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929 Cards in this Set

  • Front
  • Back
A Suspicious Activity Report (SAR) must be filed within:
30 days
According to the Securities Act of 1933, when determining liability associated with untrue statements and material omissions, information conveyed to the purchaser after the contract for sale:
Not taken into Account.

Any information conveyed to a purchaser after the time of sale is not taken into account when determining whether a prospectus included an untrue statement, or omitted to state a material fact.
An investment banking firm is assisting an issuer in raising capital through an offering of securities where investors will have returned all, or a portion, of their investment, if some of the securities are not sold. This practice is permissible when? what type of offering is this?
If the numbers of units, the price, and the completion date of the offering are specified. Best Effort Offering.

The type of offering described is a best-efforts underwriting. This type of offering is permitted if the numbers of units, the price, and the completion date of the offering are specified.
An investment banking principal has received a letter from a customer complaining about a recent new issue that declined substantially on its first day of trading. The client purchased the shares based on a recommendation by an associated person of the firm. The customer contends that the recommendation was unsuitable. Is somone required to review it? Must they respond to customer? How is it documented and kept and for how long?
All written complaints must be reviewed by a principal and must be kept in a file, along with a memo describing any action taken in response to the complaint. There is no requirement to respond to the client in writing or to enter into arbitration or mediation. Under FINRA rules, records of complaints must be kept for a minimum of 3 years.
An investment objective that is based on investing in companies that offer good growth opportunities in undervalued businesses is called:
Growth at a reasonable price, also known as GARP, combines value and growth investing styles. The investor is seeking companies that have good growth potential that appear to be undervalued.
An IPO is being priced by a syndicate that consists of five large broker-dealers. 80% of the issue is being allocated to institutions on a jump-ball basis. If the offering is oversubscribed, the managing underwriter's BEST course of action is to:
If an offering is oversubscribed, the best course of action would be to allocate the shares pro rata based on a fair allocation system. Although there is no regulatory requirement on how to allocate an oversubscribed issue, a fair system would be the best method for the manager to follow. When a syndicate uses an institutional pot in which shares will be available on a jump-ball basis, it is setting aside shares for institutional clients and allowing all members to compete for orders.
An issuer would like to buy back shares under SEC Rule 10b-18. The last transaction was $36.12 and the current bid/ask quote is $36.10 - $36.15. Which TWO of the following statements are TRUE concerning the issuer buyback?
-The highest price the issuer could buy at would be $36.10.
-The highest price the issuer could buy at would be $36.12.
-The maximum number of shares the issuer could buy in a day is 25% of the ADTV for the previous four weeks.
-The maximum number of shares the issuer could buy in a day is 25% of the ADTV for the previous four months
When an issuer buys back shares under SEC Rule 10b-18, purchases may not exceed the higher of the independent bid or last transaction, in this case $36.12. Daily purchases may generally not exceed 25% of the average daily trading volume (ADTV) in the previous four weeks.
An underwriting gross spread is defined as:
The underwriting gross spread is the difference between the public offering price and the amount paid to the issuer. The spread represents the syndicate's gross profits.
Hoody's, a large media company listed on the NYSE with an enterprise value of $7.3 billion, makes an acquisition of ISC Global for $151.4 million in order to increase the content it delivers over the Internet. ISC is a privately held company owned by three venture capital funds. If the acquisition is made in cash, Hoody's will:
No SEC filing would be required by Hoody's. Since its shareholders will not be voting on the acquisition, a proxy statement will not need to be filed. In addition, since ISC is a private company, it would not be required to file any forms with the SEC. Since the acquisition is being made on a cash basis, and no securities need to be issued by Hoody's, an S-4 filing would not be required. An 8-K might need to be filed if the acquisition was outside the ordinary course of business but, in this case, this small acquisition would not be outside the scope of its regular business.
List the following activities from FIRST to LAST, in the order of occurrence, when an initial public offering is registered.
File a registration statement
Determine the IPO price
Begin the due diligence process
Conduct road show presentations
III, I, IV, II

The underwriters will first start the due diligence process (as opposed to the due diligence meeting), then the registration statement will be filed. The issuer and underwriters will then begin road show presentations, and finally, based on the indications, the underwriters and company management will set the IPO price.
Quincy's Pet Emporium is having short-term liquidity problems and is in technical default of a covenant on short-term debt it has outstanding. The long-term business prospects are still viewed favorably by creditors and owners. The company maintains good relationships with both customers and suppliers. The company has several options to attempt to rectify the problem. If undertaken as the first step, which of the following activities would most likely cause the greatest damage to the business prospects of the company? WHY?
-Attempting to negotiate with creditors to temporarily waive the covenant
-Filing Chapter 11 to reorganize while in bankruptcy protection
-Negotiating with lenders to accept new longer-term debt with a payable-in-kind (PIK) option for the issuer
-Exploring raising additional capital through an equity issue
Bankruptcy.

The option that would most likely cause the greatest damage to the business prospects of the company would be filing under Chapter 11 to reorganize while in bankruptcy protection. Many companies do not survive Chapter 11.

Before undertaking this drastic step, the company may have other options:
-The company may attempt to negotiate with creditors to waive the covenant temporarily. If the long-term prospects of the company are viewed favorably, creditors may feel this is in their best interests.
- Creditors may also accept new longer-term debt with a payable-in-kind (PIK) option for the issuer. A PIK option allows the issuer to make its interest payments through paying additional principal on the debt, rather than a payment in cash.
- If the long-term business prospects are still viewed favorably by the owners, they could also explore raising additional capital through an equity issue.
Which TWO of the following choices are advantages for an issuer in raising capital through a private placement, as opposed to a public offering?
The legal and registration expenses are lower.
The issuer is able to raise capital quicker.
Which TWO of the following choices are types of yield curves?
-Inverted
-Laddered
-Barbell
-Flat
1&4

If different maturities are plotted against the corresponding yield for each maturity, the resulting graph is a yield curve. A yield curve is also called the term structure of interest rates. When the curve inverts, yields are the highest for the shortest maturity and decrease as the maturity increases. An inverted yield curve is also referred to as being a negative, descending, or downward sloping curve and is relatively rare. A flat yield curve reflects similar demand and supply and, therefore, similar yields across all maturities. A positively sloped yield curve would show lower yields in the shorter maturities and higher yields in the longer maturities. This increasing term structure of rates exists under most market conditions. Positive yield curves are also referred to as a normal, ascending, or upward sloping.

Laddering and barbell are strategies employed by some bond investors. When laddering, an investor could construct a portfolio of bonds with maturities distributed over a given period. The purpose of this strategy is to reduce interest-rate risk, since the portfolio is typically having some maturities each year and the proceeds are being reinvested at prevailing rates. Investors employing a barbell strategy buy bonds at the two ends (long and short maturities) of the yield curve. The strategy seeks to capture the high coupon interest from the long-term bonds as well as retain the ability to reinvest quickly when the short-term bonds mature. In this way, if the investor anticipates a shift in interest rates, only a portion of the portfolio needs to be changed.
Which TWO of the following expenses are considered compensation items for underwriters?

State blue-sky filing fees
Wholesaler's fees
Finder's fees
Printing costs
Wholesaler's fees
Finder's fees

When assessing the amount of compensation that an underwriter receives, the Corporate Financing Department includes reimbursement of finder's and wholesaler's fees. Bona fide expenses related to the issuance that are reimbursed, such as state filing fees (blue-sky fees), printing costs, and accounting fees paid by the issuer, are not considered compensation.
Zippity Investments has decided to terminate its research coverage on Veggie Soda. Which TWO actions must Zippity take to be in compliance with industry rules?
PROVIDE (1) final report-if practical to do so(2) final recommendation - if available
***(otherwise it must disclose its reason(s) for terminating research on the issuer/security.)

when a broker-dealer that publishes research reports on issuers and the issuer's securities decides to terminate coverage on that issuer, the broker-dealer must publish a final research report and provide it to its customers in the same manner ordinarily used when presenting its findings.

The final report must be similar in depth compared to its past reports and must include a recommendation, unless it is impractical to do so.

In the event that a final recommendation is not available, the broker-dealer must disclose its reason(s) for terminating research on the issuer/security.

A broker-dealer is not required to discontinue market making in the issue. It is not required to notify the media.
When an issuer repurchases its own stock in the marketplace, how many broker-dealers can be used? Are afterhours tradin allowed?
The issuer uses only one broker-dealer or ECN to execute the transactions on any single day. That broker-dealer may execute transactions with any number of other market participants.

After-hours trading is allowed and the issuer is permitted to use a broker-dealer that is different from the one used during normal business hours
When an issuer repurchases its own stock in the marketplace, what is the limit of purchases?
The issuer purchases an amount not exceeding 25% of the average daily trading volume
A positively sloped yield curve would show? What else are postively sloped yield curves called?
lower yields in the shorter maturities and higher yields in the longer maturities. This increasing term structure of rates exists under most market conditions. Positive yield curves are also referred to as a normal, ascending, or upward sloping.
A proxy to elect the board of directors would include and exclude:
A proxy to elect the board of directors would include attendance at last year's meetings, compensation, a list of nominating and compensation committee members, but not last year's votes.
The calculation of treasury stock =
The calculation of treasury stock = par value + capital surplus + retained earnings - shareholders' equity.
When switching from FIFO to LIFO in an inflationary environment, What happens to COGS and Income Tax?
When switching from FIFO to LIFO in an inflationary environment, COGS will increase and income tax would decrease.
____ copies of each form of the PRELIMINARY prospectus must be filed with the SEC no later than the date it is first sent to investors.
Five copies of each form of the preliminary prospectus must be filed with the SEC no later than the date it is first sent to investors.
______copies of the final prospectus must be filed with the SEC prior to the date of first use.
Ten copies of the final prospectus must be filed with the SEC prior to the date of first use.
• Commercial and industrial loans outstanding
Lagging Indicator
• Contracts and orders for plant and equipment
Leading Indicator
• Employees on nonagricultural payrolls
Conincident Indicator
• Interest rate spreads, 10-year Treasury bonds less federal funds
Leading Indicator
• Labor cost per unit of output for manufactured goods
Lagging Indicator
• Manufacturing and trade sales
Conincident Indicator
• New building permits for private housing units
Leading Indicator
• New orders for consumer goods and materials
Leading Indicator
• Personal income less transfer payments (Transfer payments represent aid for individuals in the form of Medicare, Social Security, and veteran's benefits, to list a few.)
Conincident Indicator
• The average duration of unemployment
Lagging Indicator
• The average prime rate charged by banks
Lagging Indicator
• The average weekly initial claims for state unemployment insurance
Leading Indicator
• The average workweek for production workers in manufacturing
Leading Indicator
• The change in credit outstanding for business and consumer borrowing
Leading Indicator
• The consumer price index for services
Lagging Indicator
• The index of consumer expectations
Leading Indicator
• The Index of Industrial Production
Conincident Indicator
• The Money Supply (M2)
Leading Indicator
• The prices for the S&P 500 common stocks
Leading Indicator
• The relationship of consumer installment credit to personal income
Lagging Indicator
• The relationship of inventories to sales, manufacturing, and trade
Lagging Indicator
• Vendor performance (companies receiving slower deliveries from suppliers)
Leading Indicator
A broker dealer underwriting a new issue for a company whose largest shareholders own a significant percentage of the company's stock would be most concerned with:
A broker dealer underwriting a new issue for a company whose largest shareholders own a significant percentage of the company's stock would be most concerned with a block trade that would force the underwriter to take a large position in the stock.
A broker dealer would have a conflict of interest if its ________ owned 10% of an issuer, but not if its ___________ owned 10% of an issuer.
A broker dealer would have a conflict of interest if its employees owned 10% of an issuer, but not if its clients owned 10% of an issuer.
A broker-dealer has a financial advisory relationship with the Sherman Corporation, which is in the process of completing a takeover of Chuckapuck Industries. If the broker-dealer is hired by Chuckapuck to prepare a fairness opinion, which of the following statements is TRUE?
The relationship with the acquiring company would need to be disclosed.

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 and, in the case of a takeover, the broker-dealer would be required to disclose the relationship with the acquiring company even if it is issuing the opinion for the target company. There is NO regulatory requirement to receive prior approval from either the company or FINRA.
A broker-dealer owns 60% of the Sloan Corporation which, in turn, owns 70% of Pirelli Industries. If the broker-dealer arranges a private placement for Pirelli Industries, it is:
-Exempt from filing a disclosure document with the Corporate Finance Department
-Required to file a disclosure document with the Corporate Finance Department, but is not required to provide this document to investors
-Exempt from filing a disclosure document with the Corporate Finance Department, but is required to provide this document to investors
-Required to file a compensation disclosure document with the Corporate Finance Department, but is not required to provide this document to investors
A. Because it doesn't own more than 50% (controlling)

FINRA Rule 5122 relates to a private placement of securities where a member firm issues the securities and conducts the placement on its own behalf. It is also referred to as a Member Private Offering (MPO). Due to potential conflicts of interest when a member firm attempts to raise capital for itself, or for a firm it controls, the member firm is required to provide a term sheet, or a private placement memorandum, or a disclosure document that contains certain disclosures. The member firm is also required to file this document with the Corporate Finance Department. Control is defined as ownership of more than 50% of the company. With multiple levels of ownership, the rule uses a flow-through concept to determine control. Since the broker-dealer owns 60% of 70%, it would have only a 42% interest in Pirelli Industries and would be exempt from the filing requirements of the rule
a broker-dealer soliciting the approvals from limited partners in connection with a roll-up is entitled to howmuch compensation?
limited to compensation of 2% of the value of the newly created securities
A broker-dealer that is solely involved in investment banking activities wishes to begin using electronic storage for its records. The broker-dealer must notify who and when??
According to SEC rules, all broker-dealers must preserve certain books and records for specified periods. These records may be maintained using electronic storage media, provided the firm notifies its Designated Examining Authority at least 90 DAYS prior to implementing the system. The electronic storage media must preserve the records exclusively in a nonrewritable, nonerasable format, and a backup copy must be maintained at another location.
A broker-dealer's AML compliance program must be approved by? and in what form?
In writing by a member of senior management
A client has a 4% interest in a company, which is a Subchapter S Corporation. A distribution is made that reduces the client's basis, but not below zero. The distribution is:
A nontaxable return of capital

or most businesses, the major advantage of forming an S Corporation rather than a regular C Corporation is that an S Corporation may elect to be taxed like partnerships under Subchapter S of the Internal Revenue Code. Distributions that reduce the client's basis are considered a nontaxable return of capital. Distributions in excess of a client's basis are treated as capital gains. If a minority shareholder buys a stake in an S Corporation and sells her shares, the gain would be taxable as a capital gain, based on the amount above her basis. If the shares were held for more than one year, the capital gain would be long-term. The gain would be taxable immediately in the year of the distribution or sale. It is important to understand that, if an S Corporation sells an asset at a gain, this would not trigger a taxable event. If the S Corporation was profitable as a whole, that may trigger a taxable event.
A communication that mentions the investment objectives and desirability of owning shares of a registered investment company is called:
Generic advertising

This type of communication is called generic advertising and is not considered an offer to sell, provided it provides:

-Explanatory information relating to securities of investment companies
--Explanation of investment company investment objectives
Offers, descriptions, and explanation of various products and services that do not constitute a security subject to registration
-An invitation to inquire for further information

Such communication contains the name and address of a registered broker or dealer or other person sponsoring the communication
A company in bankruptcy would like to sell major assets of the firm outside the normal course of its business. Who must approve?
This may be accomplished with the approval of the bankruptcy court.
A company repurchasing its own shares could bid:
A company repurchasing its own shares could bid the greater of the current bid or the last sale price.
A company with greater operating leverage would have:
A company with higher fixed costs would have greater operating leverage.
A corporation is about to go public. Its shares will be quoted on the OTCBB. A broker-dealer selling the securities in the aftermarket is required to deliver a prospectus to purchasers for how many days following the effective date of registration?
90 days.

A dealer selling securities in the secondary market must provide prospectuses to customers if new securities of that class were recently sold by the issuer under a registration statement. 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. There are two exceptions.

