements to be classified as a WKSI, or well known seasoned issuer. The financial requirements relate to the market value of voting and non voting common equity, which must be at least $700 million, or the issuance of at least $1 billion of bonds in the last three years. A seasoned issuer can benefit from shelf registration, but not the automatic shelf registration afforded WKSI status, where there is no SEC staff review (choice b).

Front 339

What is the criteria for being a WKSI?

Back 339

The financial requirements relate to the market value of voting and non voting common equity, which must be at least $700 million, or the issuance of at least $1 billion of bonds in the last three years.

A seasoned issuer can benefit from shelf registration, but not the automatic shelf registration afforded WKSI status, where there is no SEC staff review.

Front 340

If current assets decline, is it source or use of cash in CFO?

Back 340

Source

Front 341

Where does CAPEX and Depreciation sit in the CF Statement?

Back 341

Lower capital expenditures would be part of investing cash flows. Depreciation is a source of cash in operating cash flows.

Front 342

Is the CPI a leading indicator?

Back 342

No

Front 343

Is the S&P500 index a leading indicator?

Back 343

Yes

Front 344

Are New building permits a leading indicator?

Back 344

Yes

Front 345

Is M2 money supply a leading indicator?

Back 345

Yes

Front 346

What is a purchaser representative?

Back 346

Apurchaser representative is defined as a person who represents potential purchasers who are solicited to buy securities pursuant to Regulation D.

Front 347

What are the restrictions placed on Purchaser representatives?

Back 347

To avoid conflicts of interest, there are certain restrictions placed on purchaser representatives.

-They may not own 10% or more of the stock of the issuer,
nor be an affiliate, director, officer, or employee of the issuer unless they are a close relative of the offeree.

Purchaser representatives must be knowledgeable and experienced in financial and business matters.

The potential purchaser must designate an individual to be a purchaser representative in writing for each individual offering.
permitted.

Front 348

What is blanket approval?

Back 348

Authority that is given to designate Reviewers who can approve a document to a chosen route point. The action bypasses approvals that would otherwise be required in the Routing.

Front 349

Is blanket approval in Regulation D permitted?

Back 349

Blanket approval to represent a potential purchaser in all Regulation D offerings is not permitted

Front 350

Are there specific qualifications for a person to act as purchaser rep?

Back 350

There are no specific qualifications needed to act in this capacity.

Front 351

If using a purchaser representative, can you allow them to authorize every transaction.

Back 351

No, the person must be given authority to act as a purchaser representative for EACH transaction for which this role is assumed for a customer.

Front 352

What is an engagement letter?

Back 352

An engagement letter defines the legal relationship between the investment banker (or other professional firm) and the issuer. This document defines the terms and conditions of the relationship by detailing the scope of the engagement and the compensation paid to the professional firm.

Front 353

Can research analysts be present in Due diligence or fact-checking meetings with ibankers? Who else must be present?

Back 353

Under industry rules, research analysts may participate in due diligence meetings and the screening of potential investment banking clients; however, they may not participate in or attend meetings for the purpose of soliciting investment banking business (pitches). Legal departments of his member firm must also be present.

Front 354

Which of outside business activities would an investment banking representatives NOT need to report to their employing broker-dealer? Which must they report?

Back 354

FINRA rules require registered representatives to report to their firm any outside business activities for which they earn compensation. However, a passive investment would generally not need to be reported, nor would participation in charitable activities for which no compensation is received (i.e.silent partner in relative's biz)..

Front 355

What is Securities in Trade provision?

Back 355

Under SRO rules, swaps may only be conducted at fair market value. To overpay violates the provision called Securities Taken in Trade.

Front 356

What are the two ownership tests that a REIT must pass in terms of organizational structure? When is this done?

Back 356

As a general rule, a Real Estate Investment Trust (REIT) in its second taxable year must meet two ownership tests. There must be at least 100 different shareholders and 5 or fewer individuals may not own more than 50% of its common stock during the last half of its taxable year.

Front 357

Under Rule 102 of Regulation M, selling shareholders are prohibited from:

Back 357

Investors who are selling stock through a distribution would have a motivation to inflate the price of the stock, just prior to the distribution. The issuer and selling shareholders are bound by Rule 102 of Regulation M, and are prohibited from buying shares in the open market prior to the closing of the new issue (defined as the restricted period)

Front 358

What to REITs generally do?

Back 358

Real estate investment trusts (REITs) raise capital and invest the proceeds in real estate and mortgages.

Front 359

How do REITs generate profits?

Back 359

Their profit is derived from both the rental income they receive as well as the difference between the interest they pay and the greater amount of interest they receive.

Front 360

What percentage of its income must REITs pass on to shareholders?

Back 360

In order to qualify for favorable tax treatment, REITs must pay 90% of their income to shareholders

Front 361

Why do REITs pass on a large amount of income to shareholders?

Back 361

In order to qualify for favorable tax treatment, REITs must pay 90% of their income to shareholders

Front 362

How do you fully consolidate >50% ownership? What happens with minority interest?

