Series 79 Set A

Front 1

A Suspicious Activity Report (SAR) must be filed within:

Back 1

30 days

Front 2

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:

Back 2

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.

Front 3

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?

Back 3

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.

Front 4

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?

Back 4

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.

Front 5

An investment objective that is based on investing in companies that offer good growth opportunities in undervalued businesses is called:

Back 5

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.

Front 6

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:

Back 6

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.

Front 7

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

Back 7

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.

Front 8

An underwriting gross spread is defined as:

Back 8

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.

Front 9

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:

Back 9

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.

Front 10

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

Back 10

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.

Front 11

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

Back 11

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.

Front 12

Which TWO of the following choices are advantages for an issuer in raising capital through a private placement, as opposed to a public offering?

Back 12

The legal and registration expenses are lower.
The issuer is able to raise capital quicker.

Front 13

Which TWO of the following choices are types of yield curves?
-Inverted
-Laddered
-Barbell
-Flat

Back 13

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.

Front 14

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

Back 14

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.

Front 15

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?

Back 15

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.

Front 16

When an issuer repurchases its own stock in the marketplace, how many broker-dealers can be used? Are afterhours tradin allowed?

Back 16

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

Front 17

When an issuer repurchases its own stock in the marketplace, what is the limit of purchases?

Back 17

The issuer purchases an amount not exceeding 25% of the average daily trading volume

Front 18

A positively sloped yield curve would show? What else are postively sloped yield curves called?

Back 18

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.

Front 19

A proxy to elect the board of directors would include and exclude:

Back 19

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.

Front 20

The calculation of treasury stock =

Back 20

The calculation of treasury stock = par value + capital surplus + retained earnings - shareholders' equity.

Front 21

When switching from FIFO to LIFO in an inflationary environment, What happens to COGS and Income Tax?

Back 21

When switching from FIFO to LIFO in an inflationary environment, COGS will increase and income tax would decrease.

Front 22

____ 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.

Back 22

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.

Front 23

______copies of the final prospectus must be filed with the SEC prior to the date of first use.

Back 23

Ten copies of the final prospectus must be filed with the SEC prior to the date of first use.

Front 24

• Commercial and industrial loans outstanding

Back 24

Lagging Indicator

Front 25

• Contracts and orders for plant and equipment

Back 25

Leading Indicator

Front 26

• Employees on nonagricultural payrolls

Back 26

Conincident Indicator

Front 27

• Interest rate spreads, 10-year Treasury bonds less federal funds

Back 27

Leading Indicator

Front 28

• Labor cost per unit of output for manufactured goods

Back 28

Lagging Indicator

Front 29

• Manufacturing and trade sales

Back 29

Conincident Indicator

Front 30

• New building permits for private housing units

Back 30

Leading Indicator

Front 31

• New orders for consumer goods and materials

Back 31

Leading Indicator

Front 32

• 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.)

Back 32

Conincident Indicator

Front 33

• The average duration of unemployment

Back 33

Lagging Indicator

Front 34

• The average prime rate charged by banks

Back 34

Lagging Indicator

Front 35

• The average weekly initial claims for state unemployment insurance

Back 35

Leading Indicator

Front 36

• The average workweek for production workers in manufacturing

Back 36

Leading Indicator

Front 37

• The change in credit outstanding for business and consumer borrowing

Back 37

Leading Indicator

Front 38

• The consumer price index for services

Back 38

Lagging Indicator

Front 39

• The index of consumer expectations

Back 39

Leading Indicator

Front 40

• The Index of Industrial Production

Back 40

Conincident Indicator

Front 41

• The Money Supply (M2)

Back 41

Leading Indicator

Front 42

• The prices for the S&P 500 common stocks

Back 42

Leading Indicator

Front 43

• The relationship of consumer installment credit to personal income

Back 43

Lagging Indicator

Front 44

• The relationship of inventories to sales, manufacturing, and trade

Back 44

Lagging Indicator

Front 45

• Vendor performance (companies receiving slower deliveries from suppliers)

Back 45

Leading Indicator

Front 46

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:

Back 46

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.