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.
The main purpose of this rule is to provide investors with information concerning an issue of securities. If the issuer was already a reporting company, information is readily available to the public through the SEC's EDGAR system. The OTCBB is not an automatic quotation system and, therefore, the delivery requirement is 90 days for an IPO.
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?
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%.
A distribution of an S Corp that reduces an investor's basis is considered ________________. If it does not reduce the investor's basis, it considered __________________.
A distribution of an S Corp that reduces an investor's basis is considered a non-taxable return of capital. If it does not reduce the investor's basis, it is taxable as a capital gain.
A FINRA member intends to stabilize a Nasdaq-listed issue. The managing underwriter must provide prior electronic notification of this proposed activity to:
The FINRA Market Regulations Department

Rule 104 of Regulation M requires any party that intends to engage in stabilization to provide prior electronic notice of its intent to the market where stabilization will occur. If the security is listed on Nasdaq, the FINRA Market Regulations Department would be notified by way of the Restricted Period Notification Form (a.k.a. a regulatory wire). The SEC receives prior notice in written form through the disclosures contained in the registration documents.
A flat yield curve reflects:
similar demand and supply and, therefore, similar yields across all maturities.
A major difference between futures contracts and forward contracts is:
Investors may not offset forward contracts without permission

One of the major differences between futures contracts and forward contracts is the ability to offset each position. In a futures contract, the investor may offset the position at any time before the contract is assigned; however, in a forward contract, the agreement between the two parties may not be assigned without the permission of the other party.
A member firm is participating in a distribution of its own stock to the public. If the stock is in great demand, the member firm may place the stock into a discretionary account of a customer if…?
If the customer approves the transaction in writing

If a member firm is participating in a distribution of its own securities to the public and it wishes to place some of the stock into the account of a customer for whom the member firm holds discretionary authorization, the member firm must obtain prior written approval from the customer before it may sell the stock to the customer.
A method of voting that gives smaller, less substantial stockholders a greater degree of voting power over the larger, more substantial stockholders is:
Cumulative voting permits shareholders to concentrate their votes for one favored candidate. For example, if a corporation is electing three directors and a shareholder owns 100 shares, that shareholder could cast 300 votes for one director, potentially having a larger influence on that one election.
A mutual fund (open-end fund) is required to be registered with SEC? T/F?
An open-end fund (i.e. mutual fund) must be registered with the SEC.
A person who has sold a security based on untrue statements faces liabilities based on:
The investment amount, a reasonable amount of interest on the investment, MINUS any amount of income received from the investment
A placement agent in a private offering is a firm that assists an issuer by finding both institutional and retail investors to purchase its securities? True?
FALSE. Institutions only

Since the term is used in connection with private placements, only accredited or institutional investors may purchase the securities. The offering will not be made available to nonaccredited investors
A potential buyer's initial bid contains what?
A potential buyer's initial bid would likely contain details regarding:

- the intended purchase currency (aka CONSIDERATION) (mixed use of cash, stock, or a combination)
- a PRICE RANGE (ONLY IN INTIAL BID...FINAL IS FIXED) that the buyer is potentially willing to pay. Pricing is not firm at this early stage, since the potential buyer has yet to perform extensive due diligence.

NOT in INiTIAL BID:
Financing guarantees would NOT yet be in place; however, information regarding potential financing sources and other generalities concerning the proposed financing may be disclosed. The closing date would NOT be known at this point in the process
A private equity company, or any company that is filing for an IPO to become publicly traded, would most likely file what Form?
S-1
A prospectus that is filed as part of an automatic shelf registration may omit which pieces of information? What must it have?
A prospectus that is filed as part of an automatic shelf registration may omit information
- that is unknown, or is not available to the issuer.
- information as to whether the offering is a primary offering,
- or an offering on behalf of persons other than the issuer, or a combination of the two.
- plan of distribution for the securities;
- a description of the securities registered,

It MUST include name or class of such securities AND the identification of other issuers (sellers).
A proxy statement must be provided to shareholders ___________ days _________ to the annual shareholders' meeting.
A proxy statement must be provided to shareholders at least 20 days prior to the annual shareholders' meeting.
A record of written customer complaints must be maintained by each:
Office of Supervisory Jurisdiction
A representative may guarantee a customer against a loss in an IPO when:
He can't
A small change in basis (yield) has the greatest effect on the price of ….
Longer Maturity Bonds
A Suspicious Activity Report (SAR) is also called:
A Suspicious Activity Report (SAR) is also called a FinCEN
A suspicious activity report is filed within XX __________ days of learning of suspicious activity, not necessarily receiving a mandate from the company.
A suspicious activity report is filed within 30 calendar days of learning of suspicious activity, not necessarily receiving a mandate from the company.
A tender offer to buy shares of an overseas company must be registered with the SEC if the offer is :
A tender offer to buy shares of an overseas company must be registered with the SEC if the offer is being made to shareholders in the U.S.
A trader using a quantitative investment strategy would look at
A trader using a quantitative investment strategy would look at numerical data, such as a 10-day moving average.
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?
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
According to Corporate Financing Rule, the managing underwriter is required to file certain information with FINRA. This includes:
According to Corporate Financing Rule, the managing underwriter is required to file certain information with FINRA. This includes:

-An estimate of the maximum offering price
-An estimate of the maximum underwriting discount, or commission, underwriters' counsel fees, maximum finders' fees, and a statement of any other type of compensation that may accrue to the underwriter
-A statement concerning the affiliation with any member firm of an officer or director of the issuer, or a beneficial owner of 5% or more of the issuers securities
-A detailed statement explaining any other arrangement entered into during the 180-day period prior to the filing date of the offering, where the firm received items of value, warrants, or options from the issuer
-A statement demonstrating compliance with any exception from what constitutes underwriting compensation


****Information regarding compensation arrangements received during the 180-day period prior to the filing date must be disclosed, rather than estimated.
According to industry rules, the managing underwriter must disclose all of the following information to FINRA or the exchange:
- whether it intends TO effect syndicate short covering transactions
- impose a penalty bid, or place a stabilizing bid.
- The name of The security, The stock symbol, type and number of shares being offered, date and time of The pricing
-names of The managing underwriter and syndicate members (but NOT The selling group members)
- if applicable, The beginning and ending of The Regulation M restricted period.
According to Rule 144, when can securities received in a merger be sold?
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.
According to the FINRA Corporate Financing Rule, what types of compensation to underwriter is prohibited? List em…
FINRA describes prohibited terms and conditions within the Corporate Financing Rule. Some of the prohibited arrangements include:

-Reimbursement for miscellaneous expenses
-Reimbursement for salaries of investment banking personnel
-Commissions paid by an issuer to a member firm prior to the commencement of the public sale of the securities being offered
-The payment of any compensation by the issuer to a member firm in connection with an offering that was not completed
-The receipt of a security, warrant, or option that has a duration exceeding five years and has more favorable terms than those that were offered to the public
According to the FINRA Corporate Financing Rule, which entities must file the required compensation disclosures? Which party doesn't need to?
The compensation disclosures contained in the FINRA Corporate Financing Rule may be submitted by the:
- issuer
- managing underwriter
- member of the underwriting syndicate.

** A selling shareholder would not be expected to file the documents.
According to the New Issue Rule, employees of a broker-dealer are restricted from purchasing which offerings?
All initial public offerings of equities

Under the New Issue Rule, restricted persons (including employees of a broker-dealer) may not purchase shares of initial public offerings of equities. Exemptions from the definition include: all debt offerings, investment company offerings such as mutual funds and exchange-traded funds, and preferred stock. New issues are defined as initial public offerings of equity securities sold under a registration statement.
According to the Rule 101 of Regulation M, what types of securities are on prohibition for purchases or bids during the restricted period?
The prohibition on purchases or bids during the restricted period applies not only to the subject security, but also to any reference security.

A reference security is a security into which the subject security can be converted, exchanged, or exercised, or which, to a significant extent, determines the value of the subject security.

For example, if a convertible bond is being distributed, the underlying common stock is a reference security subject to the restrictions of Rule 101. Together, subject and reference securities are called covered securities in Regulation M. Note that, while common stock would be a reference security if a derivative such as a convertible, right, or warrant, were the subject security, the reverse is not true. For example, if FLPO is issuing common stock, FLPO convertibles are not reference securities.
According to the Securities Exchange Act of 1934, an institutional investment manager who trades with discretionary authority is required to file a form with the SEC if the holdings are:
Rule 13f-1 of the Securities Exchange Act of 1934 requires quarterly filings when an institutional investment manager exercises investment discretion over at least $100,000,000 in equity securities during any month of the calendar quarter.
Accounts Receivable Turnover:
Sales on Credit (current year)/Average Acct Rec.
Act of 1933:
Requires registration of new issues (i.e. primary market)
Act of 1934:
Regulates the secondary market, exchanges and broker-dealers
Advantage of S Corporation over a C Corporation?
May elect to pass through expenses and revenue directly to owners, thus avoiding federal taxation for the corporation


For most businesses, the major advantage of forming an S Corporation (a limited liability corporation) rather than a regular C Corporation is that S Corporations may elect to be taxed like partnerships under Subchapter S of the Internal Revenue Code. S Corporations must meet certain restrictions in order to qualify for this special treatment. The owners of both types of corporations have the protection of limited liability
After failing to negotiate a merger with Company B, Company A has launched a public tender offer for all of Company B's outstanding common stock. How many days must the tender offer be kept open?
Tender offers generally must be held open for at least 20 business days from the time they are announced to security holders.
After Tax Cost of Debt (WACC):
Pretax Cost x (1-Tax Rate)
All of the following features are normally included in the placement agent agreement? What isn't and why?
The placement agent agreement specifies all the terms and conditions between a company that is planning on issuing securities in a private placement (the issuer) and the investment bank that has been hired to act as its agent. The role of the investment bank is to find institutional investors to purchase the securities. This agreement normally includes the following features.

-The issuer agrees to provide business and financial information.
-Both the issuer and the investment bank agree not to disclose confidential information unless they receive prior approval.
-The amount of cash and/or securities the issuer agrees to pay as compensation
-The fee could be based on a percentage of the securities, or may include warrants to purchase the company stock.
-Other legal terms and conditions, including:
-The length and termination date of the offering
-Which state law governs the agreement
-Expenses to be reimbursed by the issuer
-The fact that each party agrees to comply with all applicable federal and state regulations


-Since this agreement is normally used for a private placement, the issuer will not be required to file a registration statement with the SEC. If the securities are later resold to the public, a registration statement may need to be filed.
All of the following registered representatives must notify their employers of their outside activities, EXCEPT:
Registered representatives must provide written notice to their employing broker-dealer before participating in any business activities outside the scope of that person's normal relationship with the firm. This generally includes any type of outside employment.

However,CHARITABLE WORK WOULD NOT FALL under the provisions of the rule.
All of the following registrants would be classified as an ineligible issuer regarding the use of a free writing prospectus EXCEPT:
-A penny stock issuer
-A shell company
-An unprofitable company
-A blank check company
A free writing prospectus is any communication that does not meet the standards of a statutory prospectus. It may be used as a disclosure document for new issues by seasoned issuers, well-known seasoned issuers, unseasoned issuers, and nonreporting issuers. As such, issuers of securities are classified as eligible issuers and ineligible issuers of free writing prospectuses

. A penny stock issuer, a shell company and a blank check company are ineligible issuers regarding the use of a free writing prospectus.

Additionally, companies that have filed for bankruptcy protection within the past three years are ineligible issuers.
An entire class of creditors is considered to have accepted the plan in a Chapter 11 bankruptcy if it is accepted by:
Creditors holding at least two-thirds of the dollar amount of the claims and more than 50% of the total number of creditors
An equity IPO may not be purchased by ____________, including:_______. Is there an exception?
An equity IPO may not be purchased by restricted persons, including:

FINRA member firms and any associated person (i.e., an employee) of the member firm
-An immediate family member of an employee of a member firm. Immediate family members include a spouse, children, parents, siblings, in-laws, and any other persons who are materially supported by an employee of a member firm.
-The definition of a restricted person also includes 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 who are buying for their own account.

An exception is granted that allows a restricted person to purchase an equity IPO if an immediate family member is a director or employee of the issuer. This is known as an issuer-directed sale. All FINRA member broker-dealers, whether involved in the syndicate or not are defined as restricted persons.
An increase in prices of raw materials or an increase in the Producer Price Index would have a __________________ impact on the stock price of a manufacturing company.
An increase in prices of raw materials or an increase in the Producer Price Index would have an adverse impact on the stock price of a manufacturing company.
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:
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.
An individual owns restricted stock. He would not be required to file a Form 144 for a sale of less than:
An individual is allowed to sell restricted stock without filing under Rule 144 or reporting the sale if the sale is for less than 5,000 shares and $50,000.
An individual who is CE inactive could still work in a _________ role.
An individual who is CE inactive could still work in a clerical role.
An individual who wishes to tender a corporation's stock may do so by tendering:
Stock that is long in the individual's account
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?
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
An investment banking representative has been accused of violating an SRO rule. The complaint is heard by a Hearing Panel of FINRA. All of the following outcomes are possible EXCEPT the investment banking representative:
-Is fined
-Is sentenced to two years in prison
-Settles the complaint by agreeing to a censure
-Is suspended from associating with a member firm for 90 days and appeals the decision
A self-regulatory organization (SRO), such as FINRA, does not have the authority to sentence anyone to prison. SROs may fine, censure, suspend, or expel members. Findings of a Hearing Panel of FINRA may be appealed to the National Adjudicatory Council (of FINRA).
An investment banking representative leaves his current firm and is given a copy of his Form U5. When applying for a new position at another broker-dealer, his potential employer asks for a copy of the document. The applicant should supply this document within
Form U5 should be supplied to the new employer within 2 business days, provided the applicant has received a copy. If the former employer failed to provide the Form U5 to the applicant for registration, it should be provided within 2 business days of the request.
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:
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.
An investment banking representative wishes to sell interests in a private placement to his clients. The private placement is not being offered through his firm. If he will be compensated for the transactions, which TWO of the following actions must he take?
-Written notice must be provided to FINRA.
-Written notice must be provided to his firm
-Verbal notice must be provided to his firm.
-He must receive written approval from his broker-dealer to participate.
2&4.

The SRO rule on private securities transactions requires a registered person to notify his firm if he will be engaging in securities transactions that are not within the scope of his firm's business. If he will be compensated for the transactions, he must also receive written permission from his firm to participate. If he will not be compensated, his firm still has the right to impose conditions on his participation.
An investment banking representative's registration has been deemed inactive since he has failed to complete the Regulatory Element of Continuing Education. How much time does he have to complete the CE requirement before he is required to retake the Series 79 Examination?
increase
An investor purchasing securities under Section 4(6) of the Securities Act is required to receive:
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]
An investor who wants to purchase securities for growth but doesn't want to overpay would use a __________________ strategy.
An investor who wants to purchase securities for growth but doesn't want to overpay would use a Growth at a Reasonable Price (GARP) strategy.
An issuer is likely to continue to file financial statements with the SEC following a restructuring based on a:
-Leveraged buyout
-Management buyout
-Split-off
-Reduction to 250 shareholders after a partial tender offer
Split-off

In many leveraged buyouts (LBOs) and management buyouts (MBOs), the target company is taken private and ceases to be a reporting company. A split-off separates an issuer into two components; however, the original company remains intact and continues to file financial statements following the transaction. Generally, companies with fewer than 300 shareholders do not need to file SEC reports.
An issuer is required to furnish an annual proxy statement to shareholders at least how many days? (business or calendar days?) IS there any exception to rule?
20 calendar days prior to the meeting

An exception to this rule is granted if the issuer sends shareholders a notice of Internet availability at least 40 days prior to the meeting date. The notice will identify to shareholders how they may obtain the proxy materials free of charge through a Web site.
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?
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.
An LOI is a document associated with an acquisition that is binding?
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.
An offering of securities that are sold into the secondary market, but are not sold at a fixed price is called
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.
An office that is solely involved in structuring public offerings, but has no responsibility for supervising the activities of persons associated with the member firm at other branch offices, would be subject to inspection by the member firm:
Annually.

An office that is involved in structuring public offerings would be considered an Office of Supervisory Jurisdiction (OSJ) and subject to annual inspection by the member firm. Branch offices that supervise nonbranch offices are also subject to annual inspection. Nonsupervisory branch offices are subject to inspection every three years, while nonbranch offices are subject to inspection with regularity.
An SEC filer who is not eligible to use an S-3 can distribute a _________________ after filing a registration statement.
An SEC filer who is not eligible to use an S-3 can distribute a free-writing prospectus after filing a registration statement.
An underwriter who will be engaging in stabilization must maintain files containing all of the following information:
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.
Any announcement of the signing of a definitive agreement is considered _______________ and must be filed with the _________ no later than _________.
Any announcement of the signing of a definitive agreement is considered a prospectus and must be filed with the SEC no later than the date of first use.
Any material non-public information learned during the due diligence process should be reported to______________.
Any material non-public information learned during the due diligence process should be reported to a firm's compliance department.
Any transaction involving a transfer of funds from a country with whom the U.S. does not do business or has embargoes or sanctions in place (e.g. ____, _____, ______, etc.) must be blocked and reported to ______ within _____ days.
Any transaction involving a transfer of funds from a country with whom the U.S. does not do business or has embargoes or sanctions in place (e.g. Cuba, North Korea, Iran, etc.) must be blocked and reported to OFAC within 10 days.
Are 5 year projections used in a prospectus?
5 year projections are not required in a prospectus.
Are GNMA bonds backed by US govt?
yes
Are New building permits a leading indicator?
Yes
Are personal loans to directors or officers permitted? Under what Regulation?
NO

The Sarbanes-Oxley Act amended the SEC 1934 Act by prohibiting personal loans or other extensions of credit by publicly traded companies to executive officers and directors.
Are Road shows and filings with FINRA's corporate finance department crucial in a private placement process?
THEY WOULD NOT HAPPEN

General solicitations are not permitted in a private placement; therefore, a road show would not be part of this process. Since private placement securities are exempt from SEC registration, filing with FINRA's Corporate Financing Department would not be required.
Are there specific qualifications for a person to act as purchaser rep?
There are no specific qualifications needed to act in this capacity.
Are Treasury STRIPS backed by govt credit?
yes
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?
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.
At what price point can stabilization be initiated?
Stabilization can be initiated at the lower of the current bid or the offer price.
Balance Sheet:
Total Assets = Total Liabilities + Shareholder Equity
Basic EPS:
Earnings Available to Common/Ave. Com. Shares Outstanding
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:
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.
Book Value Outstanding:
Com. Shareholder Equity/Number Common Shares Outstanding
By signing a U4, you are agreeing to what? Is there an exception?
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.
CAGR:
Arithmetic Mean (Average) of growth rates given. The answer for CAGR is the choice on the exam that is slightly lower.
Calculate conversion ratio bond--> stock?
is found by dividing the par value of the bond ($1,000) by the conversion price ($40)
Can a Broker-dealers pay another party to buy, or pay another party to solicit others to buy, securities of the same issuer on the exchange.
NO
Can an individual be part of a private placement? If so, what are requirements?
YES - must be accredited investor

To qualify as an accredited investor, an individual must have $1,000,000 net worth or $200,000 annual income ($300,000 for a MARRIED couple) in each of the last two years, with the anticipation that income will continue at that level.