Back 362

REVIEW!!!! - problem 34 - EXAM 2

Front 363

GET STUFF YOU DID ON WELLS PC

Back 363

GET STUFF YOU DID ON WELLS PC

Front 364

GET STUFF YOU DID ON WELLS PC

Back 364

GET STUFF YOU DID ON WELLS PC

Front 365

GET STUFF YOU DID ON WELLS PC

Back 365

GET STUFF YOU DID ON WELLS PC

Front 366

GET STUFF YOU DID ON WELLS PC

Back 366

GET STUFF YOU DID ON WELLS PC

Front 367

GET STUFF YOU DID ON WELLS PC

Back 367

GET STUFF YOU DID ON WELLS PC

Front 368

GET STUFF YOU DID ON WELLS PC

Back 368

GET STUFF YOU DID ON WELLS PC

Front 369

GET STUFF YOU DID ON WELLS PC

Back 369

GET STUFF YOU DID ON WELLS PC

Front 370

GET STUFF YOU DID ON WELLS PC

Back 370

GET STUFF YOU DID ON WELLS PC

Front 371

GET STUFF YOU DID ON WELLS PC

Back 371

GET STUFF YOU DID ON WELLS PC

Front 372

GET STUFF YOU DID ON WELLS PC

Back 372

GET STUFF YOU DID ON WELLS PC

Front 373

GET STUFF YOU DID ON WELLS PC

Back 373

GET STUFF YOU DID ON WELLS PC

Front 374

GET STUFF YOU DID ON WELLS PC

Back 374

GET STUFF YOU DID ON WELLS PC

Front 375

GET STUFF YOU DID ON WELLS PC

Back 375

GET STUFF YOU DID ON WELLS PC

Front 376

GET STUFF YOU DID ON WELLS PC

Back 376

GET STUFF YOU DID ON WELLS PC

Front 377

Relative to a corporate bond purchased at a discount, place the following in the proper order from lowest to highest yield.
- Current yield
- Nominal yield
- Yield to maturity

AND WHY?

Back 377

A bond trading at a discount has a nominal yield that is less than its yield to maturity. Current yield falls between the nominal yield and yield to maturity. A bond trading at a premium has a nominal yield which is higher than the yield to maturity, with the current yield in between the other two yields

Front 378

What is a covered person?

Back 378

A covered person is an issuer or individual that is making the tender offer, with the investment bank acting as the dealer-manager in the transaction.

Front 379

Which of the open market transactions is permitted by a covered person during the tender period? Which are NOT?

Back 379

According to SEC Rule 14e-5, a covered person in a tender offer may NOT purchase the common stock or convertible securities of the same issuer during the period that the tender is open.

A person who has made a tender offer (for stock) may purchase the nonconvertible bonds of the issuer.

Front 380

What must the underwriter do for a Nasdaq security under regulation M?

Back 380

st request an Underwriting Activity Report from FINRA's Corporate Financing Department. The report will identify if the security's restricted period begins one day or five days prior to pricing, or whether it is exempt as an actively traded security. For those securities that are not exempt, the manager must submit to FINRA's Market Regulations Department, no later than the day prior to the commencement of the restricted period, a Restricted Period Notification Form, indicating whether distribution participants will be excused, or designated as passive market makers.

Front 381

When is a Restricted Period Notification Form used?

Back 381

st request an Underwriting Activity Report from FINRA's Corporate Financing Department. The report will identify if the security's restricted period begins one day or five days prior to pricing, or whether it is exempt as an actively traded security. For those securities that are not exempt, the manager must submit to FINRA's Market Regulations Department, no later than the day prior to the commencement of the restricted period, a Restricted Period Notification Form, indicating whether distribution participants will be excused, or designated as passive market makers.

Front 382

When is the use of pro forma statements considered fraudulent?

Back 382

When assumptions aren't clearly stated

Front 383

Can you state that a broker-dealer's proprietary strategies are approved by the SEC?

Back 383

No, considered fraudulent. But you can say the company is registered with SEC.

Front 384

What is a wash sale?

Back 384

Wash sales represent the purchase and sale of securities, without beneficial change of ownership, for the purpose of raising or depressing the price of the security. For example, an individual places an order with Broker A to buy 10,000 shares of XYZ at 40 and, at the same time, places an order with Broker B to sell 10,000 shares of XYZ at 40. Since there is no chance for a profit or loss, it is obvious that the investor's intention is to manipulate the price of the stock.

Front 385

what is a pool order?

Back 385

Pools or syndicates that are formed to raise or lower the price of a security are also prohibited.

Front 386

What is a matched order?

Back 386

Matched orders are similar to wash sales. They involve two persons, acting in concert, to buy and sell a security to raise or depress its price.

Front 387

The Securities Exchange Act of 1934 prohibits which of the following types of manipulative activity under all circumstances?
--Wash sales
--Matched orders
--Pool activities designed to raise or depress prices
--Stabilizing at the offering price by an investment banker distributing a new issue of stock

Back 387

All of the choices, including stabilizing, are forms of manipulation. However, only wash sales, matched orders, and pool activities designed to raise or depress prices of securities are prohibited. Stabilization is controlled by SEC rules, but is not prohibited

Front 388

What is a fund of hedge funds? Do they have to be registered by SEC? Why or why not?

Back 388

A fund of hedge funds is a mutual fund that invests in unregistered, private hedge funds. Although hedge funds are not required to register with the SEC, funds of hedge funds typically do not have this exemption available to them. Since these funds of funds are invested in illiquid securities (the individual hedge funds), they do not typically offer a guaranteed daily right of redemption. (Traditional mutual funds offer this feature.) Liquidity is a term that means an investor can convert her investment into cash quickly. Since there is no guaranteed daily redemption feature offered to investors in hedge funds and funds of hedge funds, these securities are illiquid. Choice (c) is incorrect since there is no guarantee that this type of fund will outperform a traditional mutual fund.

Front 389

Do hedge funds have to registered with SEC?

Back 389

No

Front 390

Who is required to be fingerprinted?

Back 390

Under SEC Rule 17f-2, fingerprints are required of any securities industry person who is:

engaged in the sale of securities, or who regularly has access to the keeping, handling or processing of securities, monies, or the original books and records relating to securities or monies.
- has direct supervisory responsibility over persons engaged in these activities is required to comply with these regulations.

If the securities being sold by the broker-dealer are not evidenced by a certificate, such as a variable annuity contract or an open-end investment company, the requirement to fingerprint may be waived for the appropriate persons

Front 391

How does Rule 144 treat resticted and control stock differently? Holding period? And volume limitations?

Back 391

Rule 144 requires that restricted (unregistered) stock be held for 6 months before it can be resold. Control stock (registered stock purchased by insiders) is not subject to a holding period requirement under Rule 144. Both restricted and control stock are subject to the volume limitations under the Rule.