Front 47

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.

Back 47

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.

Front 48

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?

Back 48

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.

Front 49

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

Back 49

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

Front 50

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

Back 50

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

Front 51

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??

Back 51

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.

Front 52

A broker-dealer's AML compliance program must be approved by? and in what form?

Back 52

In writing by a member of senior management

Front 53

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:

Back 53

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.

Front 54

A communication that mentions the investment objectives and desirability of owning shares of a registered investment company is called:

Back 54

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

Front 55

A company in bankruptcy would like to sell major assets of the firm outside the normal course of its business. Who must approve?

Back 55

This may be accomplished with the approval of the bankruptcy court.

Front 56

A company repurchasing its own shares could bid:

Back 56

A company repurchasing its own shares could bid the greater of the current bid or the last sale price.

Front 57

A company with greater operating leverage would have:

Back 57

A company with higher fixed costs would have greater operating leverage.

Front 58

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?

Back 58

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.

Front 59

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

Back 59

6.75%

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

Front 60

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 __________________.

Back 60

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.

Front 61

A FINRA member intends to stabilize a Nasdaq-listed issue. The managing underwriter must provide prior electronic notification of this proposed activity to:

Back 61

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.

Front 62

A flat yield curve reflects:

Back 62

similar demand and supply and, therefore, similar yields across all maturities.

Front 63

A major difference between futures contracts and forward contracts is:

Back 63

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.

Front 64

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…?

Back 64

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.

Front 65

A method of voting that gives smaller, less substantial stockholders a greater degree of voting power over the larger, more substantial stockholders is:

Back 65

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.

Front 66

A mutual fund (open-end fund) is required to be registered with SEC? T/F?

Back 66

An open-end fund (i.e. mutual fund) must be registered with the SEC.

Front 67

A person who has sold a security based on untrue statements faces liabilities based on:

Back 67

The investment amount, a reasonable amount of interest on the investment, MINUS any amount of income received from the investment

Front 68

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?

Back 68

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

Front 69

A potential buyer's initial bid contains what?

Back 69

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

Front 70

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

Back 70

S-1

Front 71

A prospectus that is filed as part of an automatic shelf registration may omit which pieces of information? What must it have?

Back 71

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).

Front 72

A proxy statement must be provided to shareholders ___________ days _________ to the annual shareholders' meeting.

Back 72

A proxy statement must be provided to shareholders at least 20 days prior to the annual shareholders' meeting.

Front 73

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

Back 73

Office of Supervisory Jurisdiction

Front 74

A representative may guarantee a customer against a loss in an IPO when:

Back 74

He can't

Front 75

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

Back 75

Longer Maturity Bonds

Front 76

A Suspicious Activity Report (SAR) is also called:

Back 76

A Suspicious Activity Report (SAR) is also called a FinCEN

Front 77

A suspicious activity report is filed within XX __________ days of learning of suspicious activity, not necessarily receiving a mandate from the company.

Back 77

A suspicious activity report is filed within 30 calendar days of learning of suspicious activity, not necessarily receiving a mandate from the company.

Front 78

A tender offer to buy shares of an overseas company must be registered with the SEC if the offer is :

Back 78

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.

Front 79

A trader using a quantitative investment strategy would look at

Back 79

A trader using a quantitative investment strategy would look at numerical data, such as a 10-day moving average.

Front 80

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

Back 80

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

Front 81

According to Corporate Financing Rule, the managing underwriter is required to file certain information with FINRA. This includes:

Back 81

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.

Front 82

According to industry rules, the managing underwriter must disclose all of the following information to FINRA or the exchange:

Back 82

- 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.

Front 83

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

Back 83

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

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

Front 84

According to the FINRA Corporate Financing Rule, what types of compensation to underwriter is prohibited? List em…

Back 84

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

Front 85

According to the FINRA Corporate Financing Rule, which entities must file the required compensation disclosures? Which party doesn't need to?

Back 85

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.

Front 86

According to the New Issue Rule, employees of a broker-dealer are restricted from purchasing which offerings?

Back 86

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.