The type of security offered is not relevant to the classification of accredited investor.
Can an institutional block trade trade on the floor of NYSE? If so or not, how is it done?
An institutional block trader may forward orders to the NYSE trading floor from the brokerage firm's trading desk, but is not physically located and does not trade on the floor of the NYSE.
Can companies issue stock with out a business plan? What are they called?
Companies are permitted to conduct offerings of securities without a specific business plan. Such entities are called a blank check companies
Can research analysts be present in Due diligence or fact-checking meetings with ibankers? Who else must be present?
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.
Can Road shows be one on one?
Yes
Can securities that are received as part of a merger be sold right away? What rule applies?
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
Can you state that a broker-dealer's proprietary strategies are approved by the SEC?
No, considered fraudulent. But you can say the company is registered with SEC.
Casa de Tofu, Inc. has issued a number of forward-looking statements regarding its business prospects. In hindsight, the majority of the projections have been glaringly inaccurate. What are repurcusions?
Forward-looking statements provide a safe harbor from liability for issues, provided the statements were made in good faith. If the statements were made without a reasonable basis, the statements may be deemed to be fraudulent.
CF Eye Care is filing an S-1 shelf registration statement with the SEC. The securities are to be issued in connection with a business combination. The shelf registration will be valid for:
2 years (usually 3 years, if filed with S-3 and F-3)

Many shelf registrations remain in effect for three years, however, if securities are not registered using Form S-3 or Form F-3 (foreign private issuer), the registration statement remains in effect for two years.
CIP: What does it stand for? What is it?
Customer Identification Procedures
Common Shareholder Equity:
Total Shareholder Equity – Preferred Shareholder Equity
Company A buys Company B for 2 times book value and purchases and redeems all of its outstanding debt in an all stock transaction. The number of shares issued to execute this transaction =formula?
Company A buys Company B for 2 times book value and purchases and redeems all of its outstanding debt in an all stock transaction. The number of shares issued to execute this transaction = (2 x book value + net debt) / Company A stock price.
Company AZX has announced a partial tender offer for Company BHQ. A stockholder of Company BHQ is long 1,000 shares of stock, and is short 5 BHQ calls and long 2 BHQ puts. For the purpose of tendering shares, the stockholder may tender:
500 Shares

An investor who holds stock in a company that is the subject of a tender offer may only tender stock that he holds long. Short tendering is not permitted. If a shareholder has written call option positions against the long stock, the options positions will reduce his net-long holdings in the stock. The long puts do not affect the client's net-long position.
Conversion Ratio:
Par/Conversion Price
Convertible debt would have a _____________ effect on the company's common stockholders.
Convertible debt would have a delayed and dilutive effect on the company's common stockholders.
COP: What does it stand for? What is it?
Code of Procedure – process used to discipline for violations of FINRA/SEC rules
Corporate bonds can trade under Rule _____, but _____s, ____s and ____s generally would not.
Corporate bonds can trade under Rule 144A, but open-end funds, UITs (Unit Investment Trusts) and ETFs generally would not.
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:
Three years with the records being easily accessible for two years
Cost of Equity (CAPM):
Ri = Rf + β(Rm-Rf)
Cost of Equity (Gordon Growth):
k* = D1/P0 + g
CRD: What does it stand for? What is it?
Central Registration Depository – FINRA database for registered firms and employees
Current Ratio:
Current Assets/Current Liabilities
Current Yield:
Annual Interest/Current Market Price
Customer suitability is more stringent than institutional suitability standards. T/F?
Institutional suitability is less stringent than customer suitability, but does still exist.
Days Sales Outstanding:
(Acct Rec/Total Credit Sales) x Number of Days
DEA: What does it stand for? What is it?
Designated Examining Authority - the SRO to whom a firm must report
Debt to EBITDA Ratio:
(Short + Long Term Debt)/EBITDA
Debt to Equity Ratio:
Total Debt/Total Shareholder Equity
Debt to Total Cap. Ratio:
Total Debt/Total Capital
Difference between 13d and 13g?
Section 13D of the Securities Exchange Act requires a person or group of persons who acquire more than 5% of an issuer's equity securities to notify the issuer, the exchange where the securities are traded, and the SEC, within 10 days. For example, if three investors, who each own 2.5% of the issuer's equity securities, form a group, the filing must be made. Schedule 13D is filed by persons who may intend to influence or control the issuer, while a Schedule 13G is (usually) filed by institutional investors (e.g., a mutual fund company) that have no intention to influence or control the issuer. The background and identity of the person or group is disclosed in this schedule.
Difference between ch 7 and 11?
Chapter 11 bankruptcy is often referred to as reorganization bankruptcy. Chapter 7 is a liquidation bankruptcy. In a Chapter 11 bankruptcy, the firm would continue operating, while it attempts to have a reorganization plan approved. There may be a trustee appointed, but usually the debtor operates the business as a debtor in possession (DIP). This term refers to a debtor that maintains possession and control of assets, while undergoing the reorganization under Chapter 11. Generally, there is an automatic stay preventing foreclosures, repossessions, and collection activities for a given period.
Difference between sponsored and unsponsored ADRs?
In a sponsored ADR, the company pays a depositary bank to issue shares in the U.S. Many of the largest ADRs are sponsored. This allows the company to raise capital in the U.S. and list the ADR on the NYSE, or Nasdaq.

In an unsponsored ADR, the company does not pay for the cost associated with trading in the U.S. A depositary bank issues the ADR. In an unsponsored ADR, the issue will trade in the OTC market, and will usually be quoted on a private quotation service called the Pink Sheets.
Direct Participation Programs
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".
Dividend Payout Ratio:
Annual Dividend/EPS
Dividend Yield:
Annual Dividend/Market Price Common
Do hedge funds have to registered with SEC?
No
Do investors of a limited partnership rollup have similar voting rights? What does typically include as well?
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
Do you deduct preferred divs before tax-effected income or after?
after
Do you include Prefered Shares and cost in WACC?
Yes
Do you need approval from seller to use a certain financing? Is stapled financing a requirement to be used or can you use an alternative?
The financing is attached (stapled) to the acquisition term sheet. There is no requirement that the bidders use this financing or obtain permission from the seller to use alternative funding sources.
Does a FWP have to be filed with SEC? Does it need to contain all the info in a registration statement?
A free-writing prospectus does not need to include all the information in a registration statement, but must still be filed with the SEC.
Does a road show have to be live?
No may be either live or electronic
Does Regulation M-A elimnate need for disclosure document?
Regulation M-A does not eliminate the requirement for holders of a security involved in a cross-border M&A transaction to receive a disclosure document, such as a prospectus, proxy statement, or a tender offer statement.
Does the syndicate participate in the road show or the drafting of documents?
The syndicate desk does not participate in the drafting of offering documents, but does help plan a road show, stabilize and identify investors.
DPO: What does it stand for? What is it?
Direct Public Offering
DPP: What does it stand for? What is it?
Direct Participation Program – Business that gets flow through of gains/losses (e.g. Limited partnership)
During a repurchase, how does the increase in the market value of shares affect companies ROE and BV/share?
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.
Earnings Available to Common:
Net Income - Preferred Divs
Earnings Yield:
EPS/Market Price Common
EBITDA Margin:
EBITDA/Sales or Revenue
EBITDAR Margin:
EBITDAR/Sales or Revenue note: “R” is for rent
Emperor LLC has an office location whose sole function is to solicit investment banking services. The status of the office is a(n):
Non-branch office.

An office whose sole function is to solicit investment banking services confers nonbranch status. One of the exceptions from the definition of a branch office is a non-sales location. This office would be considered a non-sales location. If investment banking services are performed in this office, registration as a branch would be required. If the office structures investment banking deals, it would be an OSJ.
Enterprise Value (EV) to EBITDA:
EV/EBITDA
Enterprise Value (EV) to Sales:
EV/Sales or Revenue
Enterprise Value (EV):
Market Cap Com. and Pref. + LT and ST Debt + Cap. Leases + Minority Interest – Cash and Equivalents
Enterprise Value =?
Market Capitalization + Long-term Debt - Cash and Cash Equivalents
Explain 144a?
Rule 144A permits the sale by an issuer of an unlimited dollar amount of restricted securities to qualified institutional buyers (QIBs). Investors, generally, must pass a three-part test in order to be considered QIBs. (1) Only certain types of institutions are eligible, including insurance companies, registered investment companies, pension plans, corporations, and registered investment advisers. (2) The buyer must be purchasing for its own account or the account of other QIBs. (3) The buyer must own and invest at least $100 million of securities of issuers not affiliated with the buyer. According to Regulation S, a U.S. company may (quickly) issue an unlimited amount of securities outside the country without filing any documentation with the SEC. Regulation S offerings are not applicable when offering securities to U.S. investors. The maximum size of an offering under a Regulation A exemption is $5,000,000. Offerings of ADRs sold in the U.S. must be registered with the SEC.
Explain amendments to the effective date?
As a general rule, the effective date of a registration statement is the twentieth day after the filing date. Any amendment filed to a registration statement prior to the effective date will initiate the 20-day period. If amendments are made under certain limited conditions, it will not delay the effective date. These conditions are:

The registration statement is for registering additional securities of the same (not a different) class as were included in the original registration statement.
The new registration statement registers additional securities in an amount and price that represent together no more than 20% of the maximum offering price included in an earlier registration statement.
Explain Registration D and Accredited investors?
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.
Explain rule 144A and relation, if any, to 144? What are conditions?
IMPORTANT TO UNDERSTAND!!

Rule 144A provides an exemption for the purchase of restricted securities by qualified institutions. Qualified institutional buyers are defined as financial institutions that have, on a discretionary basis, at least $100 million invested in securities of issuers not affiliated with the entity. These institutions may buy and sell directly with one another without meeting the requirement of Rule 144. The securities offered under Rule 144A may be debt or equity, may be offered by either a domestic or foreign issuer, and may be resold immediately to another QIB. There is no six-month holding period, as with restricted stock. A private placement under Regulation D may be offered to an unlimited number of accredited investors. An accredited investor is defined as a person with either a net worth of $1,000,000, or annual income of $200,000.
Explain the concept of a jump ball and institutional pot? How are shares allocated?
The jump ball ties the amount each co-manager reaps from the sales-related underwriting fee to the number of shares each co-manager succeeds in selling. The number of orders from different investors that each co-manager brings to the table doesn't matter; what counts is the total number of shares each actually sells. The deal's bookrunner keeps the scorecard. Institutions placing orders with the bookrunner will designate a certain firm to receive the jump-ball portion of the fee.

When a syndicate uses an institutional pot in which shares will be available on a jump ball basis, it is setting aside shares for institutional clients and allowing all members to compete for orders. The profit is allocated based on each member's sales. The institutions that receive allocations generally designate which underwriter(s) are credited with the sale. The manager is often capped on the amount of credits it could earn. If the pot agreement is fixed, the credit is based on the original risk percentages. The manager will often deliver the shares directly to the institutional clients; this bookkeeping is referred to as a Manager Bill and Deliver.
Explain written communication as it results to an annoucement of a takeover without registration? With whom must registration be made?
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.
Final settlement of a syndicate account must be made no later than how many days following the syndicate settlement date?
90 Days

The syndicate settlement date occurs when the issuer delivers (new issue) securities to the account of the underwriting syndicate. According to FINRA rules, the final settlement of the syndicate accounts by the syndicate manager is required no later than 90 days following the syndicate settlement date. Any delay beyond the 90-day settlement date requires the syndicate manager to provide notification to FINRA.
FINRA: What does it stand for? What is it?
Financial Industry National Regulatory Association – the new organization created based on the merger of the NASD and NYSE regulatory authorities
Following an IPO, a security can trade away from its primary exchange (e.g. NYSE or Nasdaq) only after the shares _________________.
Following an IPO, a security can trade away from its primary exchange (e.g. NYSE or Nasdaq) only after the shares have traded on the primary exchange. For example, an NYSE stock can be traded on the third market after it has traded on the NYSE.
Form 10-C:
Changes of name or 5% amounts in class of securities by Nasdaq issuers
Form 10-K:
Annual report of financial condition
Form 10-Q:
Quarterly report of financial condition by issuers
Form 13-D:
Filed within 10 days of exceeding 5% ownership in a corporation
Form 13-F:
Quarterly filing for institutional money managers who have control over $100 mill
Form 13-G:
Alternative to 13-D, where purchaser has no intention to control issuer
Form 14-A:
Filing report for proxies
Form 144:
Filed at the time of sale for restricted and control stock
Form 14D-9:
Issuer’s opinion of a tender offer
Form 3:
Initial statement of beneficial interest by and insider within 10 days
Form 4:
Changes in equity positions by insiders
Form 8-K:
Statement of material changes by issuers
Form D:
Filed for (Regulation D) private placements
Form F-1:
Registration form used for foreign IPOs and small issuers
Form F-3:
Registration form used by foreign WKSIs and season issuers
Form N-1A:
Registration form used by open-end investment companies
Form S-1:
Registration form used for IPOs and small issuers
Form S-3:
Registration form used by WKSIs and seasoned issuers
Form S-4:
Registration form used when issuing securities in a merger
Form SB-1 or SB-2:
Registration form filed by small businesses with SEC
Form SB-1:
SB-1: For issuers raising $10 million or less over 12 months
Form SB-2:
SB-2: For issuers raising an unlimited amount of capital
Form TO:
Filed by purchaser in a tender offer
Form U4:
Registration form for individuals in the securities industry
Form U5:
Form used to notify the FINRA of an individual’s withdrawal of registration
Fraud may include:
Fraud may include an omission or intentional failure to state material facts, knowledge of which would be necessary to make other statements not misleading.
Free Cash Flow to Firm (FCFF):
EBIT x(1-Tax Rate) + Deprc. and Amort. – Capital Exp. +/- Change to Working Capital
Free Cash Flow Yield:
Free Cash Flow per Share/Market Price Common
Full Throttle Semiconductors is currently going public. The issuer has required its employees and venture capital participants to sign lock-up agreements. How long does the lockout restrict sales?
Although the shares are typically locked up for a period of 180 days from the public offering, there is no statutory time period. Additional limitations on the quantity of shares permitted to be sold may be detailed in these agreements. While federal laws do not govern the terms of lock-up agreements (duration and quantity), the resale provisions must still be disclosed in the initial registration documents and prospectus. Additionally, although the lock-up period may expire after 180 days, insiders may be bound by additional restrictions regarding the timing and volume of sales as codified under Rule 144 of the 1933 Act.
FWP: What does it stand for? What is it?
Free writing prospectus
Generally, companies with fewer than 300 shareholders do need to file SEC reports. True or false?
FALSE. Generally
Get all stuff from Exam 5 from 30ish to 70 ish
Get all stuff from Exam 5 from 30ish to 70 ish
Get all stuff from Exam 5 from 30ish to 70 ish
Get all stuff from Exam 5 from 30ish to 70 ish
Get all stuff from Exam 5 from 30ish to 70 ish
Get all stuff from Exam 5 from 30ish to 70 ish
Get all stuff from Exam 5 from 30ish to 70 ish
Get all stuff from Exam 5 from 30ish to 70 ish
Get all stuff from Exam 5 from 30ish to 70 ish
Get all stuff from Exam 5 from 30ish to 70 ish
Get all stuff from Exam 5 from 30ish to 70 ish
Get all stuff from Exam 5 from 30ish to 70 ish
Gross Profit Margin:
Gross Profit/Sales or Revenue
Gross Profit:
Revenue – Cost of Goods Sold (COGS)
High level steps in a friendly merger?
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.
How are bonds accounted for in the Statement of Cash Flows?
The Statement of Cash Flows begins with operating activities. The first entry is net income. This entry would reflect bond interest expenses as interest that has been deducted in the calculation of net income. The sale of the debentures would be reflected under Financing Activities (not investing). Financing Activities reflect the net proceeds (a source of funds) obtained from the issuance of bonds.
How are CMOs taxed?
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.
How are dissenting partners (who vote against roll up) compensated in a limited roll up?
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.
How are extraordinary charges reconciled in the P/E ratio?
he P/E ratio is based on earnings before extraordinary charges are added to reported earnings.
How are most Hedge Funds structured and how do they raise capital?
Most hedge funds are structured as limited partnerships and raise capital by selling units or interests in the partnership to investors.
How are severance costs treated when a company is getting acquired?
¨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
How are shares distributed in a spinoff and what are the tax implications?
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.
How are unsubstantiated rumors handled in a research report by an analyst?
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
How are US Treasuries typically issued?
Treasuries are sold using a competitive Dutch Auction system.
How can a company seeking control avoid risk of not getting it in a tender offer?
A company seeking control via a tender offer would set a minimum limit to ensure that the tender is cancelled if they cannot acquire a majority of the shares.
How can you see what the maximum a firm can lever up is given Free Cash Flow? See exam 4 - number 166
Free cash flow for the firm equals the cash a company has available after paying its operating expenses and capital expenditures. A company with high free cash flow has the capacity to issue debt. 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.
How do each of these support Automatic Order Execution?