Front 392

NEED TO GET Exam 1, 46 - 97

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NEED TO GET Exam 1, 46 - 97

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NEED TO GET Exam 1, 46 - 97

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NEED TO GET Exam 1, 46 - 97

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NEED TO GET Exam 1, 46 - 97

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NEED TO GET Exam 1, 46 - 97

Front 395

NEED TO GET Exam 1, 46 - 97

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NEED TO GET Exam 1, 46 - 97

Front 396

NEED TO GET Exam 1, 46 - 97

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NEED TO GET Exam 1, 46 - 97

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NEED TO GET Exam 1, 46 - 97

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NEED TO GET Exam 1, 46 - 97

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NEED TO GET Exam 1, 46 - 97

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NEED TO GET Exam 1, 46 - 97

Front 399

NEED TO GET Exam 1, 46 - 97

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NEED TO GET Exam 1, 46 - 97

Front 400

What type of activity would not require a prospectus delivery to shareholders? What types of activies DO require a delivery?

Back 400

SEC regulations require issuers to provide a prospectus to shareholders in advance of the various transactions, including reclassifications, mergers, consolidations, and the transfer of assets to another party.

A repurchase by a company of its own stock is regulated under Rule 10b-18 of the 1934 Act. The activity DOES NOT require a prospectus delivery to shareholders.

Front 401

A record of written customer complaints must be maintained by each:

Back 401

Office of Supervisory Jurisdiction

Front 402

In dividend discount model, what type of growth is assumed in dividend?

Back 402

The projection may show a constant growth rate, a variable growth rate, or no growth at all.

Front 403

What form would show the Recommendations of the board of directors who are making a cash tender offer? What else does the form show? What is it used for?

Back 403

Schedule 14D-9

SEC Rule 14d-9 concerns recommendations, or solicitations by the subject company and other parties. The rule requires Schedule 14D-9 to be filed by certain persons such as:

The subject company, any officer or director, or employee of the affiliate of the subject company
-Any owner of any security of the subject company, the bidder, or any affiliate of the bidder
-Any other person who makes a solicitation or recommendation to shareholders on behalf of any of the above

Schedule 14D-9 is filed with the SEC. A letter from the board of directors addressing its recommendation concerning the tender offer would be attached as one of the exhibits of the Schedule 14D-9.

Front 404

ROE CALCULATION

Back 404

SEE EXAM 2 - Question 41…IMPT!

Front 405

ROE to common equity formula?

Back 405

(Net Income - PREFERRED divs / AVG common equity

Front 406

List the following activities from FIRST to LAST, in the order of occurrence, when an initial public offering is registered.
1) Distribute the red herring
2)Create an indication of interest book
3)Assist the issuer in drafting the road show presentation
4)Stabilize the issue

Back 406

3,1,2,4.

The underwriters will normally begin drafting the road show presentation with the issuer, before distributing the red herring (preliminary prospectus). Once the registration statement is filed, distribution of the red herring may begin. While the issue is with the SEC, road shows are conducted to obtain indications of interest. Orders and funds may not be accepted until the issue is granted an effective registration date by the SEC. Stabilization occurs in the secondary market after the issue is declared effective.

Front 407

What is a red herring?

Back 407

preliminary prospectus on offering

Front 408

What is refunding? What are tax, maturity, expense, and capitlization implications?

Back 408

Refunding means to replace a debt issue with another debt issue. A corporation can refund a debt issue to reduce its interest expense and change the maturity schedule for its debt. The refunding would not normally reduce the tax liability to the issuer. In a refunding, new bonds will be issued and older bonds retired. It would not be expected that the corporation's capitalization would increase.

Front 409

what type of company sale helps limit tax liability?

Back 409

A stock swap would not create a current tax liability, since no money is exchanged. Any stock received will have a cost basis derived from the original purchase price of the former shares.

Front 410

What is a golden parachute ?

Back 410

Lucrative benefits given to top executives in the event that a company is taken over by another firm, resulting in the loss of their job. Benefits include items such as stock options, bonuses, severance pay, etc

Front 411

Little Cub Enterprises is seeking to become an attractive acquisition candidate. It is contemplating a workforce reduction prior to approaching Big Bear LLC to discuss being acquired. How would the timing of this workforce reduction impact the seller's tax situation? How would it differ if it was after the acquisition?

Back 411

All termination costs incurred prior to the acquisition would be currently deductible by Little Cub.

The purchaser may decide to reduce the workforce of an acquired business following an acquisition, or a seller may downsize a company to make it a more attractive acquisition candidate. The tax treatment of payments made to employees terminated before the purchase, and to those terminated after the purchase, is handled differently. Severance payments made when downsizing prior to an acquisition are generally deductible to the target company, and are considered an assumed liability (part of the purchase price) for the acquirer, since the liability exists at the time of the acquisition. Workforce reductions that occur after the acquisition are (typically) not treated as part of the buyer's acquisition cost.

Front 412

What is a custodian account?

Back 412

An account created at a bank, brokerage firm or mutual fund company that is managed by an adult for a minor that is under the age of 18 to 21 (depending on state legislation).

Front 413

You are an investment banker at a member firm. What other people in your cirlce are bound by industry rules when opening an account at another member firm?

Back 413

Your spouse and minor child. ndustry rules regarding accounts of employees or partners of other member firms (investment banking or otherwise) also apply to the employee's spouse and minor children.

Front 414

What is Seller assisted financing?

Back 414

Seller financing is a loan provided by the seller of a property or business to the purchaser.

Front 415

What is Linked Financing?

Back 415

Arrangement between a depositor and a bank (or other financial institution) under which the bank extends loan(s) to a certain borrower. The extent of the loan amount depends on the amount of credit balance maintained in the depositor's account.

Front 416

Typically, does a buyer or seller prefer a stock or asset sale? Why?