Front 87

According to the Rule 101 of Regulation M, what types of securities are on prohibition for purchases or bids during the restricted period?

Back 87

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.

Front 88

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:

Back 88

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.

Front 89

Accounts Receivable Turnover:

Back 89

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

Front 90

Act of 1933:

Back 90

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

Front 91

Act of 1934:

Back 91

Regulates the secondary market, exchanges and broker-dealers

Front 92

Advantage of S Corporation over a C Corporation?

Back 92

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

Front 93

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?

Back 93

Tender offers generally must be held open for at least 20 business days from the time they are announced to security holders.

Front 94

After Tax Cost of Debt (WACC):

Back 94

Pretax Cost x (1-Tax Rate)

Front 95

All of the following features are normally included in the placement agent agreement? What isn't and why?

Back 95

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.

Front 96

All of the following registered representatives must notify their employers of their outside activities, EXCEPT:

Back 96

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.

Front 97

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

Back 97

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.

Front 98

An entire class of creditors is considered to have accepted the plan in a Chapter 11 bankruptcy if it is accepted by:

Back 98

Creditors holding at least two-thirds of the dollar amount of the claims and more than 50% of the total number of creditors

Front 99

An equity IPO may not be purchased by ____________, including:_______. Is there an exception?

Back 99

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.

Front 100

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.

Back 100

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.

Front 101

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

Back 101

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

Front 102

An individual owns restricted stock. He would not be required to file a Form 144 for a sale of less than:

Back 102

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.

Front 103

An individual who is CE inactive could still work in a _________ role.

Back 103

An individual who is CE inactive could still work in a clerical role.

Front 104

An individual who wishes to tender a corporation's stock may do so by tendering:

Back 104

Stock that is long in the individual's account

Front 105

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

Back 105

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

Front 106

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

Back 106

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).

Front 107

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

Back 107

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.

Front 108

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

Back 108

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

Front 109

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.

Back 109

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.

Front 110

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?

Back 110

increase

Front 111

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

Back 111

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

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

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

Front 112

An investor who wants to purchase securities for growth but doesn't want to overpay would use a __________________ strategy.

Back 112

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.

Front 113

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

Back 113

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.

Front 114

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?

Back 114

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.

Front 115

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

Back 115

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

Front 116

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

Back 116

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

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

Front 117

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

Back 117

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

Front 118

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:

Back 118

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.

Front 119

An SEC filer who is not eligible to use an S-3 can distribute a _________________ after filing a registration statement.

Back 119

An SEC filer who is not eligible to use an S-3 can distribute a free-writing prospectus after filing a registration statement.

Front 120

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

Back 120

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

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

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

Front 121

Any announcement of the signing of a definitive agreement is considered _______________ and must be filed with the _________ no later than _________.

Back 121

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.

Front 122

Any material non-public information learned during the due diligence process should be reported to______________.

Back 122

Any material non-public information learned during the due diligence process should be reported to a firm's compliance department.

Front 123

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.

Back 123

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.

Front 124

Are 5 year projections used in a prospectus?

Back 124

5 year projections are not required in a prospectus.

Front 125

Are GNMA bonds backed by US govt?

Back 125

yes

Front 126

Are New building permits a leading indicator?

Back 126

Yes

Front 127

Are personal loans to directors or officers permitted? Under what Regulation?

Back 127

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.

Front 128

Are Road shows and filings with FINRA's corporate finance department crucial in a private placement process?

Back 128

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.

Front 129

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

Back 129

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

Front 130

Are Treasury STRIPS backed by govt credit?

Back 130

yes

Front 131

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

Back 131

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

Front 132

At what price point can stabilization be initiated?

Back 132

Stabilization can be initiated at the lower of the current bid or the offer price.

Front 133

Balance Sheet:

Back 133

Total Assets = Total Liabilities + Shareholder Equity

Front 134

Basic EPS:

Back 134

Earnings Available to Common/Ave. Com. Shares Outstanding

Front 135

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

Back 135

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

Front 136

Book Value Outstanding:

Back 136

Com. Shareholder Equity/Number Common Shares Outstanding

Front 137

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

Back 137

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

Front 138

CAGR:

Back 138

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

Front 139

Calculate conversion ratio bond--> stock?