NYSE
Nasdaq Global Market
Nasdaq Capital Market
OTCBB
The OTCBB (OTC Bulletin Board) is a quotation system. It does not support automated electronic execution.

The NYSE offers electronic execution through NYSE Direct+.

Nasdaq provides electronic execution through the Nasdaq Market Center Execution System.
How do REITs generate profits?
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.
How do you calculate Free cash flow from NI?
To calculate free cash flow to common stockholders, depreciation is added to net income (or earnings available to common if the company has preferred stock in its capital structure). Capital expenditures for the year are then deducted. To account for changes in working capital, if working capital has increased, free cash flow is reduced by the amount of the increase. If working capital has declined, free cash flow will be increased by the amount of the decline. Working capital (current assets minus current liabilities) was $175,000,000 in 2007 . Working capital declined to $160,000,000 in 2008. The decline of $15,000,000 in 2008 would be an addition to free cash flow.
How do you fully consolidate >50% ownership? What happens with minority interest?
REVIEW!!!! - problem 34 - EXAM 2
How does Accelerated depreciation affect earnings (GAAP vs. TX) and which one does GAPP generally use?
Many firms use accelerated depreciation for tax reporting, while using straight-line for GAAP reporting to shareholders. Accelerated depreciation provides a larger level of expenses in the earlier years of an asset's life, creating a lower earnings level reported for tax purposes. The difference in the taxes reported to the shareholders and the taxes paid is treated as a deferred tax liability on the report to shareholders. Straight-line depreciation is used for reports to shareholders; therefore, the reported earnings are unaffected by the use of accelerated depreciation for tax purposes.
How does Rule 144 treat resticted and control stock differently? Holding period? And volume limitations?
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.
How long is a convicted felon is barred from the securities business? Can he apply for waiver?
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
How long must Blotters be kept on file?
6 years at least
How long must broker-dealer's Articles of Incorporation be kept on file?
Life of entity
How long must Copies of confirmations sent to customers be kept on file?
3 years
How long must Correspondences between a broker-dealer and an investment banking services client be kept on file?
3 years
How many copies of the preliminary prospectus must be included in filing of a registration statement?
Five copies of the preliminary prospectus must be included in the filing of a registration statement.
How many market makers must an issuer have to be quoted on the OTCBB?
An issuer must have a minimum of one market maker to be quoted on the OTCBB.
How many market makers must an issuer have to be quoted on the OTCBB?
An issuer must have at least one market maker to be quoted on the OTC Bulletin Board.
How many round-lot shareholders is required for listing on NYSE, Nasdaq Global Select and Global Markets?
Nasdaq Capital Market requires a minimum of 300 round-lot shareholders to apply for initial listing
How many units does bond with warrant trade as? How many does convertible debt trade as?
A convertible bond is a hybrid security consisting of a bond with an imbedded call option permitting the purchase of a share of common stock at a fixed price. A convertible bond trades as one unit. A bond issued with warrants attached will trade as two separate units. When the bond is issued, the warrants are detached from the bond and will trade as a separate unit. An event that will reduce the proportionate claim of common stockholders to the earnings of a corporation is considered to be dilutive. The conversion of convertible securities into common stock and the issuance of additional shares of common stock (e.g., based on the exercise of warrants) will each result in additional shares owned by new shareholders.
How much must deposited in escrow account for "best-efforts" deals? Are expenses included in the escrow?
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.
How often must AML program be tested?
Testing of the AML program must be conducted annually. More frequent testing is required if circumstances warrant it. If the member does not execute transactions for customers, or otherwise hold customer accounts, or acts as an introducing broker with respect to customer accounts (e.g., engages solely in proprietary trading or conducts business only with other broker-dealers), then independent testing is required every two years
How would rising/falling interest rates affect the dollar and import/exports?
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.
IBR: What does it stand for? What is it?
Investment Banking Representative, a person who performs investment banking activities – Series 79
If 3 shareholders each owning 3% of the voting shares of a company agree to vote their shares together, they would need to file a _____?
If 3 shareholders each owning 3% of the voting shares of a company agree to vote their shares together, they would need to file a 13D.
If a banker is using EV/EBITDA multiples as the primary basis for valuation, it would want to :
If a banker is using EV/EBITDA multiples as the primary basis for valuation, it would want to increase EBITDA as much as possible for the subject company to increase its valuation.
If a bond is selling at a premium and is callable at par, how is the yield calculated?
To the call date

The yield for a bond that is selling at a premium and is callable at par is calculated to the call date. The yield to call measures the yield that would be earned if the bonds were called at the call price, rather than held to the maturity date. Industry rules require broker-dealers to quote the lower estimate of the yield to call or the yield to maturity. If the bond had been selling at a discount, it would have been quoted on a yield to maturity basis. If a bond is selling at a premium and callable at a premium, the yield may be to the final maturity or the call date, whichever is less.

In each case, the investor would receive a quote based on theMOST CONSERVATIVE SCENARIO. This is referred to as the YIELD TO WORST.
If a business is being liquidated under a Chapter 7 bankruptcy, which of the following claims would generally have the LOWEST priority?
-Wages of employees
-Providers of debtor-in-possession financing
-Debenture holders
-Administrative expenses of the bankruptcy
Debenture holders

A debenture is a general unsecured claim and would have the lowest priority of the choices listed. Wages of employees (subject to dollar and timing limits) and administrative expenses of the bankruptcy are considered priority claims. Debtor-in-possession financing is a special financing for companies in bankruptcy. The bankruptcy code may provide incentives for lenders to provide new capital while the debtor attempts to reorganize the business. The incentive often includes a superpriority that grants a higher priority to these creditors than other unsecured creditors. This financing generally must be approved by the bankruptcy court.
If a company is willing to pay a certain multiple of EBITDA to make an acquisition but can recognize expense synergies, the effective multiple recognizing the synergies would be =
If a company is willing to pay a certain multiple of EBITDA to make an acquisition but can recognize expense synergies, the effective multiple recognizing the synergies would be (EBITDA multiple x TargetCo EBITDA)/(EBITDA + synergies). For example, if Company S is willing to pay 9.6x EBITDA for Company Y, which has EBITDA of $17mm, but can recognize $3mm in synergies, the effective EBITDA multiple would be (9.6 x $17mm)/($17mm + $3mm) = 8.16x.
If a company issues a PIK bond, where(fin statement) does the PIK accrued interest show up ?
Although the PIK interest is not paid in cash, the accrued interest is added to the interest expense on the income statement. Subject to certain limitations, this allows the issuer to claim an interest deduction on the payments, therefore reducing its taxes.
If a company repurchases stock for treasury, cash and shareholders' equity will ________________
If a company repurchases stock for treasury, cash and shareholders' equity will decline.
If a company sells securities in multiple states, the issuer must ___________ and the representative selling the securities must _______________
If a company sells securities in multiple states, the issuer must comply with blue sky laws in all three states and the representative selling the securities must be appropriately registered in all three states.
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?
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
If a corporation is in liquidation, the holder of subordinated debt would be paid:

Before bank loans and before accounts payable
Before bank loans and after accounts payable
After bank loans and before accounts payable
After bank loans and after accounts payable
In a liquidation of a corporation, the subordinated debt holders would be paid after bank loans and after accounts payable or other creditors. The subordinated debenture holders are paid after everyone except preferred and common stockholders.
If a FINRA member intends to stabilize an issue on the NASDAQ, who muct be notified and how?
The FINRA Market Regulations Department

Rule 104 of Regulation M requires any party that intends to engage in stabilization to provide prior electronic notice of its intent to the market where stabilization will occur. If the security is listed on Nasdaq, the FINRA Market Regulations Department would be notified by way of the Restricted Period Notification Form (a.k.a. a regulatory wire). The SEC receives prior notice in written form through the disclosures contained in the registration documents.
If a firm cannot record instant messaging communications between its employees and clients, ___________________.
If a firm cannot record instant messaging communications between its employees and clients, IMs are not permitted.
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?
(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.
If a member firm will be imposing a penalty bid or engaging syndicate covering transactions, should it file form to FINRA for Nasdaq-listed securities or OTC equity securities?
If a member firm will be imposing a penalty bid or engaging syndicate covering transactions, it is required to submit a form to FINRA for both Nasdaq-listed securities and OTC equity securities.
If a new issue is not expected to close on the settlement date, the lead manager must notify________________ no later than____________.
If a new issue is not expected to close on the settlement date, the lead manager must notify FINRA no later than the expected closing date.
If a new issue is significantly oversubscribed, the lead manager may __________________________ or ______________________________
If a new issue is significantly oversubscribed, the lead manager may increase the number of shares offered and may increase the offering price.
If a public announcement of an acquisition has been made, written communications are permitted as long as _____________________
If a public announcement of an acquisition has been made, written communications are permitted as long as they are filed with the SEC.
If a registered rep participates in a securities transaction outside the jurisdiction of their firm, but does not receive compensation, _____ is still required, but _____ is not
If a registered rep participates in a securities transaction outside the jurisdiction of their firm, but does not receive compensation, written notice is still required to the firm but permission is not.
If a rep is busted for shop lifting but not yet charged, it would be:
If a rep is busted for shop lifting but not yet charged, it would be reported to compliance.
If an auditor determines that an illegal act may have occurred, the first step for the accounting firm is to :
If an auditor determines that an illegal act may have occurred, the first step for the accounting firm is to report this to the audit committee or to the Board of Directors of the issuer.
If an investment banking representative would like to become familiar with the required content of nonfinancial disclosures in registration statements filed under the Securities Act of 1933, which of the following regulations/rules should the representative peruse?
egulation S-K is a crucial component of the SEC disclosure system. It sets forth many of the disclosure requirements for registration statements filed under the '33 Act and other reports filed under the Securities Exchange Act of 1934. Some of the reports include going-private statements, tender offer statements, and proxy statements. Some of the issues addressed include material contracts, executive compensation and management reports on internal controls. [61211]
If an issuer pays PIK interest (“payment-in-kind”) it appears on the ________as ____________, just as if interest were actually _______.
If an issuer pays PIK interest (“payment-in-kind”) it appears on the income statement as interest expense, just as if interest were actually paid in cash.
If an issuer sells shares at various times over a 3 year period it is a _____________
If an issuer sells shares at various times over a 3 year period it is a shelf registration.
If an issuer updates the financial statements in a preliminary prospectus (i.e. red herring), it must be :
If an issuer updates the financial statements in a preliminary prospectus (i.e. red herring), it must be refiled with the SEC.
If an options contract is exercised, which of the following statements is TRUE?
-The buyer of a call must deliver the underlying stock.
-The buyer of a put will receive the underlying stock.
-The seller of a put will be required to buy stock.
-The seller of a call will lose the premium.
The seller of a put will be required to buy stock.

If a put option is exercised, the buyer has the right to put (deliver) the underlying stock to the seller at an agreed-upon price. The seller or writer has the obligation to accept delivery of the stock at the exercise or strike price.
If corporate insiders buy stock, the price of the stock will generally _______
If corporate insiders buy stock, the price of the stock will generally rise.
If current assets decline, is it source or use of cash in CFO?
Source
If interest rates change, which bond (in terms of maturity) would be expected to have the greatest dollar change in price?
The greatest change in dollar price would be expected for Bond A, which has the greatest duration (longest maturity). When the general level of interest rates changes, long-term bonds have greater price fluctuations than short-term bonds.
If issued in the US, when are ADRs and MLPs exempt from registration?
NOT.

There is no specific exemption under the registration provisions of the Securities Act of 1933 for ADRs or MLPs. They both issue shares of common stock and, if sold to the public in the U.S., would require SEC registration
If the (omitted) information is not contained in a subsequent prospectus, what should they do?
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.
If the Federal Reserve Board increased the discount rate, you would expect:
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.
If the SEC has entered an order temporarily suspending a Regulation A exemption, the underwriter, issuer, or the selling security holder may request a hearing within how many days? What happens if it's not requested? When is hearing IF IT IS requested?
The underwriter, selling security holder, or issuer may request a hearing within 30 days. If a hearing is not requested, the temporary order suspending the Regulation A exemption becomes permanent on the 30th day. If a hearing is requested, it will be held within 20 calendar days of the SEC's receipt of the request.
If two companies have a similar P/E but one company has a higher EV/EBITDA, a difference in _______ might account for the difference.
If two companies have a similar P/E but one company has a higher EV/EBITDA, a difference in taxes might account for the difference.
If using a purchaser representative, can you allow them to authorize every transaction.
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.
If yields are rising, what are the effects on DCF, WACC, risk-free rates, and cost of debt?
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.
Important Regulation D Notes
Rule 504 of Regulation D allows an issuer to offer securities of up to $1,000,000 in a 12-month period. Provided the issuer complies with all the provisions of Regulation D, this private placement is exempt from SEC registration. The issuer is still required to file Form D with the SEC no later than 15 days after the first sale of securities. Under Regulation D, if the issuer offers securities exceeding $1,000,000, any nonaccredited investor must receive a disclosure document. The SEC does, however, recommend that an issuer provide the same information to accredited investors to avoid the antifraud provisions of federal securities regulations.

If the initial offering does not exceed $1,000,000 and the issuer sells additional securities within 12 months, these securities may be exempt from registration. For example, an issuer offers $1,000,000 and 5 months later offers another $3,000,000. The first offering could be sold under Rule 504 and the second offering could be sold under Rule 505 (private exempt offerings not exceeding $5,000,000). If the offering does not exceed $1,000,000 and the issuer meets certain conditions, investors may resell the securities immediately. The conditions are generally based on registration and exemption requirements of the states in which the issuer is offering the securities.
In a bankruptcy proceeding, administrative claims (e.g. lawyers' fees, trustee expenses), are paid _______ any recently unpaid wages.
In a bankruptcy proceeding, administrative claims (e.g. lawyers' fees, trustee expenses), are paid before any recently unpaid wages.
In a cash acquistion, are acquiror's shareholders required to vote?
No, but target's are.
In a Ch11, what are duties of a debtor-in-possession? What is not an acitivyt by DIP?
n a Chapter 11 bankruptcy, the firm is operated by existing management as a Debtor-in-Possession (DIP).

-It will arrange to obtain financing, which is called DIP financing, and will conduct Section 363 sales.
-The sale of assets outside the normal course of business can be accomplished through a Section 363 sale.

The trustee, or debtor, must file a motion with the bankruptcy court seeking the court's approval. Opponents of the sale will have a given period to object to the proposed sale. If approved, the debtor or trustee can proceed with the sale. The DIP will also petition or file other motions with the court.

The DIP would NOT OBTAIN VALUTAIONS for the assets of the company. This may be done by a firm hired by the Creditors' Committee in order to determine the quality of any liens placed against the assets. A lien is a legal right placed against the assets by a creditor until the debt has been paid off.
In a Chapter 7 bankruptcy, a creditor must always file:
In a Chapter 7 bankruptcy, a creditor must always file a proof of claim to be eligible to recover any funds owed.
In a company auction, an acquirer who is concerned primarily with not overpaying could offer _________ to make their bid more attractive.
In a company auction, an acquirer who is concerned primarily with not overpaying could offer shorter time to close to make their bid more attractive.
In a contingency offering, what must the underwriter do?
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.
In a distribution of securities related to M&A activity, the Regulation M restricted period begins ________________
In a distribution of securities related to M&A activity, the Regulation M restricted period begins the day proxy materials are distributed.
In a limited partnership rollup, how are the assets valued?
Independent 3rd party appraisar
In a merger between two companies, the companies would file a ______ prospectus on an SEC Form _____ to register securities.
In a merger between two companies, the companies would file a joint prospectus on an SEC Form S-4 to register securities.
In a one step merger, which (target or acquiror) shareholders need to vote and approve? Is proxy filed? Explain process.
In a one-step merger process the target company obtains approval from its shareholders through a vote at a special meeting. Prior to the vote, the target company would first file a preliminary proxy statement with the SEC. Once SEC approval is received, the definitive proxy statement is sent to shareholders, providing the information on the proposed transaction. In most cases a simple majority of the target company is required.