Back 416

Typically, a buyer prefers to purchase the assets of a corporation's business, while the seller prefers a stock sale. The benefit to the buyer of an asset is the ability to exclude preacquisition liabilities from the purchase. Therefore, it can (generally) acquire only those assets (and liabilities) it desires. In effect, this technique allows the buyer to cherry-pick the target's business. The buyer would normally have a stepped-up cost basis against which it could take increased depreciation and amortization deductions. Alternatively, sellers usually prefer to sell stock rather than assets, since this process would transfer all of the acquired firm's liabilities (including contingent liabilities) to the buyer.

Front 417

What type of sale do C corps prefer and why?

Back 417

Also, individual owners of a C Corporation prefer a stock sale over an asset sale, because the latter event produces only one level of taxation (shareholder), as opposed to two levels (the corporation and shareholder).

Front 418

What is the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act)?

Back 418

requires large companies to file a report with the Federal Trade Commission FTC and Department of Justice DOJ before completing a merger, acquisition or tender offer so that government regulators can determine whether the transaction would violate antitrust laws.

must meet certain threshholds.

Front 419

What are the thresholds and 2 types of tests that determine whether a company must report M&A to DOJ and FTC? What is the act called?

Back 419

According to the provisions of the Hart-Scott-Rodino Act, since the value of the transaction is $66 million or less, neither company is required to notify the FTC or the Department of Justice. Notification requirements only apply to mergers and acquisitions that meet certain thresholds. Two different tests are applied to determine whether filing is required. One test is based on the size of the companies involved. The other test is based on the size of the transaction. These provisions are intended to impact larger-sized companies and transactions. Smaller transactions are generally exempt from the Act.The specific tests applied to determine if notification is required are:

The size of company test -- One company has $131.9 million or more in revenues or assets, while the other company has at least $13.2 million in revenues or assets and, as a result of the transaction, the acquiring party (company/person) will hold aggregate stock and/or assets in the acquired company valued at more than $66 million.
The size of transaction test -- The transaction itself is valued at more than $263.8 million, regardless of the sales or assets of the acquiring person and acquired person.

Front 420

What is public float?

Back 420

The total number of shares publicly owned and available for trading. The float is calculated by subtracting restricted shares from outstanding shares.

Front 421

What is an S-3 used for? What is the minimum requirement?

Back 421

An S-3 registration statement is sometimes called short form registration for a folow-on offering. The minimum requirement to file an S-3 is $75 million of public float in voting and nonvoting common equity

Front 422

What is short form registration?

Back 422

An S-3 registration statement is sometimes called short form registration for follow-on offering

Front 423

What are 4 items that might disallow a company from filing an S-3?

Back 423

n issuer is precluded from filing an S-3 registration statement if it has:

-failed to pay a dividend on an issue of preferred stock
-failed to pay interest on a bond
-if it is delinquent in its filings with the SEC
- does not meet the minimum requirement to file an S-3 is $75 million of public float in voting and nonvoting common equity.

Front 424

What are treasury STRIPS?

Back 424

An acronym for 'separate trading of registered interest and principal securities'. Treasury STRIPS are fixed-income securities sold at a significant discount to face value and offer no interest payments because they mature at par.

Front 425

Are Treasury STRIPS backed by govt credit?

Back 425

yes

Front 426

Who issues FNMA bonds and who backs them?

Back 426

Federal National Mortgage Association (FNMA) bonds are issued by a privately owned organization and are not backed by the U.S. government.

Front 427

Are GNMA bonds backed by US govt?

Back 427

yes

Front 428

What are two signs of the peak of the market? What would the FRB do in terms of money supply?

Back 428

Low unemployment and lower-than-expected inflation generally signal the peak of a market. Although the inflation numbers may be low, expectations of higher inflation may cause the FRB to reduce the money supply to keep inflation in check.

Front 429

What is a staggered board structure? What are the reasons for implementing one?

Back 429

For example, Trinity Holdings has nine board members each of whom serve a three-year term. Each year three of the members come up for election. Issuers often employ a staggered board of director's structure to prevent hostile buyers from quickly gaining control of the board. In this case, a hostile shareholder could only capture three seats in the first year, giving the issuer time to mount counteroffensives

Front 430

What is a trust indenture?

Back 430

A trust indenture is a contract between the issuer and a trustee bank designed to protect the interests of shareholders.

Front 431

What is convexity?

Back 431

The relationship between yield and price is not linear; the term that describes this phenomenon is convexity.

Front 432

What is positive convexity?

Back 432

Positive convexity describes the condition where, as yields decline, prices increase at a faster rate for long-term bonds as compared to intermediate or short-term bonds.

Front 433

What is Duration?

Back 433

Duration measures price sensitivity for fixed-income securities given changes in interest rates.

Front 434

How are unsubstantiated rumors handled in a research report by an analyst?

Back 434

Generally, the circulation of rumors is prohibited by NYSE Rule 435(5). However, unsubstantiated rumors published in a widely circulated media may be discussed if the source of the information and the fact that they are unsubstantiated is disclosed

Front 435

What does the tombstone advertisement show?

Back 435

-Factual information about the legal identity and business location of the issuer
-The title of the security and the amount offered
-A brief indication of the general type of business of the issuer
-The type of underwriting

If the registration statement has not yet become effective, the following information must be included:
-A statement indicating that the securities registration is not yet effective and the orders for the securities may not be accepted until registration is effective.
-The contact information of a person from whom a written prospectus may be obtained.

Front 436

When does Continuing Education have to be completed?

Back 436

The Continuing Education Regulatory Element for registered personnel begins on the second anniversary of her initial registration, and then is triggered every three years thereafter. If representatives do not participate, their registration becomes inactive. There is no graduation from the Regulatory Element.

Front 437

When determining the suitability of a recommendation to a client, a principal or representative would look at the:

Back 437

client's tax status, investment objectives, and financial background

Front 438

The Fed would buy securities…does this help ease credit conditions? Why?