Back 139

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

Front 140

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.

Back 140

NO

Front 141

Can an individual be part of a private placement? If so, what are requirements?

Back 141

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.

Front 142

Can an institutional block trade trade on the floor of NYSE? If so or not, how is it done?

Back 142

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.

Front 143

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

Back 143

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

Front 144

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

Back 144

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

Front 145

Can Road shows be one on one?

Back 145

Yes

Front 146

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

Back 146

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

Front 147

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

Back 147

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

Front 148

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?

Back 148

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.

Front 149

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:

Back 149

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.

Front 150

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

Back 150

Customer Identification Procedures

Front 151

Common Shareholder Equity:

Back 151

Total Shareholder Equity – Preferred Shareholder Equity

Front 152

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?

Back 152

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.

Front 153

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:

Back 153

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.

Front 154

Conversion Ratio:

Back 154

Par/Conversion Price

Front 155

Convertible debt would have a _____________ effect on the company's common stockholders.

Back 155

Convertible debt would have a delayed and dilutive effect on the company's common stockholders.

Front 156

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

Back 156

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

Front 157

Corporate bonds can trade under Rule _____, but _____s, ____s and ____s generally would not.

Back 157

Corporate bonds can trade under Rule 144A, but open-end funds, UITs (Unit Investment Trusts) and ETFs generally would not.

Front 158

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

Back 158

Three years with the records being easily accessible for two years

Front 159

Cost of Equity (CAPM):

Back 159

Ri = Rf + β(Rm-Rf)

Front 160

Cost of Equity (Gordon Growth):

Back 160

k* = D1/P0 + g

Front 161

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

Back 161

Central Registration Depository – FINRA database for registered firms and employees

Front 162

Current Ratio:

Back 162

Current Assets/Current Liabilities

Front 163

Current Yield:

Back 163

Annual Interest/Current Market Price

Front 164

Customer suitability is more stringent than institutional suitability standards. T/F?

Back 164

Institutional suitability is less stringent than customer suitability, but does still exist.

Front 165

Days Sales Outstanding:

Back 165

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

Front 166

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

Back 166

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

Front 167

Debt to EBITDA Ratio:

Back 167

(Short + Long Term Debt)/EBITDA

Front 168

Debt to Equity Ratio:

Back 168

Total Debt/Total Shareholder Equity

Front 169

Debt to Total Cap. Ratio:

Back 169

Total Debt/Total Capital

Front 170

Difference between 13d and 13g?

Back 170

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.

Front 171

Difference between ch 7 and 11?

Back 171

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.

Front 172

Difference between sponsored and unsponsored ADRs?

Back 172

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.

Front 173

Direct Participation Programs

Back 173

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

Also known as a "direct participation plan".

Front 174

Dividend Payout Ratio:

Back 174

Annual Dividend/EPS

Front 175

Dividend Yield:

Back 175

Annual Dividend/Market Price Common

Front 176

Do hedge funds have to registered with SEC?

Back 176

No

Front 177

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

Back 177

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

Front 178

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

Back 178

after

Front 179

Do you include Prefered Shares and cost in WACC?

Back 179

Yes

Front 180

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?

Back 180

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.

Front 181

Does a FWP have to be filed with SEC? Does it need to contain all the info in a registration statement?

Back 181

A free-writing prospectus does not need to include all the information in a registration statement, but must still be filed with the SEC.

Front 182

Does a road show have to be live?

Back 182

No may be either live or electronic

Front 183

Does Regulation M-A elimnate need for disclosure document?

Back 183

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.

Front 184

Does the syndicate participate in the road show or the drafting of documents?

Back 184

The syndicate desk does not participate in the drafting of offering documents, but does help plan a road show, stabilize and identify investors.