IN A CASH TRANSACTION, the acquirer's shareholders are not required to vote on the proposed transaction
In a registration statement for non-WKSI & unseasoned issuers, financial statements become outdated if they are more than ___ days old at the time of filing.
In a registration statement for non-WKSI & unseasoned issuers, financial statements become outdated if they are more than 135 days old at the time of filing.
In a registration statement for WKSIs or seasoned issuers, financial statements become outdated if they are more than ____ days old at the time of filing.
In a registration statement for WKSIs or seasoned issuers, financial statements become outdated if they are more than 130 days old at the time of filing.
In a RW trade, when is the transaction complete under SEC regulations? Is there an exception?
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.
In a tender offer where shareholders offer more than the number of shares being purchased, how are tendered shares are accepted?
In a tender offer where shareholders offer more than the number of shares being purchased, tendered shares are accepted on a pro rata basis from only those shareholders who offered their shares.
IN a tender offer, who files a proxy statement?
In a tender offer, the issuer generally does not file a proxy statement.
In a txn, when must a written disclosure of a conflict of interest be made?
Written disclosure of a conflict of interest must be made no later than completion of a transaction.
IN an S corp and in terms of taxes, distributions in excess of a client's basis are treated as
capital gains
IN an S corp, Distributions that reduce the client's basis are considered
a nontaxable return of capital
In bankruptcy, what is the sale of assets outside the normal course of business called? Who must approve? What are the high-level steps?
This may be accomplished with the approval of the bankruptcy court.

The sale of assets outside the normal course of business can be accomplished through a Section 363 sale. The trustee, or debtor, must file a motion with the bankruptcy court seeking the court's approval. Opponents of the sale will have a period of time to object to the proposed sale. If approved, the debtor or trustee can proceed with the sale.
In Chapter 11, how many days does the Debtor-in-possession have to file an exclusive plan?
120 Days.

Creditors may submit a reorganization plan, but the debtor generally has a 120-day period during which it has an exclusive right to file a plan.
In dividend discount model, what type of growth is assumed in dividend?
The projection may show a constant growth rate, a variable growth rate, or no growth at all.
In easy money periods, bonds of similar quality will generally have which two and why?:

1.Short-term yields lower than long-term yields
2.Long-term yields lower than short-term yields
3.Both short-term and long-term yields below normal
4Both short-term and long-term yields higher than normal
1&3

In periods of easy money, there is availability of money. Therefore, interest rates will decline (be lower). In these periods of easy money, bonds of similar quality will generally have short-term yields lower than long-term yields. Both short-term and long-term yields will be below normal. This situation would create a positively sloped yield curve where yields rise from short- to long-term.
In M&A, when is Acquirer's shareholder approval not required?
In an M&A CASH transaction, AcquirerCo. shareholder approval is not required.
In M&A, when is the proxy statement not required to include proforma financials?
In an ALL CASH transaction, the proxy statement is not required to include pro forma financials.
In order for a rep to borrow money from a customer…
In order for a rep to borrow money from a customer, the member firm must have written procedures in place and the customer must be a bank, family member, or have an outside relationship with the rep.
In order to stabilize, the underwriter must make disclosure of its intention to do so in the
In order to stabilize, the underwriter must make disclosure of its intention to do so in the prospectus.
In periods of easy money, when interest rates are declining, yield curves would tend to:
In periods of easy money when interest rates are declining, yields on shorter maturities would be less than that of longer maturities. Yield curves would tend to slope upward from the shorter to the longer maturities.
In requirements for NYSE listing, will NYSE consider Foreign distributions in market cap threshold?
No, only US secruties
In requirements for NYSE listing, will NYSE consider providing a waiver for not meeting market cap req?
No
In the TO process, is A definitive proxy statement filed by the issuer to provide information to shareholders.
The proxy statement would be provided only if shareholders would be voting on the M&A transaction.
In which order, from first to last, are the following actions performed in the M&A process?
-Sending the Confidential Information Memorandum (CIM)
-Signing the confidentiality agreement
-Provide access to the data room
-Creation of the teaser
4,2,1,3

Concerning the auction process in an M&A transaction, one of the first steps taken by the seller's banker is the creation of the teaser. Teaser is the slang term for a business profile. It is usually jointly prepared by the seller and its investment banker. It is a marketing piece distributed to prospective counterparties and is constructed to pique interest in the transaction, without necessarily (or typically) disclosing the identity of the seller. A teaser does not disclose confidential information regarding the business to be auctioned. The profile is often only a few pages in length and provides a synopsis to potential buyers. Information included usually comprises a business summary and a description of the company's financial and operational history.

Once a potential bidder expresses interest after receiving the teaser, and wants more detailed information on the target, the seller's banker would deliver a confidential information memorandum (CIM). This would provide more detailed information and disclose the identity of the target. The seller's banker would not distribute the CIM unless the bidder signs a nondisclosure agreement. A nondisclosure agreement (NDA) is also known as a confidentiality agreement. This document is used when one company is planning to disclose confidential or proprietary information to another party, in connection with a potential sale or merger.

In order for potential bidders to view detailed materials relating to the business of the target, a data room is set up. A data room is a secure, confidential location where all participating dealmakers (investment bankers, lawyers, and accountants) gather for a certain period to perform due diligence activities relating to an investment banking transaction. It may entail reviewing, indexing, photocopying, and finalizing the required due diligence documentation. Many firms now use a virtual (i.e., electronic) data room as an alternative to a physical location, which is set up by private data management companies. This is a secure site which is designed to speed up the due diligence process. The next steps would be obtaining indications of interest (IOIs), a bidder submitting a letter of intent (LOI), and then closing the deal.
Industry rules require that the outside employment of an employee of a member firm must be approved by whom?
Only the member firm
Interest Coverage Ratio:
EBITDA/Interest Expense
Inventory Turnover Ratio:
COGS/Average Inventory
IPO: What does it stand for? What is it?
Initial public offering
Is an unseasoned issuer a reporting company?
Yes
Is blanket approval in Regulation D permitted?
Blanket approval to represent a potential purchaser in all Regulation D offerings is not permitted
Is M2 money supply a leading indicator?
Yes
Is Price-to-Book a listing criteria for the NASDAQ?
A minimum price-to-book ratio is not a listing criteria for Nasdaq.
Is the CPI a leading indicator?
No
Is the S&P500 index a leading indicator?
Yes
Is there a conflict when providing a fairness opinion and stapled financing in an acquisition?
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.
Is there a tax liability created in a split-off?
No tax liability is created for either group.
Is trustee always appointed in bankruptcy?
A trustee is not always appointed to manage a firm in bankruptcy. In a Chapter 11 filing, the debtor will typically continue to operate the business and prepare a reorganization plan (i.e. “debtor-in-possession”)
Joe is an accountant who, on occasion, has directed some of his clients to Matterhorn Securities, where he maintains a brokerage account. Joe has suggested to his registered representative that in light of the steady business that Joe has done with the firm over the years, he would like to be able to receive some form of compensation for all the business he has directed to Matterhorn. Which of the following statements is TRUE
SRO rules specifically state that compensation to nonregistered persons is permitted if, among other things, it is paid on an isolated basis, and is not based on business generated by such accounts.
LamoNate is a plastics company. It issued a communication 45 days before filing a new issue registration statement. Its communication failed to mention the future securities offering. Which of the following statements is TRUE regarding the LamoNate communication?
It is not defined as an offer to sell.

Any communication made by an issuer more than 30 days before the filing date of a registration statement does not constitute an offer to sell, if it does not mention the securities offering. This is an example of one of the safe harbors that would not violate the SEC gun-jumping restrictions. The term gun-jumping refers to a communication made by an issuer during a period in which it is planning to make a public offering of securities. This would be in violation of the Securities Act of 1933. During this period the issuer should not be engaged in any communication that would be seen as preconditioning the market for offering. This situation may occur if an issuer is planning an IPO and relies on this safe harbor when management makes a public comment concerning the company, at least 30 days prior to the filing of the registration statement.
LBO: What does it stand for? What is it?
Leveraged buy-out
Lear, Kaplan and Simon, a small boutique investment banking firm, is discussing the possibility of a Regulation A offering for Big Apple Sound Studios. Some of the officers of Big Apple would like to sell a portion of their equity interest in the company. Under Regulation A, the maximum amount that may be sold on behalf of selling shareholders is:
$1,000,000
$1,500,000
$5,000,000
$10,000,000
WATCH OUT!

A Regulation A offering is a small-dollar OFFERING of no more than $5,000,000 over a 12-month period. HOWEVER, the maximum amount that may be sold on behalf of existing shareholders is $1,500,000.
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
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.
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?
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.
LTM: What does it stand for? What is it?
Last twelve months
M&A Order?
-CIM
-Confidentiality Agreement
-Definitive Agreement
-final bid
-final bid procedures letter
-Initial Bid (i.e. indication of interest)
-Initial Procedures Letter
-letter of intent
-Teaser
M&A Order - Teaser, Confidentiality Agreement, CIM, Initial Procedures Letter, Initial Bid (i.e. indication of interest), letter of intent, final bid procedures letter, final bid, Definitive Agreement
Market capitalization is calculated as:
Market capitalization is calculated as: total shares outstanding x current stock price.
Market Value per Share:
Market Cap Com./Number Com. Shares Outstanding
master limited partnership
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.
MMA is about to lower its bid in compliance with Rule 103 of Regulation M. What is the highest price to which MMA may drop its bid?
MMA must lower its bid to a price no higher than the highest independent bid on Nasdaq for that stock. Since MMB is also a passive market maker, its bid is not independent. MMC's bid is the highest independent bid.
Name the types of accredited investors?
The definition include institutional investors

-such as commercial banks
- savings and loan associations
- insurance companies
- broker-dealers
- investment companies
-certain retirement plans
-a trust with total assets of $5,000,000
- and small business investment companies.
NASDAQ Global Select Standard and Enhanced Requirements for listing?
There are three standards that can be used when applying for Nasdaq Global Select listing. Of the seven requirements only three must be satisfied under all three standards in order to be listed. These would include:

REQUIRED
-A $4 minimum bid price
-3 or 4 market makers
-Subject to corporate governance


The following four requirements may not be applicable, depending on which of the three standards is used in the issuer's application.
-Pretax earnings
-Cash flow
-Market capitalization
-Revenue
Nasdaq: What does it stand for? What is it?
NASD Automated Quotation System - Level I inside market; Level II trading desk; Level III market maker, now a securities exchange
NBBO: What does it stand for? What is it?
National Best Bid and Offer
Net Income:
Operating Income – Interest – Taxes
Net Profit Margin:
Net Income/Sales or Revenue
NTM: What does it stand for? What is it?
Next twelve months
NYSE Rule 77, addressing Prohibited Dealings and Activities, states that a member on the Floor may not:
NYSE Rule 77, addressing Prohibited Dealings and Activities, states that a member on the Floor may not:

Buy or sell securities "on stop" above or below the market
Buy or sell securities "at the close"
Buy or sell dividends
Bet on the course of the market
By or sell privileges to receive or deliver securities

Placing an order with the specialist and acting as a dual agent in a cross transaction are acceptable practices.
NYSE: What does it stand for? What is it?
New York Stock Exchange – Physical stock exchange for listed securities
OFAC: What does it stand for? What is it?
List maintained by Treasury Dept. Office of Foreign Asset Control naming suspected terrorists and criminals
One of your firm's investment banking clients, Orchid Stationers, is considering the repurchase of a portion of its outstanding debt. The company has WACC of 8% and a debt to total capitalization ratio of 25%. Which of the following changes would result if Orchid repurchases its debt? What would happen to WACC? WHat would happen to ROA? Why?
Usually Wacc increases, and ROA increases.

BE CAREFUL…(debt cost is usually lower, but can be higher! See below…in this case…it is lower)

A company that has WACC (weighted average cost of capital) of 8% and a debt to total capitalization ratio of 25% would be expected to have a lower cost of debt than the cost of equity. If the company had significantly higher leverage, where the cost of debt was higher than the cost of equity, a much higher WACC would be expected. Reducing the amount of debt, which has a lower cost of capital, will increase the WACC of the company. A repurchase of debt outstanding will reduce the asset base of the company and the interest expenses. Due to the interest tax shield of the debt interest payments, the percentage reduction of net income will be less than the percentage reduction of assets. This will cause the ROA to increase.
Operating Income (EBIT):
Operating Profit +/- Other Income or Expenses
Operating Profit Margin:
Operating Profit/Sales or Revenue
Operating Profit:
Gross Profit – Operating Expenses
Order from low to high:

discount rate
prime rate
fed funds rate
broker's call rate
Order of interest rates from lowest to highest - fed funds rate/discount rate/broker's call rate/prime rate.
OSJ: What does it stand for? What is it?
Office of Supervisory Jurisdiction
OTCBB: What does it stand for? What is it?
Over The Counter Bulletin Board - electronic quotes of non-Nasdaq (non-listed) stocks
P/E Ratio:
Market Price Common/EPS
P/E to Growth (PEG) Ratio:
P/E Ratio/Annual Growth Rate note: Growth Rate is an integer
PDQ Corporation is the subject of an initial public offering and will be listed on the New York Stock Exchange. Which of the following statements is TRUE of trading in PDQ away from the NYSE?
A broker-dealer may not execute a trade in PDQ away from the NYSE until an opening transaction occurs on the NYSE.
PE: What does it stand for? What is it?
Private equity
POP: What does it stand for? What is it?
Public offering price
Pre-IPO shares will have _____ that states______.
Pre-IPO shares will have a legend attached confirming they are not registered.
Price to Book Ratio:
Market Price Common/Book Value
Price to Free Cash Flow:
Market Price Common/Free Cash Flow per Share
Price to Sales Ratio:
Market Price Common/Sales or Revenue
prospectus delivery requirement (in days) for IPO by company on Nasdaq?
90 days for IPOs.
prospectus delivery requirement (in days) for new issue by company on Nasdaq already trading?
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.
QIB: What does it stand for? What is it?
Qualified Institutional Buyer – Institutions defined under Rule 144A (i.e. $100 million)
Quick Ratio:
(Cash + Cash Equiv. + Acct Rec)/Current Liabilities
Quotes for non-Nasdaq, over-the-counter-traded equities can be obtained from the:
Quotes for non-Nasdaq, over-the-counter-traded equities can be found in the Pink Sheets and the OTC Bulletin Board (OTCBB). Non-Nasdaq securities are also known as OTC equity securities. There are no listing requirements for these two quotation systems. The Pink Sheets and the OTC Bulletin Board do not provide execution services.
Regulation A offerings are not aggregated with other offerings made _______ months after the ________________.
Regulation A offerings are not aggregated with other offerings made more than six months after the completion of the transaction.
Regulation A:
Small dollar offering (no more than $5,000,000)
Regulation D (506):
Private placements (unlimited accredited; no more than 35 non-accredited)
Regulation FD applies to what type of players in securities? What does it mean?
Regulation FD applies to issuers of securities. It requires companies to disseminate quickly nonpublic, material information that has been disclosed to securities professionals or shareholders. In the event of an accidental leak of information, the company has 24 hours to release the information to the public. This regulation was designed to protect individual investors by requiring issuers to disseminate in a timely manner material information.
Regulation FD:
Fair disclosure rules applying to issuers (reporting companies)
Regulation M-A requires that a summary term sheet be provided to investors as part of the disclosures made in aMERGER. What is included in this sheet? What would be included in one for a TO?
-a brief description of The transaction
-The consideration offered to security holders
-The reasons for engaging in The transaction
-The vote required for approval of The transaction
-An explanation of any material differences in The rights of security holders as a result of The transaction
-a brief statement as to The accounting treatment of The transaction, if material
-The federal income tax consequences of The transaction, if material

**The total number of shares the acquiring company is seeking, and the manner in which securities will be accepted for payment, are required for a term sheet in a tender offer, rather than for a merger.
Regulation M-A:
Communication/disclosure rules for firms involved in merger activities
Regulation M:
Restricted period rules and stabilization rules for secondary market activities associated with new issues
Regulation S-K:
Guidelines for presenting projections in nonfinancial statements
Regulation S-X:
Establishes accounting requirements for SEC filings (e.g. 10-Ks)
Regulation S:
Offshore offering to non-U.S. persons
Regulation SHO:
Created uniform order marking, locate and close-out procedures for short selling
Regulation SP:
Privacy Notice required for firms sharing customer information with other institutions
Regulation T:
Establishes initial margin requirements for non-exempt securities
Regulation TO:
Tender offer rules
Regulation U:
Credit extension for securities by non-broker dealers
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?
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
Requirements for an S Corp?
There may be no more than 100 shareholders.
All shareholders must be U.S. citizens or resident aliens.
The shareholders must all be individuals, estates, or certain types of trusts.
The corporation must be domestic.
The company may not be part of an affiliated group of corporations.
The company may have only one class of stock outstanding.
Return on Assets:
Net Income/Average Assets
Return on Equity:
Earnings Available to Common/Ave. Com. Shareholder Equity
Risk Premium (Excess Mkt Return):
Rm-Rf
ROE CALCULATION
SEE EXAM 2 - Question 41…IMPT!
ROE to common equity formula?
(Net Income - PREFERRED divs / AVG common equity
RR: What does it stand for? What is it?
Registered representative, a person involved in general securities business – Series 7
Rule 101 of Regulation M generally prohibits participants in a distribution from:
Buying or bidding for the security being distributed during the restricted period

Distribution participants (syndicate members, selling group members, and any other broker-dealers helping to sell the security being offered to the public) may not bid for or purchase the subject security (the security being distributed) during the restricted period. The restricted period generally begins with the later of five business days prior to pricing, or whenever the broker-dealer becomes a participant. It ends when the broker-dealer participation is over. However, if the subject security has an average daily trading volume (ADTV) value of at least $100,000 and the issuer's public float value is $25 million or more, the five-business-day standard is reduced to one business day. Exceptions to Rule 101 include the following.