Back 438

Buying securities in the open market by the FRB would put cash into the banking system, which would have a multiplier effect.

Front 439

While it satisfies most of the listing standards, due to recent adverse market conditions, the market value of the company's shares falls below the NYSE minimum. Which TWO actions could satisfy the NYSE listing standards?

Back 439

A company can satisfy the minimum market value requirement by issuing additional shares. In situations where the market value has declined as a result of adverse market conditions, the NYSE will consider stockholders' equity of $60 or $100 million (as applicable) as an alternative measure, provided that the public market value is no more than 10% below the minimum

Front 440

In requirements for NYSE listing, will NYSE consider providing a waiver for not meeting market cap req?

Back 440

No

Front 441

In requirements for NYSE listing, will NYSE consider Foreign distributions in market cap threshold?

Back 441

No, only US secruties

Front 442

Supermajority vote requirement…what is it? Why done? Where is it outlined?

Back 442

Most of its corporate issues are approved by a simply majority, but in the case of a merger or acquisition, at least 10 board members must consent.

Issuers often require a vast majority of board members to agree on significant issues, such as mergers, or the sale of a firm. These supermajority provisions are outlined in the corporate charter. These types of provisions are often part of antitakeover strategies, since a hostile shareholder who has acquired minority representation on a board would still need to convince a significant majority of the other board members that a corporate transaction is in the best interests of shareholders.

Front 443

By signing a U4, you are agreeing to what? Is there an exception?

Back 443

By signing a U4, the registrant agrees to use arbitration as a means of resolving disputes involving the employer, other members, customers, or associated persons. By agreeing to arbitration the registrant waives his right to civil litigation. However, according to SRO regulations, predispute arbitration agreements found in the Form do not apply to claims involving employee discrimination or sexual harassment.

Front 444

When and why is the 13G filed?

Back 444

Form 13G is filed within 45 days of the end of the year. It is an alternative to 13D, and is usually filed by institutional investors who have no intention of influencing or controlling the issue. Any person who becomes the beneficial owner of more than 5% of any class of equity security registered under the Securities Exchange Act of 1934 must file a statement of beneficial ownership on Schedule 13D with (i) the issuer, (ii) each exchange on which the security trades, and (iii) the SEC. The report must be filed within 10 days after the acquisition. Form 13G is also filed within 10 days of the end of the month in which an investor's ownership first exceeds 10%

Front 445

Why are spinoffs done?

Back 445

Spinoffs are used by sellers with the expectation that the combined valuation of the two entities will be greater than that of the single entity.

Front 446

How are shares distributed in a spinoff and what are the tax implications?

Back 446

In a spinoff, each shareholder retains shares in the parent corporation and is also granted shares in the newly created entity. There are no immediate tax consequences to the recipient of the new shares.

Front 447

What is a RW trade?

Back 447

REGULAR WAY TRADE - type of trade that is settled through the regular settlement cycle required for the particular investment being traded. The settlement cycle is the time that the regulations of the securities market allows for the buyer to complete payment and for the seller to deliver the goods being purchased. The settlement cycle differs for different assets. Most trades are regular-way trades

Front 448

In a RW trade, when is the transaction complete under SEC regulations? Is there an exception?

Back 448

When purchasing a security, the transaction is normally completed when the customer makes payment of any part of the purchase price to the broker-dealer, assuming the customer pays on the date due.

However, if the customer pays prior to the time the payment is due, completion occurs when the broker-dealer delivers the securities to the customer's account, which is usually on the settlement date.

Front 449

An issuer would like to repurchase its shares in the market under the safe-harbor provisions of Rule 10b-18. You would advise the issuer that it should limit the amount of stock purchased on any single day to no more than what percent of the ADTV for that security?

Back 449

Under the safe-harbor provisions of Rule 10b-18, an issuer should limit its purchases for that security to no more than 25% of the average daily trading volume (ADTV) on any single day.

Front 450

What are FINRA Corporate Financing Rule requirements for filing in terms of compensation?

Back 450

The FINRA Corporate Financing Rule has two different filing requirements, based on whether the securities are registered or exempt from registration.

1)If the securities are to be registered, the required disclosures are to be filed with FINRA no later than one business day following the filing of the issuer's registration statement with the SEC (or any state securities commission).

2)If the issue is exempt from registration, the disclosures must be filed with FINRA at least 15 business days prior to the anticipated offering.

Front 451

An individual convicted of insider trading 4 years ago has served time in federal prison. She arrives at your office looking for a position as an investment banker. You would inform her that:

Back 451

A convicted felon is barred from the securities business for 10 years from the time of conviction. This type of ban is referred to as a statutory disqualification. A disqualified person may apply to an SRO to enter or reenter the securities industry before the 10-year period has elapsed. If the SRO grants the waiver, it must notify the SEC, which can overturn the waiver if it chooses.

Front 452

How long is a convicted felon is barred from the securities business? Can he apply for waiver?

Back 452

A convicted felon is barred from the securities business for 10 years from the time of conviction. This type of ban is referred to as a statutory disqualification. A disqualified person may apply to an SRO to enter or reenter the securities industry before the 10-year period has elapsed. If the SRO grants the waiver, it must notify the SEC, which can overturn the waiver if it chooses

Front 453

You have recently been hired as an investment banking representative. Your duties will include prospecting for new investment banking clients and distributing marketing materials. Your firm has provided a script detailing what you should say when contacting prospective clients for your firm. Which of the following statements is TRUE regarding the sales script and marketing materials?

Back 453

Both the sales scripts and the marketing materials are subject to retention for three years. Although filing with the SEC or FINRA is not required, the marketing materials are subject to spot-checking by regulators at any time.

Front 454

Who is entitled to management, concession, or underwriting fees….in terms of members on an offering?

Back 454

A member of the syndicate is entitled to the underwriting fee and concession. Only the syndicate manager is entitled to the management fee. A broker-dealer that is not a member of the syndicate selling part of a new issue is entitled to the concession.