Front 185

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

Back 185

Direct Public Offering

Front 186

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

Back 186

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

Front 187

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

Back 187

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

Front 188

Earnings Available to Common:

Back 188

Net Income - Preferred Divs

Front 189

Earnings Yield:

Back 189

EPS/Market Price Common

Front 190

EBITDA Margin:

Back 190

EBITDA/Sales or Revenue

Front 191

EBITDAR Margin:

Back 191

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

Front 192

Emperor LLC has an office location whose sole function is to solicit investment banking services. The status of the office is a(n):

Back 192

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.

Front 193

Enterprise Value (EV) to EBITDA:

Back 193

EV/EBITDA

Front 194

Enterprise Value (EV) to Sales:

Back 194

EV/Sales or Revenue

Front 195

Enterprise Value (EV):

Back 195

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

Front 196

Enterprise Value =?

Back 196

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

Front 197

Explain 144a?

Back 197

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.

Front 198

Explain amendments to the effective date?

Back 198

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.

Front 199

Explain Registration D and Accredited investors?

Back 199

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

Front 200

Explain rule 144A and relation, if any, to 144? What are conditions?

Back 200

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.

Front 201

Explain the concept of a jump ball and institutional pot? How are shares allocated?

Back 201

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.

Front 202

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

Back 202

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

Front 203

Final settlement of a syndicate account must be made no later than how many days following the syndicate settlement date?

Back 203

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.

Front 204

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

Back 204

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

Front 205

Following an IPO, a security can trade away from its primary exchange (e.g. NYSE or Nasdaq) only after the shares _________________.

Back 205

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.

Front 206

Form 10-C:

Back 206

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

Front 207

Form 10-K:

Back 207

Annual report of financial condition

Front 208

Form 10-Q:

Back 208

Quarterly report of financial condition by issuers

Front 209

Form 13-D:

Back 209

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

Front 210

Form 13-F:

Back 210

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

Front 211

Form 13-G:

Back 211

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

Front 212

Form 14-A:

Back 212

Filing report for proxies

Front 213

Form 144:

Back 213

Filed at the time of sale for restricted and control stock

Front 214

Form 14D-9:

Back 214

Issuer’s opinion of a tender offer

Front 215

Form 3:

Back 215

Initial statement of beneficial interest by and insider within 10 days

Front 216

Form 4:

Back 216

Changes in equity positions by insiders

Front 217

Form 8-K:

Back 217

Statement of material changes by issuers

Front 218

Form D:

Back 218

Filed for (Regulation D) private placements

Front 219

Form F-1:

Back 219

Registration form used for foreign IPOs and small issuers

Front 220

Form F-3:

Back 220

Registration form used by foreign WKSIs and season issuers

Front 221

Form N-1A:

Back 221

Registration form used by open-end investment companies

Front 222

Form S-1:

Back 222

Registration form used for IPOs and small issuers

Front 223

Form S-3:

Back 223

Registration form used by WKSIs and seasoned issuers

Front 224

Form S-4:

Back 224

Registration form used when issuing securities in a merger

Front 225

Form SB-1 or SB-2:

Back 225

Registration form filed by small businesses with SEC

Front 226

Form SB-1:

Back 226

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

Front 227

Form SB-2:

Back 227

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

Front 228

Form TO:

Back 228

Filed by purchaser in a tender offer

Front 229

Form U4:

Back 229

Registration form for individuals in the securities industry

Front 230

Form U5:

Back 230

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

Front 231

Fraud may include:

Back 231

Fraud may include an omission or intentional failure to state material facts, knowledge of which would be necessary to make other statements not misleading.

Front 232

Free Cash Flow to Firm (FCFF):

Back 232

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

Front 233

Free Cash Flow Yield:

Back 233

Free Cash Flow per Share/Market Price Common

Front 234

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?

Back 234

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.

Front 235

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

Back 235

Free writing prospectus

Front 236

Generally, companies with fewer than 300 shareholders do need to file SEC reports. True or false?