-Transactions involving government and municipal bonds, nonconvertible investment-grade debt and preferred stock, and registered investment company securities
-Actively traded securities, which are those with an ADTV value of at least $1 million, where the public float value of the issuer's common stock is at least $150 million
-Odd-lot transactions
-The exercise of any option, warrant, right, or similar instrument during the restricted period, regardless of when it was acquired
-Unsolicited brokerage transactions and unsolicited purchases as principal
-Securities of domestic and foreign issuers eligible for a 1933 Act exemption under Rule 144A if sold to qualified institutional buyers (QIBs), and certain Regulation S transactions
-Transactions in the subject security that are part of a basket strategy, if the basket is not used for manipulation -- the subject security must be no more than 5% of the basket, which must contain at least 20 securities
-Inadvertent (de minimis) transactions
Rule 104 of Regulation M defines stabilizing as:
The SEC defines stabilizing as the placing of any bid or the effecting of any purchase for the purpose of pegging, fixing, or otherwise maintaining the price of a security. As its definition implies, the act of stabilizing is manipulative. However, if performed in accordance with Rule 104 of Regulation M, stabilizing is allowed so that the benefits of an orderly distribution of securities can be realized. Purchases by the syndicate that are solely manipulative, rather than assisting in the distribution, are illegal
Rule 10b-18:
Rule for issuers purchasing their own securities in the secondary market
Rule 135:
Rule for preliminary announcements not offering securities
Rule 137:
Rule for non-participants in an underwriting publishing research reports
Rule 138:
Rule for an underwriting participant publishing research on non-equivalent securities
Rule 139:
Rule for an underwriting participant continuing regular coverage for a security
Rule 144:
Sale of restricted and control stock
Rule 144A:
Sale of unregistered securities to qualified institutional buyers
Rule 145:
Registration rule for issuing securities in a business combination transaction
Rule 147:
Intrastate offering
Rule 163A:
Rule for communications made by or on behalf of issuer during the quiet period
Rule 415:
Shelf registration (permits sale of registered issues for up to 3 years in certain securities)
Sebastian is an investment banking representative who works in the Red Bank branch of RBR Brokerage, Inc. He has received a text message from a client who is claiming that unfair allocations occurred in connection with a recent IPO. A record of this correspondence must be maintained by:
The Office of Supervisory Jurisdiction responsible for the supervision of the branc

Each OSJ is responsible for maintaining a customer complaint file and for taking appropriate action on complaints. Under FINRA rules, records of complaints must be kept for a minimum of three years. Complaints may be delivered through instant messages, text messages, and e-mails as well as through physical notes and letters.
SEC Rule 10b-18, regarding purchases of equity securities by issuers, places limits on which factors in conjunction with such purchases?
-The prices of purchases
-The time of day purchases are made
-The number of broker-dealers who may make purchases for The issuer in any particular day
-The number of shares purchased on any single day

Rule 10b-18 places limits on all these factors in order to balance the interests of the issuer in repurchasing its stock because of the concern that this activity might manipulate the price of the security. Purchases may be made through only one broker-dealer on any single day. The restrictions on time, price, and volume depend on the nature of the security.
SEC Rule 135
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.
SEC Rule 145
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.
SEC rules permit stabilizing outside the United States during an offering in the U.S., without being in violation with Rule 104 of Regulation M. What conditions must be met?
-There is no stabilizing activity in The United States.
-any foreign stabilization occurs in a country with regulations similar TO U.S. rules.
-stabilization does NOT occur above The U.S. offering price.
SEC rules related to record keeping require that broker-dealers whose primary business is investment banking….must maintain how and for how long?
According to SEC rules, all records, whether maintained for a minimum of six years, or three years, must be kept for AT LEAST first two years in an easily accessible place. Records may be kept in electronic storage media or microfilm if a backup copy of the microfilm is maintained in a separate location. When using electronic storage, the electronic media must be in a nonrewritable format and be nonerasable. Copies of documents need not be sent to the SEC, or the broker-dealer's designated examining authority
Securities Exchange Act of 1934?
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.
Selling concessions and discounts may be given:
Selling concessions and discounts may be granted only to another broker-dealer who is in the investment banking or securities business as consideration for services rendered in a distribution. The other broker-dealer must be a member firm.
Shortcut to compute CAGR?
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.
SIC: What does it stand for? What is it?
Securities Information Center - Reports for stolen, forged or missing securities
SIPC: What does it stand for? What is it?
Securities Investor Protection Corporation - protects against broker dealer failure
SRO: What does it stand for? What is it?
Self-Regulatory Organization – NYSE, FINRA and MSRB
Steps in the M&A process?
Concerning the auction process in an M&A transaction, one of the first steps taken by the seller's banker is the creation of the teaser. Teaser is the slang term for a business profile. If a potential bidder expresses interest after receiving the teaser, and wants more detailed information on the target, the seller's banker would deliver a confidential information memorandum. This would provide more detailed information and disclose the identity of the target.

The next step would be the delivery of the bid procedures letter. The bid procedures letter is distributed by the seller to request a preliminary transaction proposal from potential bidders. Those buyers that have an interest in the target, or have been contacted by the seller's bankers, are invited to submit a nonbinding indication of interest (IOI). The seller's bankers then narrow the fields that are within the range of what the seller expects. 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. This would include a description of the proposed transaction, pricing, deal structure, break-up fees, no-shop and/or go-shop provisions, and employment contract issues. The LOI is usually one of the last steps in an M&A transaction.
Structured products may:
1Offer returns linked to equity securities
2Not offer returns linked to commodities
3Not offer returns linked to interest rates
4Be formulated to provide principal protection
1&4

Structured products are prepackaged securities that often combine securities, such as a bond with a derivative. The structured security may be linked to equity securities, commodities, or interest rates. The products may also be structured to provide principal protection.
Supermajority vote requirement…what is it? Why done? Where is it outlined?
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.
T/F? The creditor committee in a bankruptcy does perfect liens for secured creditors
The creditor committee in a bankruptcy does not perfect liens for secured creditors
T/F? Transaction comps analysis would generally be used when pricing an IPO.
Transaction comps analysis would generally not be used when pricing an IPO.
T/F? 10Q does not include a list of company shareholders.
A 10Q does not include a list of company shareholders.
T/F? A company delisted for the NYSE or Nasdaq can subsequently be quoted on the Pink Sheets or OTCBB.
A company delisted for the NYSE or Nasdaq can subsequently be quoted on the Pink Sheets or OTCBB.
T/F? A fairness opinion makes a recommendation to shareholders as to whether or not to accept a deal.
A fairness opinion does not make a recommendation to shareholders as to whether or not to accept a deal.
T/F? An acquisition would not be a useful strategy for a corporate executive who wishes to retire and raise cash for his/her family.
An acquisition would not be a useful strategy for a corporate executive who wishes to retire and raise cash for his/her family.
T/F? An asset purchase agreement would include debt covenants
An Asset Purchase Agreement would not include debt covenants.
T/F? An increase in net working capital (which is a use of cash) would lead to a higher valuation under a discounted cash flow model.
An increase in net working capital (which is a use of cash) would lead to a lower valuation under a discounted cash flow model.
T/F? An SEC filing issuer who is not permitted to file an S-3 (i.e. they are unseasoned) may still publish a free writing prospectus after the registration statement has been filed.
An SEC filing issuer who is not permitted to file an S-3 (i.e. they are unseasoned) may still publish a free writing prospectus AFTER the registration statement has been filed.
T/F? An underwriter could use the due diligence defense to avoid liability for untrue information in a registration statement if it could prove it could not have known the information was untruthful.
An underwriter could use the due diligence defense to avoid liability for untrue information in a registration statement if it could prove it could not have known the information was untruthful.
T/F? During due diligence, a banker generally would interview the target's largest shareholder.
During due diligence, a banker generally would not interview the target's largest shareholder.
T/F? Open end funds are required to not register under the Securities Act of 1933.
Open end funds are required to register under the Securities Act of 1933.
T/F? There is a price/book value requirement to list on Nasdaq.
There is no price/book value requirement to list on Nasdaq.
T/F? When an issuer is SEC registered it does confirm the integrity of the issuer's dealings with investors.
When an issuer is SEC registered it does NOT confirm the integrity of the issuer's dealings with investors.
Tangible Book Value:
Total Assets – Total Liabilities – Intangible Assets – Goodwill
The accounting process of modifying financial statements in pro forma analysis is referred to as? What factors are considered?
Recasting.

The process of creating hypothetical post-deal financial statements is referred to as recasting. When using this valuation approach, several factors are considered.

-Potential headcount reductions of employees
-Potential facilities closures
-Enhanced bargaining power (and pricing concession) available from suppliers
-Potential pricing power if the merger reduces competition
-Revenue synergies available to the combined entity
-The tax status of the combined entity
-Savings related to regulatory compliance
-Costs associated with long-term employee retention
The Fed would buy securities…does this help ease credit conditions? Why?
Buying securities in the open market by the FRB would put cash into the banking system, which would have a multiplier effect.
The formula MOST LIKELY to be applied to determine a company's enterprise value for mergers and acquisitions is equity value of the company, plus total debt and:
-Preferred stock, less minority interest, cash, and cash equivalents
-Preferred stock, minority interest, cash, and cash equivalents
-Preferred stock, minority interest, less cash, and cash equivalents
-Minority interest, less preferred stock, cash, and cash equivalents
Preferred stock, minority interest, less cash, and cash equivalents

A company's enterprise value in mergers and acquisitions is likely to be determined as follows: equity value of the company, plus total debt, preferred stock, minority interest, less cash and cash equivalents. If a company's ownership level exceeds 50% of another company, the financial reports of the two companies are consolidated. If the ownership is less than 100%, a deduction is made on the income statement under minority interest. Minority interest is carried on the balance sheet and is added to calculate a company's enterprise value. If a company does not have a minority interest value, or preferred stock, an investment banker would not need to include either in the calculation of enterprise value.
The maximum underwriting compensation associated with the sale of a limited partnership public offering is
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.
The Packard Computer Company wants to purchase Four Par Storage through a two-step merger process. In order to retain the senior management, changes in compensation arrangements are offered to senior management of Four Par tied to their division's profitability. Is this type of arrangement permitted? Conditional to what?
It is if Four Par's compensation committee approves the bonus.

SEC Rule 14d-10 provides for equal treatment of shareholders in a tender offer, and is also called the best-price rule. A bidder is required to treat shareholders equally by making the offer open to all shareholders (retail and institutional) for the same period, and at the same price.

An EXCEPTION (which this is) TO THE BEST-PRICE RULE is granted for changes in compensation arrangements for executives of the company, provided the arrangements are approved by the compensation committee of the target company's board of directors (Four Par), regardless of whether the target company is a party to the arrangement or not. Alternatively, if the bidder is a party to the arrangement, the arrangement may be approved by a compensation committee of the bidder's board of directors. Since approval is always permitted by the target's committee, it is the best choice in answering this question. This committee must be made up solely of independent directors. It will perform this function and approve additional bonuses or other employment compensation paid to the target company's management.
The parties that may be sued for untrue statements and material omissions from a registration statement according to the Securities Act of 1933 include:
--Every person who signed The registration statement
--Every director or partner of The issuer at The time of The filing
--Every accountant, engineer, or appraiser named as having prepared or certified any part of The registration statement
--Every underwriter of The security
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?
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.
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?)
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.
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
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
The tendering of securities is permitted if an individual is:
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
The two principal reasons that investors enter into futures contract positions are:
The two primary reasons that investors enter into futures trading are speculation and hedging. The speculator is looking for price movement in the futures contract and the hedger is looking for protection from an adverse movement in the price of the commodity.
The underwriting spread in a new corporate stock issue depends on:
The dollar amount of the issue
The business and financial history of the corporation
The type of corporation and the kind of industry it is in

The underwriting spread (the underwriter's compensation) depends on all of the items listed since they help to determine the amount of risk that the underwriters assume.
The Wohl Ice Cream Corporation, a Nasdaq listed company, is selling additional shares of stock that will be priced on Wednesday, July 15. A person purchasing the additional shares would NOT be in violation of Rule 105 of Regulation M if she sold short the stock of Wohl on which of the following dates?
more than 5 business days before! Wed, July 7
Time required for: Amount of time a customer account is frozen (based upon a Regulation T violation) ?
90-days:
Time required for: B/D required to make restitution after arbitration proceedings ?
Within 30 days:
Time required for: Cooling off period for new issues ?
20-days:
Time required for: Effective date for SB-1 or SB-2 ?
20-days:
Time required for: Filing deadline to FINRA corp. finance review for listed securities ?
One business day:
Time required for: Filing deadline to FINRA corp. finance review for un-listed securities ?
15-days prior:
Time required for: Filing of advertising for Investment Companies ?
10-days after use:
Time required for: Form 4 filed by insiders ?
2-business days after transaction:
Time required for: Frequency of inspection of an OSJ ?
1-year:
Time required for: Frequency of verification for purchasers of equity IPOs ?
1-year:
Time required for: Management response to a tender offer ?
Within 10 days:
Time required for: Maximum time allowed for a shelf-registration (from 2 to 3 years) ?
3-years:
Time required for: Maximum time to settle syndicate accounts ?
90-days:
Time required for: Minimum duration of tender offer ?
20-business days:
Time required for: Minimum time to keep open a revised tender offer ?
10-business days:
Time required for: Payment for securities according to Regulation T (settlement + 2 business days) ?
5th business day:
Time required for: Penalty for unexcused withdrawals by market makers ?
20-business days:
Time required for: Prospectus delivery for IPO's of non-listed (non-Nasdaq) securities ?
90-days:
Time required for: Prospectus delivery for new issues of non-listed (non-Nasdaq) securities ?
40-days:
Time required for: Prospectus delivery requirement for Nasdaq and listed securities ?
25-days:
Time required for: Regular way settlement ?
3rd business day (T+3):
Time required for: Restricted period if market cap < $25MM ?
Five business days:
Time required for: Restricted period if market cap > $25MM ?
One business day:
Time required for: Settlement cash transaction ?
Same day:
Time required for: Statutory disqualification if convicted of a securities related misdemeanor or any felony ?
10-years:
Time required for: Stop transfer to out-of-state resident of securities acquired through 147 ?
9 months:
Time required for: Time as investment banker to be a Qualified IB (Schedule E underwriting) ?
5-years:
Time required for: Time period during which restricted or control stock may be sold under Rule 144 ?
90-days
Time required for: Treasuries and options ?
Next business day settlement:
Time required for: Wait period for failing a regulatory exam the first and second time (e.g. Series 79) ?
30-days:
Time required for: Wait period for failing a regulatory exam the third time ?
180-days:
tock acquired by an underwriter as compensation may be sold:
If a broker-dealer receives securities as compensation in connection with the sale of a new issue, the securities may not be sold for a period of six months from the effective date. Options or warrants received as compensation may be exercised at any time.
Tulta Truffles, a purveyor of distinctive chocolates, is considering a merger with Munille Choco Sweetz Bars, a budget-conscious confection sold through mass merchandisers in the Midwest. The name typically given to this type of transaction is a:
Product extension merger
Two automobile manufacturers have defined benefit pension plans. Company ZBT uses a discount rate of 5% to calculate its pension fund liabilities, and Company SMI uses a 7.5% discount rate to calculate its pension fund liabilities. Which of the following statements is TRUE?
Company ZBT is using a more aggressive method of accounting.
Company SMI is using a more aggressive method of accounting.
Company ZBT will have higher pension fund assets.
Company SMI will have higher pension fund assets.
Company SMI is using a more aggressive method of accounting.