Front 455

Abram and Lincoln Securities, an investment banking firm, has a controlling interest in Iron and Steele Savings. A customer of Abram and Lincoln has placed an order to purchase 5,000 shares of Iron and Steele Savings. Is this executed and, if so, how?

Back 455

A broker-dealer that owns a controlling interest in a company has a control relationship. Abram and Lincoln must disclose this relationship if it solicits orders for the shares of Iron and Steele Savings. This written disclosure would be documented on the customer's confirmation

Front 456

Do you deduct preferred divs before tax-effected income or after?

Back 456

after

Front 457

If yields are rising, what are the effects on DCF, WACC, risk-free rates, and cost of debt?

Back 457

If rates are rising, the cost of debt capital would increase, leading to a higher weighted average cost of capital. Higher interest rates will hurt discounted cash flows, and will cause the cost associated with debt issues to increase. The risk-free rate is associated with the yield on Treasury bills. This yield will trend higher as interest rates increase.

Front 458

What is a subscription agreement and what information does it contain?

Back 458

The subscription agreement is a sales contract for the sale of securities in a private placement. It sets forth the terms and conditions of the offering. This agreement would usually contain the following information.

--A statement in which the investor agrees that she alone, or with the assistance of a purchaser representative, has sufficient knowledge and experience to evaluate the risks and merits of the investment
--investor's annual gross income and net worth
--A statement regarding the status of the investor, and the category of accredited investor (This is also referred to as the qualification of investor section.)
--The number of shares (or units) and the price per unit that the investor is purchasing
--A statement by the investor acknowledging that she has received and carefully reviewed a numbered copy of the appropriate disclosure document, and any other related information concerning the issuer
--A statement that the investor understands that the investment is illiquid and involves a high degree of speculative risk
--A statement that the investor understands that the securities being purchased have not been registered and may not be sold unless a registration is effective
--A statement as to the investor's state of residency

Front 459

How are extraordinary charges reconciled in the P/E ratio?

Back 459

he P/E ratio is based on earnings before extraordinary charges are added to reported earnings.

Front 460

What would be the cost basis and tax liability to target in a stock swap?

Back 460

the stock swap would not create an immediate tax liability for Ms. Quickneedle. She would assign the cost basis of her former shares to the shares she receives from the acquiring company.

Front 461

What is a way to see if an acquisition is accretive to shareholders using financial metrics? Not EPS

Back 461

An acquisition is accretive to shareholder value if the return on invested capital (ROIC) exceeds the weighted average cost of capital (WACC).

Front 462

Is there a conflict when providing a fairness opinion and stapled financing in an acquisition?

Back 462

NO. The fairness opinion is rendered to determine whether the proposed transaction price is fair (within a reasonable range of prices). When preparing a fairness opinion that will be distributed to public shareholders, regulators require that any existing conflicts of interest be revealed. Any material relationship must be disclosed, such as those that include contingent compensation from related transactions. When an investment bank advising the seller in an M&A transaction has agreed to provide financing to the firm that wins the bid, it is known as stapled financing. Stapled financing is an acceptable business practice. The origin of the name for this practice is based on the stapling of the loan commitment to the offering documents provided to potential bidders.

Front 463

Correspondence between underwriting group members, information used for road shows, and copies of underwriting materials must be maintained by a broker-dealer for a minimum of:

Back 463

Three years with the records being easily accessible for two years

Front 464

What type of firms must maintain restricted and watch lists?

Back 464

Only firms that engage in investment banking, research, or arbitrage activities are required to maintain restricted and watch lists.

Front 465

A corporation is planning to issue $20,000,000 face value of corporate bonds with a 6.4% coupon. The bonds will have a ten-year maturity. Expenses associated with the underwriting total 5.2% and are broken down as underwriting fees of 3.5%, advertising costs of 1.2%, and legal and accounting costs of 0.5%. What is the issuer's cost of captial for this debt issue?

Back 465

6.75%

The cost of capital is calculated by dividing the interest expense by the net proceeds of the issue. The flotation costs include underwriting fees, advertising, legal, and accounting costs totaling $1,040,000 (5.2% x $20,000,000). The interest of $1,280,000 (6.4% x $20,000,000) is divided by the net proceeds of the issue which is $18,960,000 ($20,000,000 - $1,040,000). $1,280,000 / $18,960,000 = 6.75%.

Front 466

Where is Detailed information concerning proposed executive compensation and ownership percentages is required in this document?

Back 466

In the PROXY STATEMENT.

The SEC requires a company to provide shareholders with a proxy statement prior to its annual meeting. The proxy statement contains information that will be voted on during the annual shareholder meeting.

Front 467

What is earnings yield?

Back 467

The earnings per share for the most recent 12-month period divided by the current market price per share. The earnings yield (which is the inverse of the P/E ratio) shows the percentage of each dollar invested in the stock that was earned by the company.

Front 468

If a company's financial statements indicate a negative P/E, an investment banking representative may use alternative methods. Which TWO of the following factors would be appropriate considerations when a company has a negative P/E ratio?

Back 468

If the company is showing a negative P/E ratio, an analyst may use forward EPS rather than trailing EPS. The use of earnings yield rather than the price/earnings ratio is also a viable alternative. Earnings yield is used when ranking companies from the lowest cost per unit of earnings to the highest cost per unit of earnings

Front 469

What is total underwriting spread comprised of?

Back 469

manager's fee, underwriting fee, selling concession

Front 470

What is FCFF and FCFE? What are diffs? How is each calculated?

Back 470

Free cash flow for the firm (FCFF) is used to evaluate the profitability of an entire business, rather than shareholder equity. The starting point for FCFF is EBIT multiplied by (1 - tax rate) and then adding depreciation and amortization, subtracting capital expenditures, and factoring in changes to working capital (WC). Increases in WC reduce FCFF; decreases in WC increase FCFF. It is also useful when evaluating companies with little or no debt.