Back 236

FALSE. Generally

Front 237

Get all stuff from Exam 5 from 30ish to 70 ish

Back 237

Get all stuff from Exam 5 from 30ish to 70 ish

Front 238

Get all stuff from Exam 5 from 30ish to 70 ish

Back 238

Get all stuff from Exam 5 from 30ish to 70 ish

Front 239

Get all stuff from Exam 5 from 30ish to 70 ish

Back 239

Get all stuff from Exam 5 from 30ish to 70 ish

Front 240

Get all stuff from Exam 5 from 30ish to 70 ish

Back 240

Get all stuff from Exam 5 from 30ish to 70 ish

Front 241

Get all stuff from Exam 5 from 30ish to 70 ish

Back 241

Get all stuff from Exam 5 from 30ish to 70 ish

Front 242

Get all stuff from Exam 5 from 30ish to 70 ish

Back 242

Get all stuff from Exam 5 from 30ish to 70 ish

Front 243

Gross Profit Margin:

Back 243

Gross Profit/Sales or Revenue

Front 244

Gross Profit:

Back 244

Revenue – Cost of Goods Sold (COGS)

Front 245

High level steps in a friendly merger?

Back 245

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

Front 246

How are bonds accounted for in the Statement of Cash Flows?

Back 246

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.

Front 247

How are CMOs taxed?

Back 247

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

Front 248

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

Back 248

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

Front 249

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

Back 249

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

Front 250

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

Back 250

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

Front 251

How are severance costs treated when a company is getting acquired?

Back 251

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

Front 252

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

Back 252

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

Front 253

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

Back 253

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

Front 254

How are US Treasuries typically issued?

Back 254

Treasuries are sold using a competitive Dutch Auction system.

Front 255

How can a company seeking control avoid risk of not getting it in a tender offer?

Back 255

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.

Front 256

How can you see what the maximum a firm can lever up is given Free Cash Flow? See exam 4 - number 166

Back 256

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.

Front 257

How do each of these support Automatic Order Execution?

NYSE
Nasdaq Global Market
Nasdaq Capital Market
OTCBB

Back 257

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.

Front 258

How do REITs generate profits?

Back 258

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

Front 259

How do you calculate Free cash flow from NI?

Back 259

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.

Front 260

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

Back 260

REVIEW!!!! - problem 34 - EXAM 2

Front 261

How does Accelerated depreciation affect earnings (GAAP vs. TX) and which one does GAPP generally use?

Back 261

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.

Front 262

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

Back 262

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

Front 263

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

Back 263

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

Front 264

How long must Blotters be kept on file?

Back 264

6 years at least

Front 265

How long must broker-dealer's Articles of Incorporation be kept on file?

Back 265

Life of entity

Front 266

How long must Copies of confirmations sent to customers be kept on file?

Back 266

3 years

Front 267

How long must Correspondences between a broker-dealer and an investment banking services client be kept on file?

Back 267

3 years

Front 268

How many copies of the preliminary prospectus must be included in filing of a registration statement?

Back 268

Five copies of the preliminary prospectus must be included in the filing of a registration statement.

Front 269

How many market makers must an issuer have to be quoted on the OTCBB?

Back 269

An issuer must have a minimum of one market maker to be quoted on the OTCBB.

Front 270

How many market makers must an issuer have to be quoted on the OTCBB?

Back 270

An issuer must have at least one market maker to be quoted on the OTC Bulletin Board.

Front 271

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

Back 271

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

Front 272

How many units does bond with warrant trade as? How many does convertible debt trade as?

Back 272

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.

Front 273

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

Back 273

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

Front 274

How often must AML program be tested?

Back 274

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

Front 275

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

Back 275

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

Front 276

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

Back 276

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

Front 277

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 _____?

Back 277

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.

Front 278

If a banker is using EV/EBITDA multiples as the primary basis for valuation, it would want to :

Back 278

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.

Front 279

If a bond is selling at a premium and is callable at par, how is the yield calculated?

Back 279

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.

Front 280

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

Back 280

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.

Front 281

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 =

Back 281

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.

Front 282

If a company issues a PIK bond, where(fin statement) does the PIK accrued interest show up ?

Back 282

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.

Front 283

If a company repurchases stock for treasury, cash and shareholders' equity will ________________

Back 283

If a company repurchases stock for treasury, cash and shareholders' equity will decline.