Aggressive accounting refers to a method of accounting that is used to report lower expenses and higher income, or to overstate assets while understating (not recognizing or lowering) liabilities. In regard to accounting practices for defined benefit pension plans, using a low discount rate is conservative, and using a higher discount rate would be aggressive. Therefore, the higher the discount rate, the lower the present value of the fund's long-term liabilities..
Two Exceptions to prospectus delivery requirement (in days) for new issue of company securities?
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.
Typically, does a buyer or seller prefer a stock or asset sale? Why?
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.
U/W: What does it stand for? What is it?
Underwriter
Under anti-money laundering requirements, brokerage procedures should provide for notification to the exchange? True or false?
Exchange notification is not required
Under code of arbitration, how many people on arbitration panel must come from outside industry? Is there an exception?
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.
Under Regulation D, which of the following private placements may require a purchaser representative for individuals?
The term purchaser representative designates a person who represents potential nonaccredited purchasers who are solicited to buy securities under Regulation D. Only offerings exceeding $5,000,000 specify the need for investor sophistication, or the use of a purchaser representative.
Under Rule 102 of Regulation M, selling shareholders are prohibited from:
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)
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:
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.
Under SEC rules, a tender offer must normally be held open for at least:
20 business days after it is announced to shareholders

A tender offer must normally be held open for at least 20 business days from the time the offer is announced to security holders. If the person making the offer increases or decreases the percentage of the class of securities being sought, the consideration being offered, or the dealer's soliciting fee, the offer must remain open for at least 10 business days from the date that notice of the change is given to security holders.
Under SOX, wjat is the policy and potential exceptions about loans to officers in the firm?
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.)
Under the Code of Arbitration, if the dispute involves two FINRA members, what are the restirctions on the composition of the arbitration panel?
Under the Code of Arbitration, if the dispute involves two FINRA members, there are no restrictions regarding the composition of the panel. The panel may have any composition of industry or public arbitrators.
Under the Code of Procedure, appellate jurisdiction rests with …?
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
Under the Code of Procedure, original jurisdiction rests with…?
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.
Under what rule does Restricted Stock have a holding period, how long is it?
Restricted stock has a six-month holding period under Rule 144, not Rule 144A.
Upon maturity of a bond, an investor would receive:
Upon maturity of a bond, an investor would receive par value and the final semi-annual coupon payment.
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?
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.
WACC:
Cost of Equity xWeight of Equity + Cost of Debt x Weight of Debt
Water Investments is a hedge fund. It has acquired a controlling interest in Air Entertainment. It was later determined that the disclosure statements for Air contained material omissions. Water Investments would likely initiate legal action against all of the following parties? Who can't it sue?
Various persons are financially liable in the event of material misstatement associated with securities transactions, including the:

- investment banking firm that conducted the transaction,
- the chief financial officer of the company,
- and the investment banking firm that prepared a fairness opinion on the transaction.

Individual stockholders of the company would generally not be liable to any new purchaser in the event of misleading statements or material omissions.
Wayne worked at Mad Anthony Investments as an investment banking representative and was called to active military duty. May he receive transaction-related compensation during this period?
He may, provided another representative services the clients.

Wayne may receive transaction-related compensation, but he is prohibited from servicing clients during his active tour of duty. He may share in the compensation with the representative servicing the account during his military service. The term used to describe Wayne's status is Special Inactive. Additionally, meeting the requirements for both the Regulatory and Firm Elements of Wayne's Continuing Education is deferred during active duty. The time element applied to registered persons deferring their Continuing Education requirement is tolling (delaying) during the period of active military service. Therefore, the requirement to sit for the Regulatory Continuing Education, based on the second anniversary of initial registration and every three years thereafter, is halted (delayed) while the person is in active military service and resumes once the individual's Special Inactive status ends.
Websidestory Publishing had filed for its initial public offering in 2004. Which of the following forms could an investment banking representative view to determine the amount of the fee paid by Websidestory for SEC registration? How is the fee determined?
An S-1 registration statement is used for an initial public offering of shares or where no other registration forms are indicated. The SEC fee is determined based on the dollar amount of the securities that will be registered.
Wh files a 13e-3? For what purpose?
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.
Wha tis diff between marginal and effective tax rate?
The marginal tax rate includes both the statutory federal and state taxes, is considered the rate for any additional dollars of income, and does not include many of the adjustments made to calculate a company's effective tax rate (which is a blended rate and is usually lower than the marginal tax rate).
Whaen would SEC halt a Regulation A registration?
It is acceptable to test the waters prior to filing an offering statement with the SEC. The materials that may be distributed when testing the waters are limited to factual information that must include a description of the company's business, the background of the CEO, and a statement that no money should be sent by interested investors. The SEC may halt a Regulation A offering if any of the terms, conditions, or requirements of the regulation are deficient. This would include failure to provide the SEC with a copy of the script used in any radio or TV broadcast and the solicitation of money for the issue prior to completion of the review by the SEC. Additionally, there must be at least 20 days separating the use of a solicitation statement and the first sale of securities.
What are 3 forms that are relevant to an "insider"? What are they for? When are they filed?
Form 3 is filed when a person initially becomes an insider.

Form 4 is filed by any insider of a corporation who buys or sells shares of his company. The form must be filed no later than the second business day following the transaction.

Form 5 is an annual filing by insiders.
What are 4 items that might disallow a company from filing an S-3?
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.
What are 425 Filings?
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.
What are Accredited Investors?
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.
What are booster shot IPOs?
Booster-shot research reports are positive research reports published near to or after the expiration of a lock-up agreement between an issuer and an employee of the issuer. 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 her company's securities after an offering. Generally, when a lock-up agreement expires and an employee then sells her shares, the stock price often drops. By publishing a favorable research report around the time of the expiration of a lock-up agreement, the price of the stock may not fall. In order to decrease the chance of manipulation, regulators have put a prohibition on the publication of research reports by the manager or comanager of a securities offering in a security. The prohibition is for 15 days prior to and after the expiration of the lock-up agreement. This prohibition does not apply to securities that are actively traded, and is defined under Regulation M
What are conditions for an issuer repurchasing stock in marketplace?
According to SEC Rule 10b-18, an issuer may repurchase its securities in the marketplace provided:

The issuer purchases an amount not exceeding 25% of the average daily trading volume
The issuer does not effect purchases during the last 10 minutes of a trading session if the issue is actively traded (a public float value of at least $150 million and the average daily trading volume [ADTV] value of $1 million)
The issuer does not purchase the securities at a price higher than the highest independent transaction price
The issuer uses only one broker-dealer or electronic communication network (ECN) to execute the transactions on any single day
What are differences in the use of ADRs and GDRs?
American Depositary Receipts (ADRs) facilitate U.S. investment in the stock of foreign corporations. When the foreign securities are deposited in a U.S. bank based in that country, a receipt for those securities is issued and traded in the U.S. as if it were the foreign security itself. Global Depositary Receipts would be used if the securities are going to trade in markets other than in the U.S.
What are exempted from Rule 145?
Stock splits, stock dividends, and the resulting changes in par value
What are FINRA Corporate Financing Rule requirements for filing in terms of compensation?
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.
What are General Obligation Bonds? How are they typically Issued?
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.
What are listing requirements for NYSE?
(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
What are OTC stocks?
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.
What are piggyback rights?
“Piggyback” rights allow investors to sell previously unregistered shares when the issuer registers a public offering.
What are pink sheets and OTCBB?
¨Quotes for non-Nasdaq, over-the-counter-traded equities can be found in the Pink Sheets and the OTC Bulletin Board (OTCBB). Non-Nasdaq securities are also known as OTC equity securities. There are no listing requirements for these two quotation systems. The Pink Sheets and the OTC Bulletin Board do not provide execution services.
What are private placements?
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.
What are qualifications to be a WKSI?
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
What are rules about the time frame of projections in Regulation S-K?
The SEC, through Regulation S-K, establishes rules for the format used when presenting projections. For example, most often revenue, net income, and earnings per share are the financial items projected for a specified period. The registrant is not limited to projections for these items, nor to the time frame of projections. However, the format used must not be misleading and the time frame must be appropriate. While a three-year projection may be reasonable for one company, a one-year projection may be appropriate for another. In addition, multiple projections may be appropriate in some cases and would be permitted. In all cases, there must be a reasonable basis for any projection and its associated time frames. A fairness opinion is associated with mergers and acquisitions. It is NOT REQUIRED required for projections contained in SEC filings.
What are rules and conditions regarding the acceleration of an effective date?
As a general rule, the effective date of a registration statement is the twentieth day after the filing date. Any amendment filed to a registration statement prior to the effective date will initiate the 20-day period. An exception is made if the issuer requests and receives approval for an accelerated effective date. The request may be oral or written, but if the request is made orally, it must be followed by a letter that accompanies an amended filing. The request is made by the issuer and the managing underwriter. The issuer may request a specific hour in the day when it wants the date to be effective, but the SEC must be notified no later than the second business day before the day they want the registration to become effective.
What are some of the guidelines for a Reorganization plan under Ch.11?
Under the bankruptcy code, an entire class of claims is considered to have accepted the plan if creditors that hold at least 2/3 of the $$dollar amount, and represent more than 1/2 of the total ##number of creditors in that class, agree to the plan.

The debtor normally has a 120-day period, which may be extended by the court, during which it has exclusive right to file a plan.

Creditors have the right to file their own reorganization plan.

Generally, a plan may not be voted on until a written disclosure statement is approved by the court. After there has been a vote on the plan, the court will conduct a hearing to determine whether to confirm the plan.
What are some of the items and activities reviewed in a fairness opinion?
-The review of pertinent, publicly available financial statements and other business and financial information of companies
-The review of pertinent, internal financial statements as well as other financial and operating data concerning the companies prepared by their managements
-The review of pertinent financial projections of the companies prepared by their managements
-Discussions with senior management regarding past and current operations, financial conditions and prospects of the companies, including information relating to strategic, financial, and operational benefits anticipated to be derived from the merger
-The review of the pro forma impact of the merger on the acquiring company's earnings per share
-The review of the reported prices and trading activity for each company's common stock
-A comparison of the financial performance of both companies' stock prices and trading activity against those of certain other publicly traded companies
-A review of the financial terms of comparable acquisition transactions, to the extent that such information is publicly available
-A review of the draft of the merger agreement and certain related documents
What are tax implications for general partnerships?
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).
What are the conditions under Regulation A for foreign issuers?
Public offerings of securities in the U.S. under the Regulation A exemption require certain conditions to be met.

The business entity must be organized under the laws of the United States, CANADA or any district, territory or possession of the United States or Canada.

In addition, the principal place of business must be in the U.S. or Canada.
What are the dates (in relation to a lockout expiration) that a booter shot for IPOs cannot be published?
Prohibited for 15 days prior to and 15 days after the expiration of a lock-up agreement

Booster-shot research reports are positive research reports published near to or after the expiration of a lock-up agreement between an issuer and an employee of the issuer. 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 her company's securities after an offering. Generally, when a lock-up agreement expires and an employee then sells her shares, the stock price often drops. By publishing a favorable research report around the time of the expiration of a lock-up agreement, the price of the stock may not fall. In order to decrease the chance of manipulation, regulators have put a prohibition on the publication of research reports by the manager or comanager of a securities offering in a security. The prohibition is for 15 days prior to and after the expiration of the lock-up agreement. This prohibition does not apply to securities that are actively traded, and is defined under Regulation M
What are the differences between a WKSI and seasoned issuer in terms of benefits?
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).
What are the FINRA regulations for COMPENSATION of member firms who help rollup limited partnerships?
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
What are the requirements of Regulation A?
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. THIS LAST LINE IS IMPORTANT!

The issuing company may choose among three different formats for the offering circular, one of which may be a question-and-answer format.
What are the requirements to be considered a WKSI?
A well-known seasoned issuer (WKSI) is an issuer that is defined as a company that meets the following requirements.

--It must be eligible to register on Form S-3 (short form for the registration statement) or Form F-3 (registration statement for certain foreign private issuers). In order to file these forms, an issuer must have been a reporting company for the previous 12 months.

Within 60 days of the determination of eligibility, the company either must have:
-- 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

It may not be an ineligible issuer.
What are the restrictions placed on Purchaser representatives?
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.
What are the rules concerning the audit committee of an SEC reporting company?
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.
What are the Safe Hardbor provisions associated with "gun-jumping"? What are examples of stuff not allowed?
There are two safe harbors from the gun-jumping provisions.

---The first allows the issuer (or someone acting on its behalf) to continue to publish or disseminate REGULARY released factual business information

---and the second one allows forward-looking information at any time.

Information is considered to be regularly released if, in the past, the issuer has released or disseminated the same type of information in the ordinary course of its business.


Special business information would not fall under the description of regularly released factual business. Material nonpublic information must be released under the provisions of Regulation FD. This would require the issuer to make the information available publicly, rather than selectively, as would be the case of disclosure to those who are investing in the new issue of securities.
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?
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.
What are the two ownership tests that a REIT must pass in terms of organizational structure? When is this done?
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.
What are treasury STRIPS?
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.
What are true in long vs. short bonds?
-Long-term bonds typically have HIGHER YIELDS than short-term bonds
-Long-term bond indentures MORE OFTEN CONTAIN CALL FEATURES than short-term bonds
-The market prices of Long-term bonds are MORE SENSITIVE TO INTEREST-RATE CHANGES than short-term bonds.
What are two broker-dealer's suitability obligations to institutional customers?
When determining the suitability obligations of a broker-dealer concerning institutional customers, the two most important considerations are:
- the customer's ability to evaluate the investment risk independently
-the extent to which the customer is exercising that ability in connection with the recommendation.

New or riskier types of products may require additional risk disclosures.

Prior to recommending the securities, the broker-dealer would need to determine whether the customer understands the risks of the securities.
What are two signs of the peak of the market? What would the FRB do in terms of money supply?
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.
What are two types of investments that are eligible for dividend exclusion and two types that are not?
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.
What can a REIT pass through and what can it not?
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.
What can structured products be used for? What types of securities may it be linked to in terms of offering returns?
Structured products are prepackaged securities that often combine securities, such as a bond with a derivative. The structured security may be linked to equity securities, commodities, or interest rates. The products may also be structured to provide principal protection.
What conditions are typically found in a private placement confidentiality agreement?
Any investor who is provided a private placement memorandum (PPM) will sign a confidentiality agreement.

The investor agrees
-NOT TO DISCLOSE confidential information found in the PPM, UNLESS TO FINANCIAL ADVISER. The adviser may be an accountant, attorney, banker, or other financial professional and would use the PPM to evaluate the offering.
-The confidentiality agreement normally contains a provision that requires the RETURN OF DISCLOSURE documents, if the securities are not purchased.
-Another acknowledgement by the investor is that the issuer is under NO OBLIGATION TO COMPLETE the offering.
What conditions refer to an OSJ?
An office where order execution takes place
An office solely involved with the structuring of initial public offerings
An office maintaining custody of a client's funds or assets
What considerations should underwiter take when allocating new issues of IPOs?
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.
What constitutes a "public appearance" by a research analyst?
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.
What do insider purchases typically do to the stock price of a company?
Insider purchases in a security typically increase the stock price of the company.
What document must investors receive if company spinoffs of division and allots them shares? According to what rule?
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.
What documents would you see a capitilization table in?
A capitalization table is included in a prospectus.
What does "Factual Business Information" consist of?
Factual business information includes:

Information about the issuer
Information about business or financial developments of the issuer
Advertisements or information about the issuer's products and/or services
Dividend notices
Information in reports filed with the SEC under the Securities Exchange Act of 1934
What does "Forward-Looking" Information include?
¨Forward-looking information includes:

Earnings forecasts (e.g., revenue projections, loss of income, loss of earnings per share, capital expenditures, dividends, and capital structure)
Future management operations plans (e.g., plans related to products or services)
Statements about future economic performance (e.g., statements from management discussion and analysis)
Information in reports filed with the SEC
The second safe harbor permits a non-reporting issuer (or someone acting on its behalf) to continue to publish, or disseminate regularly released factual business information that is meant for use outside of the scope of an investor or potential investor.
What does a B/D not have to keep record off?
A broker dealer does not need to keep a record of prospectuses, red herrings and registration statements. It must keep a record of complaints, correspondence and trade confirmations.
What does it mean when a company is subject to SEC Secion 12?
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.
What does PIK interest do to the fin statements? And where?
PIK interest increases interest expense on the income statement.
What does Regulation M refer to?
Restricted period rules and stabilization rules for secondary market activities associated with new issues
What does Rule 105 of Regulation M state?
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
What does SEC Rule 165 say?
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.
What does Section 14 say?
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).
What does SOX require CEO and CFO to do? Are 3rd parties involved?
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.
What does the NSMIA do?
The National Securities Markets Improvement Act (NSMIA) places limits on states' power to regulate federal covered securities.
What does the tombstone advertisement show?
-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.
What exchanges provide exemption to filing compensation by underwriters? Any exceptions?
Securities that will be listed on the Nasdaq Capital Market are subject to the filing requirement, unless the company is filing an S-3 registration.