FCFE describes the funds available to owners of a company. Rather than beginning with EBIT, FCFE begins with net income. The adjustments made for depreciation and amortization, capital expenditures, and working capital are the same as described for FCFF.

Therefore, if a firm has no debt, FCFF and FCFE are the same.

Front 471

The President of Little Fish Inc. has a golden parachute agreement that becomes payable in the event of a change in corporate ownership. What is a trigger point for excess parachute payment under IRC 280G? What is a penality?

Back 471

Under Internal Revenue Service rules (IRC Section 280G), companies paying excess golden parachute payments (defined as those greater than three times the individual's average annualized compensation as computed over the prior five years) could potentially lose the corporation's tax deduction for such payments, and expose the recipient to an excise tax.

Front 472

Under SOX, wjat is the policy and potential exceptions about loans to officers in the firm?

Back 472

One of the features of this Act is to ban personal loans from corporations to their executive officers and directors. (Note that there are certain limited exceptions to this prohibition: directors and officers of companies that grant credit in the ordinary course of business [lending institutions such as banks] may still obtain credit cards or other types of loans from the company, provided they are obtained on the same terms as those available to the public.)

Front 473

What is round-lot shares?

Back 473

A group of 100 shares of a stock, or any group of shares that can be evenly divided by 100, such as 500, 2,600 or 14,300.

Front 474

What is odd-lot shares?

Back 474

For stocks, any transaction less than 100 shares is usually considered to be an odd lot.

Front 475

An investor purchasing securities under Section 4(6) of the Securities Act is required to receive:

Back 475

According to Section 4(6) of the Securities Act, an offering by an issuer may be considered an exempt transaction if certain conditions are met:

1)The amount of the offering may not exceed $5,000,000.
2) No advertising or public solicitation may be used to offer the securities
3) the offering may be sold only to accredited investors.

There are no document delivery requirements, but the transaction is subject to the antifraud provision of the Act. This exemption is different from Regulation D where a limited number (35) of nonaccredited investors may participate. [60332]

Front 476

What is an accredited investor and what conditions have to be met?

Back 476

A term used by the Securities and Exchange Commission (SEC) under Regulation D to refer to investors who are financially sophisticated and have a reduced need for the protection provided by certain government filings.

In order for an individual to qualify as an accredited investor, he or she must accomplish at least one of the following:

1) earn an individual income of more than $200,000 per year, or a joint income of $300,000, in each of the last two years and expect to reasonably maintain the same level of income.

2) have a net worth exceeding $1 million, either individually or jointly with his or her spouse.

3) be a general partner, executive officer, director or a related combination thereof for the issuer of a security being offered.

Front 477

What is a "teaser"? What is it used for? Who prepares it?

Back 477

The term teaser, although slang, is the common name used for a business profile. This document is designed to create initial interest in a potential transaction. It provides an overview of the asset for sale, including financial and operational history. The teaser is usually prepared jointly by the selling entity and its investment banker. Further information would be provided to potential buyers once nondisclosure agreements have been signed.

Front 478

What is a Split-Off?

Back 478

A type of corporate reorganization whereby the stock of a subsidiary is exchanged for shares in a parent company.
----
This is a somewhat rare situation. For example, Viacom announced a split off of its interest in Blockbuster in 2004 whereby Viacom offered its shareholders stock in Blockbuster in exchange for an appropriate amount of Viacom stock
------
In a split-off, a corporation is split into pieces. In this type of transaction, one group of shareholders will own shares in the parent, while a separate group of shareholders will own shares of the split-off entity. This strategy is often used to split corporate assets between groups of feuding shareholders. No tax liability is created for either group.

Front 479

Is there a tax liability created in a split-off?

Back 479

No tax liability is created for either group.

Front 480

How would rising/falling interest rates affect the dollar and import/exports?

Back 480

The value of the dollar typically moves in the same direction as interest rates. When rates go up, the dollar goes up. When rates go down, the dollar falls. A weak dollar would help U.S. exporters since their products would be viewed as less costly from a foreigner's perspective. The U.S. importers would be hurt since foreign goods would be more expensive.

Front 481

An underwriter who will be engaging in stabilization must maintain files containing all of the following information:

Back 481

According to SEC Rule 17a-2, an underwriter who will be stabilizing an issue, effecting a syndicate short covering, or implementing a penalty bid, must maintain a record of the following information.

--The percentage participation or commitment of each member of the syndicate
--The names and addresses of the members of the syndicate
--The dates when the penalty bid was in effect
--The name and class of any security stabilized or any security in which a syndicate short covering transaction was effected
--The price, date, and time at which each stabilizing purchase or syndicate short covering transaction was effected

In addition, each syndicate member must receive information from the manager relating to the name, date, and time at which the first stabilizing purchase was effected, and the time that stabilizing was terminated. These records must be kept for a minimum of three years.

Front 482

Veronica has acquired securities of the NJF Corporation, a nonreporting issuer, directly from the issuer. The transaction did not involve a public offering. Under Rule 144, Veronica may sell the securities when?

Back 482

After 1 year(since it is non-reporting). A person who acquires securities directly from an issuer, in a transaction that did not involve a public offering, has received restricted securities. The holding period for restricted securities in most circumstances is 6 months, unless the issuer is a nonreporting company, in which case the holding period is 1 year.

Front 483

Wh files a 13e-3? For what purpose?

Back 483

The issuer (not the investment bank) is required to file a Schedule 13E-3 with the SEC and make certain disclosures to shareholders.

SEC Rule 13e-3 applies to going private transactions by certain issuers or affiliates. It involves transactions where an issuer (or an affiliate of the issuer) is purchasing its own common stock and this will likely cause the company to become delisted from an exchange, or to be no longer considered a reporting issuer.

Front 484

What is an all-firm commitment offering?

Back 484

When an underwriting syndicate is committing its own capital and agrees to purchase the entire issue and absorb any securities that are not sold, it is engaging in a firm-commitment underwriting. In a firm deal, funds move directly from the syndicate to the issuer.