Front 284

If a company sells securities in multiple states, the issuer must ___________ and the representative selling the securities must _______________

Back 284

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.

Front 285

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

Back 285

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

Front 286

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

Back 286

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.

Front 287

If a FINRA member intends to stabilize an issue on the NASDAQ, who muct be notified and how?

Back 287

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.

Front 288

If a firm cannot record instant messaging communications between its employees and clients, ___________________.

Back 288

If a firm cannot record instant messaging communications between its employees and clients, IMs are not permitted.

Front 289

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

Back 289

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

Front 290

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?

Back 290

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.

Front 291

If a new issue is not expected to close on the settlement date, the lead manager must notify________________ no later than____________.

Back 291

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.

Front 292

If a new issue is significantly oversubscribed, the lead manager may __________________________ or ______________________________

Back 292

If a new issue is significantly oversubscribed, the lead manager may increase the number of shares offered and may increase the offering price.

Front 293

If a public announcement of an acquisition has been made, written communications are permitted as long as _____________________

Back 293

If a public announcement of an acquisition has been made, written communications are permitted as long as they are filed with the SEC.

Front 294

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

Back 294

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.

Front 295

If a rep is busted for shop lifting but not yet charged, it would be:

Back 295

If a rep is busted for shop lifting but not yet charged, it would be reported to compliance.

Front 296

If an auditor determines that an illegal act may have occurred, the first step for the accounting firm is to :

Back 296

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.

Front 297

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?

Back 297

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]

Front 298

If an issuer pays PIK interest (“payment-in-kind”) it appears on the ________as ____________, just as if interest were actually _______.

Back 298

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.

Front 299

If an issuer sells shares at various times over a 3 year period it is a _____________

Back 299

If an issuer sells shares at various times over a 3 year period it is a shelf registration.

Front 300

If an issuer updates the financial statements in a preliminary prospectus (i.e. red herring), it must be :

Back 300

If an issuer updates the financial statements in a preliminary prospectus (i.e. red herring), it must be refiled with the SEC.

Front 301

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.

Back 301

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.

Front 302

If corporate insiders buy stock, the price of the stock will generally _______

Back 302

If corporate insiders buy stock, the price of the stock will generally rise.

Front 303

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

Back 303

Source

Front 304

If interest rates change, which bond (in terms of maturity) would be expected to have the greatest dollar change in price?

Back 304

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.

Front 305

If issued in the US, when are ADRs and MLPs exempt from registration?

Back 305

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

Front 306

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

Back 306

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

Front 307

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

Back 307

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

Front 308

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?

Back 308

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.

Front 309

If two companies have a similar P/E but one company has a higher EV/EBITDA, a difference in _______ might account for the difference.

Back 309

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.

Front 310

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

Back 310

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

Front 311

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

Back 311

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

Front 312

Important Regulation D Notes

Back 312

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.

Front 313

In a bankruptcy proceeding, administrative claims (e.g. lawyers' fees, trustee expenses), are paid _______ any recently unpaid wages.

Back 313

In a bankruptcy proceeding, administrative claims (e.g. lawyers' fees, trustee expenses), are paid before any recently unpaid wages.

Front 314

In a cash acquistion, are acquiror's shareholders required to vote?

Back 314

No, but target's are.

Front 315

In a Ch11, what are duties of a debtor-in-possession? What is not an acitivyt by DIP?

Back 315

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.

Front 316

In a Chapter 7 bankruptcy, a creditor must always file:

Back 316

In a Chapter 7 bankruptcy, a creditor must always file a proof of claim to be eligible to recover any funds owed.

Front 317

In a company auction, an acquirer who is concerned primarily with not overpaying could offer _________ to make their bid more attractive.

Back 317

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.

Front 318

In a contingency offering, what must the underwriter do?

Back 318

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

Front 319

In a distribution of securities related to M&A activity, the Regulation M restricted period begins ________________

Back 319

In a distribution of securities related to M&A activity, the Regulation M restricted period begins the day proxy materials are distributed.