Securities that will be listed on the NYSE, Nasdaq Global Market, and AMEX are excluded from compensation filing requirements.
What exemption is granted in Rule 14d-10?
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.
What filiings must a WKSI file when using a shelf registration?
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.
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?
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.
What happens during the cooling off period in registration?
During the cooling-off period, an issue is described as being in registration. The SEC will review the issuer's registration statement for completeness. The SEC does not evaluate (pass on) the investment merits of the issue. Also, during the cooling-off period, potential buy-side clients are identified and are offered a preliminary prospectus. Underwriters, however, are not permitted to offer the security for sale, or accept firm commitments from purchasers. Due diligence meetings between the issuer and underwriters are undertaken during the cooling-off period.
What happens if passive market maker gets an order that would put it over the limit on trades?
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.
What happens in a reverse merger? What is tax implication for target shareholders?
In a reverse triangular merger (where the subsidiary of the purchaser becomes part of the target), as long as at least 80% of the consideration is stock, only the cash consideration is taxable to TargetCo shareholders.
What happens in Chapter 7 bankruptcy?
Under Chapter 7 of the United States Bankruptcy Code, the entity is in liquidation. Chapter 11 is a reorganization bankruptcy. In Chapter 7, a trustee is appointed to handle the liquidation of the firm. The trustee may attempt to recover payments made by the debtor during the 90-day period preceding the bankruptcy filing by using its avoiding powers. These funds would be available to creditors that have allowed claims against the debtor. The bankruptcy court may authorize the trustee to operate the business for a limited period if it will benefit creditors, and enhance the liquidation.
What happens in forward triangular merger? What is the tax implication for target shareholders?
In a forward triangular merger (where the target becomes part of a subsidiary of the purchaser), as long as at least 50% of the consideration is stock, only the cash consideration is taxable to the TargetCo shareholders.
What happens in two-step merger? Do target shareholders approve?
In a two-step merger, shareholders of the TargetCo. do not actually approve the merger. The first step is to sell shares in the tender, and the second step is to squeeze out remaining shareholders with a short-form merger agreement
What information is permitted to be shown according to SEC Rule 145
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
What information is usually NOT found in a potential buyer's final bid?
The purchase price range

A final bid would likely contain a firm purchase price (NOT a range), and the intended method of payment (cash, stock, or a combination). Committed financing guarantees are typically also provided. Additional information may include the buyer's board of directors' approval, an estimate as to the closing date, an attestation that the offer is binding, and a markup of the draft definitive agreement that is normally provided by the seller with the final bid procedures letter.
What is shareholder rights plan and what is it used for?
Defensive tactic used by target companies to prevent a hostile takeover

In a shareholder rights plan, the target company issues rights to existing shareholders to acquire a large number of new securities, usually in the form of common or preferred shares. This tactic dilutes the percentage of the target owned by a hostile bidder, and makes it more expensive to acquire control of the target company.
What is "BW" on the OTC?
Bid Wanted
What is "de minimis"?
An amount that is so small it is not material
What is "Economies of Scope"
Economies of scope relate to minimizing costs across product line production, marketing, and/or distribution. The marketing department of a consumer products company employs economies of scope by using the same personnel to sell different products produced by the company, often bundling products to sell as a group. All of the other choices describe economies of scale
What is "OW" on the OTC?
Offer Wanted
What is "Painting the Tape"?
Painting the Tape is a technique used whereby individuals, acting in concert, repeatedly sell a security to one another without actually changing ownership. This is intended to give the impression of increased trading volume. The regulators considered this a type of manipulation.
What is "short tendering"? And is it OK in a tender offer? Why or Why not?
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
What is "subject" security? What is a "covered security"? What is a "reference security"?
A reference security is a security into which the subject security can be converted, exchanged, or exercised, or which, to a significant extent, determines the value of the subject security.

For example, if a convertible bond is being distributed, the underlying common stock is a REFERENCE security subject to the restrictions of Rule 101. Together, subject and reference securities are called COVERED securities in Regulation M.

Note that, while common stock would be a reference security if a derivative such as a convertible, right, or warrant, were the subject security, the reverse is not true. For example, if FLPO is issuing common stock, FLPO convertibles are not reference securities.
What is a "teaser"? What is it used for? Who prepares it?
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.
what is a 363 sale?
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.
What is a best efforts agreement?
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.
What is a blank check company?
a development stage company that has no specific business plan or purpose
What is a block trade and what type of risk does it have?
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.
What is a block trade or order? Why would someone execute it?
A signficant order placed for sale or purchase of a large number of securities. Block orders are often used by institutional investors.

Typically, a 10,000 share order (excluding penny stocks) or $200,000 worth of fixed-income securities would consititue a block order. When a trader wants to unload his or her securities quickly they will often sell them at a discount, aptly named a "blockage discount".
What is a blotter?
A record of trades and the details of the trades made over a period of time (usually one trading day). The details of a trade will include such things as the time, price, order size and a specification of whether it was a buy or sell order.
What is a bring down due diligence meeting?
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.
What is a bring down due diligence meeting?
A bring-down due diligence meeting brings parties up to speed on any new information since the last due diligence meeting.
What is a broker-dealer's common sales account used for?
The common sales account is used to liquidate holdings valued at $1,000 or less when there will be no continuing relationship with the customer.

It is NOT used to liquidate shares purchased in a new issue distribution. The customer will receive a confirmation of the transaction, but would not receive statements of account.
What is a capital Shortfall?
The amount by which the capital required to fulfill a financial obligation exceeds available capital.
What is a CMO?
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.
What is a conglomerate merger?
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.
What is a contingency offering?
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.
What is a covered person?
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.
What is a Creditor's Committee? Where is relevant and what does it do?
The Creditors' Committee is appointed by the U.S. Trustee and ordinarily consists of the seven largest unsecured creditors.

The committee consults with the debtor in possession and investigates its conduct and operation of the business. The Creditors' Committee DOES NOT operate the business.

The business is normally operated by the debtor in possession (or a trustee if appointed).

Creditors may submit a reorganization plan, but the debtor generally has a 120-day period during which it has an exclusive right to file a plan. The U.S. Trustee may also allow other committees to be formed to represent secured creditors or stockholders.
What is a cross-default clause?
A cross-default clause in a bond indenture will trigger a default on a specific tranche of debt if the issuer defaults on any of its debt obligations.
What is a custodian account?
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).
What is a DEA? What is it for?
A self-regulatory body that has surveillance responsibility for specific broker-dealers. As some firms have memberships on several exchanges, and in the NASD and MSRB, one regulator is designated to a firm.
What is a DESIGNATED MARKET MAKER'S ROLE? What is another name of designated market maker?
Correct.
The responsibilities of the specialist, now referred to as a designated market maker (DMM), include resolving trade imbalances. Imbalances may result from a temporary lack of supply or demand in a particular security. The specialist's role also includes maintaining liquidity and a fair and orderly market. Floor brokers are not appointed by the specialist. Arbitration disputes between member firms are handled under the Arbitration Code.
What is a development stage company? Eligible for registered offering?
A development stage company is an enterprise without any significant track record or revenues. Such companies are eligible to have a public offering of shares, based on the conditions of the '33 Act.
What is a dutch auction?
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
What is a fixed value agreement?
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.
What is a floating exchange ration and how does it affect price and shares in M&A transaction?
Shares sold by the company are a primary offering, while shares sold by selling shareholders are a secondary offering.
What is a forward triangular merger and from whom is approval required?
A triangular merger involves three entities, the buyer, the target, and a subsidiary entity. In a forward triangular merger, a subsidiary owned by the buyer merges with the seller (target company). The legal structure of the selling entity is liquidated and the subsidiary survives.

Since this transaction is a merger, rather than an acquisition, the combination must receive only the approval of the target's board of directors. Approval by selling stockholders is not required.
What is a fund of hedge funds? Do they have to be registered by SEC? Why or why not?
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.
What is a FWP? When can it be issued before registration? Is it a solicitation to sell securities?
¨√A free writing prospectus is any communication that does not meet the standards of a statutory prospectus. It may be distributed prior to the filing of a registration statement if the issuer is a well-known seasoned issuer. It is considered a solicitation of an offer to buy a security. Examples include term sheets, marketing materials, and press releases.
What is a go-shop provision?
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.
What is a golden parachute ?
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
What is a golden parachute?
A golden parachute is a package (often lucrative) given to senior management upon termination.
What is a horizontal merger?
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.
What is a jump ball basis?
one allocation method, the syndicate uses an institutional
pot in which shares will be available on ajump ball basis. This process sets aside shares for institutional
clients and allows all members to compete for orders. The profit is allocated based on each member's
sales. The institutions that receive allocations generally designate which underwriters are credited
with the sale. The manager is often capped on the amount of credits it can earn. If the pot agreement
is fixed, the credit on these sales is based on the original risk percentages assigned to each member.
The manager will often deliver the shares directly to the institutional clients; this bookkeeping is
referred to as a Manager Bill and
What is a limited partnership able to do?
A limited partnership is permitted to pass through both income and losses to investors.
What is a Line of Credit when used for an acquistion in relation to the current ratio?
It is a current liabilityin CA/CL
What is a lockup agreement?
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.
What is a market maker
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.
What is a market out clause?
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.
What is a matched order?
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.
What is a negotiated offering?
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.
What is a no-shop provision
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.
What is a passive market maker? And rules governing the bid?
When making a passive market, a firm involved in a distribution may not enter a bid or effect a purchase at a price that exceeds the highest independent bid on Nasdaq. In a falling market, when the last independent bid drops below that of a passive market maker, the passive market maker may maintain its bid until its purchases have reached or exceeded the lesser of two times the minimum quote size for that security (as set by FINRA), or the passive market maker's remaining daily limit. If twice the minimum order size is executed, the passive market maker must drop its bid to or below the highest independent bid. If its daily purchase limit is reached first, it must withdraw from the market for the rest of the day. In a rising market, a passive market maker may raise its bid when the best independent bid rises, but is not required to do so
What is a penalty bid? What is the acronym?
A penalty bid is an arrangement that permits the managing underwriter to reclaim a selling concession from a syndicate member when securities originally sold are repurchased by the syndicate in stabilizing transactions. The acronym PBID next to a syndicate bid indicates a penalty bid.
What is a poision pill?
A strategy used by corporations to discourage hostile takeovers. With a poison pill, the target company attempts to make its stock less attractive to the acquirer. There are two types of poison pills:

1. A "flip-in" allows existing shareholders (except the acquirer) to buy more shares at a discount.

2. A "flip-over" allows stockholders to buy the acquirer's shares at a discounted price after the merger.
what is a pool order?
Pools or syndicates that are formed to raise or lower the price of a security are also prohibited.
What is a prospectus?
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".
What is a prospectus? What is included in the defininition of a prosepectus? Is there an exception and if so describe it?
According to the Securities Act of 1933, a prospectus is defined as any notice, circular, prospectus, advertisement, letter, or communication, whether written or on television or radio, that offers a security for sale. This is a very broad definition, but it includes an exemption if the information only identifies the security, the price, the name of the underwriters, and from whom a prospectus may be obtained. This type of advertisement is called a tombstone. This rule defines a prospectus, but it is not the same as SEC Rule 134, which defines a communication not deemed to be a prospectus. Rule 134 pertains to communications published after a registration statement has been filed.
What is a proxy statement?
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.
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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.
What is a purchaser representative?
Apurchaser representative is defined as a person who represents potential purchasers who are solicited to buy securities pursuant to Regulation D.
What is a QIB? What can they do?
Qualified institutional buyers are defined as financial institutions that have, on a discretionary basis, at least $100 million invested in securities of issuers not affiliated with the entity. These institutions may buy and sell directly with one another without meeting the requirement of Rule 144.
What is a red herring?
preliminary prospectus on offering
What is a reverse takeover/merger? Why do it?
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.
What is a roll up transaction?
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.
What is a RW trade?
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
What is a section 363 sale?
A section 363 sale is an asset sale in bankruptcy.
What is a Split-Off?
A type of corporate reorganization whereby the stock of a subsidiary is exchanged for shares in a parent company.
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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
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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.
What is a staggered board structure? What are the reasons for implementing one?
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
What is a stalking horse?
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.
What is a standby underwriting? What is the negative for a issuer?
A type of underwriting in which the underwriter agrees to buy all the shares not subscribed to in a rights offering is a standby underwriting.

The issuing corporation expects that many small stockholders will not participate in the rights offering. This would reduce the amount of funding received by the issuer. The issuer engages an underwriter to stand by and purchase all unsubscribed shares on a firm-commitment basis. For this guarantee, the underwriter will either buy the shares at a discount, or receive a fee.
What is a stop order ?
The SEC issues a stop order if it suspects improper activities in regard to the sale of a new issue. Even if a stop order is not issued, it is a violation of federal law to state that an issue has been approved by the SEC, or that any of the statements contained in the filing or prospectus are deemed accurate and complete by the SEC.
What is a subscription agreement and what information does it contain?
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
What is a term sheet?
A non-binding agreement setting forth the basic terms and conditions under which an investment
What is a trust indenture?
A trust indenture is a contract between the issuer and a trustee bank designed to protect the interests of shareholders.
What is a two dollar broker? Are they allowed on NYSE floor?
ALLOWED.

A floor broker who executes orders for other brokers who cannot do it themselves because they have more business than they can handle at that particular time.

The name came about because brokers were once paid $2.00 for a round lot trade. Today, commission is negotiated.
What is a wash sale?
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.
What is a way to see if an acquisition is accretive to shareholders using financial metrics? Not EPS
An acquisition is accretive to shareholder value if the return on invested capital (ROIC) exceeds the weighted average cost of capital (WACC).
What is a yield curve? What is it also referred to as?
If different maturities are plotted against the corresponding yield for each maturity, the resulting graph is a yield curve. A yield curve is also called the term structure of interest rates.
What is ADTV?
Average Daily Trading Volume
What is an "inside market" on the OTC? What else is it known as?
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".
What is an "insider"?
An insider is defined as any person who is an officer, director, or owner of more than 10% of the equity.
What is an accredited investor and what conditions have to be met?
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.
What is an all-firm commitment offering?
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.
What is an engagement letter?
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.
What is an exception to Rule 145 in business mergers?
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
What is an exemption for a restricted person?
Not a restricted person - i.e. registered representative employed by a broker-dealer that sells only mutual funds. An exemption exists from the definition of a restricted person for personnel of a LIMITED broker-dealer. A LIMTIED broker-dealer restricts its business to investment company/variable contract securities or direct participation programs.
What is an ideminification basket?
One of the provisions that may be included in a Definitive Purchase Agreement relating to an M&A transaction is indemnification.

Indemnification clauses are often requested by buyers as protection against a seller's material breach of contract after the deal has closed. These clauses are used mostly in the purchase of private companies and quantify the amount of compensation that is due the buyer if officers and directors of the selling firm fail to meet their legal obligations.

Examples include misrepresentation of financials and/or failure to disclose a material event such as the loss of a major client prior to closing. These agreements are heavily negotiated since the seller would prefer a short time frame and a limited dollar amount of liability.

An indemnification BASKET sets a certain dollar amount of liability that must occur based on a breach in the contract in order for the buyer to claim any compensation. This amount is usually based on a percentage of the purchase price and is included, so the seller is not liable for a negligible amount.
What is an odd-lot?
An amount of a security that is less than the normal unit of trading for that particular security.


For stocks, any transaction less than 100 shares is usually considered to be an odd lot.
What is an S-3 used for? What is the minimum requirement?
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
What is an S-4?
SEC Registration form used when issuing securities in a merger
What is an unseasoned issuer?
An unseasoned issuer is a reporting company under the '34 Act, but it does not meet the requirements to be classified as seasoned, or well-known seasoned issuer (WKSI).
What is Barbell? Why is it done?
Investors employing a barbell strategy buy bonds at the two ends (long and short maturities) of the yield curve. The strategy seeks to capture the high coupon interest from the long-term bonds as well as retain the ability to reinvest quickly when the short-term bonds mature. In this way, if the investor anticipates a shift in interest rates, only a portion of the portfolio needs to be changed.
What is blanket approval?
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.
What is book value? Formula?
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
What is Code of Procedure?
The Code of Procedure includes rules governing the areas of disciplinary action, arbitration and mediation
What is Coincident Indicator?
Coincident indicators usually mirror the movements of the
business cycle. The makeup of the coincident economic indicators includes four components.
What is Commerical Paper?
an unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Maturities on commercial paper rarely range any longer than 270 days. The debt is usually issued at a discount, reflecting prevailing market interest rates.
What is Control Stock?
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.
What is convertible Bond?