Front 485

An LOI is a document associated with an acquisition that is binding?

Back 485

A clause in an underwriting agreement allowing the underwriter to cancel the agreement for certain specified reasons without penalty.

The most common reason for cancellation is an unexpected change in securities markets that would make it difficult to sell the issue.

Front 486

What is a market out clause?

Back 486

Once the initial due diligence has been completed, the seller often asks the buyer to provide a nonbinding commitment to allow the transaction to proceed further. This formal indication of interest is often referred to as a letter of intent (LOI), term sheet, or memorandum of understanding (MOU). The document normally contains information regarding the following issues.

Front 487

What is a reverse takeover/merger? Why do it?

Back 487

In a reverse takeover (merger), shareholders of the private company purchase control of the public shell company and then back the private entity into the public shell. In this way, the former private company can quickly have publicly traded shares and will forgo much of the regulatory expense incurred during an IPO.

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What is a lockup agreement?

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A lock-up agreement is a contract between an employer and its employee that dictates an amount of time the employee must wait to sell shares of his company's securities after an offering. Generally, a lock-up agreement will expire within six months following the closing of the company's IPO, but there is no statutory time limit. Also, Lance may be bound by additional limitations if he has insider status.

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What is a fixed value agreement?

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In a fixed value agreement, the deal's total dollar valuation (purchase price) is guaranteed by altering the number of shares issued to the target, based on fluctuations in the buyer's share price. An increase in the market price of the acquirer's shares would result in fewer shares issued to maintain the dollar value of the deal. Likewise, if the buyer's share price falls, more new shares would be issued. This type of arrangement gives certainty to the seller, but may result in greater than expected dilution to the acquirer's shareholders if the market reacts unfavorably to the news of the deal. For this reason, the buyer often negotiates a reduction in the purchase price in exchange for a fixed value arrangement.

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What is market momentum?

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The term market momentum is used to describe a situation where prices are moving in a certain direction and there is a high level of trading volume. There is also an expectation that this pattern will continue in the near future. For example, if the S&P 500 Index has been trading up or down significantly over a period of days, based on heavy trading volume, some traders anticipate this pattern will continue in the near term.

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What is market neutral?

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The term market neutral is used to describe attempting to profit by buying some securities while at the same time selling short others.

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What is resistance level?

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A resistance level is a point on a chart where the price of a security stops increasing.

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What is rule 144a for?

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Rule 144A allows the resale of restricted securities to qualified institutional buyers without the complications of registration or the burdens associated with using Rule 144.

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What is Rule 144?

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Rule 144 specifies procedures for the sale of restricted stock and control stock. Restricted stock is stock that is not registered and is acquired through a private placement. Control stock is stock acquired by affiliated persons. This includes officers, directors, owners of more than 10% of the stock of a corporation, and their immediate families. Since Mr. Brown owns 15% of SamCo, Mrs. Brown is selling her shares as an affiliated person.

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What is a conglomerate merger?

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Conglomerate mergers occur when the buyer and target company(ies) sell products in completely different markets. There may be little or no synergy between the target's and the acquirer's product lines or customer bases. In general, conglomerate mergers seek to expand the product mix of the acquirer to insulate it from the cyclicality of any individual product line. Although there is no indication as to the business lines of Consolidated Sponge, it is described as having diverse business lines, and, as such, it is treated as a conglomerate.

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What is diff btw primary and secondary offering?

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Shares sold by the company are a primary offering, while shares sold by selling shareholders are a secondary offering.

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What is a floating exchange ration and how does it affect price and shares in M&A transaction?

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Shares sold by the company are a primary offering, while shares sold by selling shareholders are a secondary offering.

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What is a bring down due diligence meeting?

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A bring down due diligence meeting is one held prior to the issuance of the final prospectus, attended by the underwriter, the issuer, the attorneys, and other interested parties. The purpose of this meeting is to make sure there has been no material change since the last due diligence meeting. The term bring down refers to making sure all the parties involved in the offering (the underwriter, issuer, attorneys, and other interested parties) are brought up-to-date since the last due diligence meeting. The purpose of the meeting is to make certain that the information to be published in the final prospectus is complete and accurate.

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What is free retention?

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An underwriter's free retention is the amount of an underwriter's commitment that the lead manager allows the underwriter to keep for the underwriter's own sales effort. Sales to the firm's retail clients are often made from its free retention.

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What are the requirements of Regulation A?

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Regulation A requires that only two years of financial statements need to be filed. These statements may be unaudited, if audited information is not readily available. The maximum aggregate dollar amount of the offering is limited to $5,000,000 over 12 months, with no more that $1,500,000 to be sold on behalf of selling shareholders. The issuing company may choose among three different formats for the offering circular, one of which may be a question-and-answer format.

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Under Rule 103 of Regulation M, a firm that is participating in a distribution of a Nasdaq stock in which it makes a market may continue to make a market in the security:

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While Rule 101 of Regulation M normally prohibits distribution participants from purchasing or bidding for a subject security, Rule 103 of Regulation M permits distribution participants to continue making markets in a Nasdaq stock on a passive basis that is the subject of an offering during the restricted period. This means the market maker may not enter a bid or effect a purchase at a price that exceeds the highest independent bid on Nasdaq. Since the bids and purchases made by a passive market maker are limited by the highest independent bid, passive market making is not allowed if no independent bid exists on Nasdaq.

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What is a horizontal merger?

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A horizontal merger combines two companies that are in direct competition with one another. These mergers often occur when the (former) competitors attempt to increase margins by creating a new, larger organization that has the ability to capture market share and/or potentially obtain pricing power as the result of decreased competition. This type of retail combination may have opportunities to reduce headcount through the merging of operations, such as warehousing, marketing, or the elimination of retail locations. Antitrust concerns arise if the potential merger partners are dominant participants in the industry and/or geographic market.