Front 320

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

Back 320

Independent 3rd party appraisar

Front 321

In a merger between two companies, the companies would file a ______ prospectus on an SEC Form _____ to register securities.

Back 321

In a merger between two companies, the companies would file a joint prospectus on an SEC Form S-4 to register securities.

Front 322

In a one step merger, which (target or acquiror) shareholders need to vote and approve? Is proxy filed? Explain process.

Back 322

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

Front 323

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.

Back 323

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.

Front 324

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.

Back 324

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.

Front 325

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

Back 325

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

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

Front 326

In a tender offer where shareholders offer more than the number of shares being purchased, how are tendered shares are accepted?

Back 326

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.

Front 327

IN a tender offer, who files a proxy statement?

Back 327

In a tender offer, the issuer generally does not file a proxy statement.

Front 328

In a txn, when must a written disclosure of a conflict of interest be made?

Back 328

Written disclosure of a conflict of interest must be made no later than completion of a transaction.

Front 329

IN an S corp and in terms of taxes, distributions in excess of a client's basis are treated as

Back 329

capital gains

Front 330

IN an S corp, Distributions that reduce the client's basis are considered

Back 330

a nontaxable return of capital

Front 331

In bankruptcy, what is the sale of assets outside the normal course of business called? Who must approve? What are the high-level steps?

Back 331

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.

Front 332

In Chapter 11, how many days does the Debtor-in-possession have to file an exclusive plan?

Back 332

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.

Front 333

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

Back 333

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

Front 334

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

Back 334

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.

Front 335

In M&A, when is Acquirer's shareholder approval not required?

Back 335

In an M&A CASH transaction, AcquirerCo. shareholder approval is not required.

Front 336

In M&A, when is the proxy statement not required to include proforma financials?

Back 336

In an ALL CASH transaction, the proxy statement is not required to include pro forma financials.

Front 337

In order for a rep to borrow money from a customer…

Back 337

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.

Front 338

In order to stabilize, the underwriter must make disclosure of its intention to do so in the

Back 338

In order to stabilize, the underwriter must make disclosure of its intention to do so in the prospectus.

Front 339

In periods of easy money, when interest rates are declining, yield curves would tend to:

Back 339

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.

Front 340

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

Back 340

No, only US secruties

Front 341

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

Back 341

No

Front 342

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

Back 342

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

Front 343

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

Back 343

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.

Front 344

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

Back 344

Only the member firm

Front 345

Interest Coverage Ratio:

Back 345

EBITDA/Interest Expense

Front 346

Inventory Turnover Ratio:

Back 346

COGS/Average Inventory

Front 347

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

Back 347

Initial public offering

Front 348

Is an unseasoned issuer a reporting company?

Back 348

Yes

Front 349

Is blanket approval in Regulation D permitted?

Back 349

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

Front 350

Is M2 money supply a leading indicator?

Back 350

Yes

Front 351

Is Price-to-Book a listing criteria for the NASDAQ?

Back 351

A minimum price-to-book ratio is not a listing criteria for Nasdaq.

Front 352

Is the CPI a leading indicator?

Back 352

No

Front 353

Is the S&P500 index a leading indicator?

Back 353

Yes

Front 354

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

Back 354

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

Front 355

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

Back 355

No tax liability is created for either group.

Front 356

Is trustee always appointed in bankruptcy?

Back 356

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”)

Front 357

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

Back 357

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.

Front 358

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?

Back 358

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.

Front 359

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

Back 359

Leveraged buy-out

Front 360

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

Back 360

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.

Front 361

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

Back 361

3,1,2,4.

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

Front 362

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

Back 362

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

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

Front 363

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

Back 363

Last twelve months

Front 364

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

Back 364

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

Front 365

Market capitalization is calculated as:

Back 365

Market capitalization is calculated as: total shares outstanding x current stock price.

Front 366

Market Value per Share:

Back 366

Market Cap Com./Number Com. Shares Outstanding

Front 367

master limited partnership

Back 367

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

Front 368

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?

Back 368

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.

Front 369

Name the types of accredited investors?

Back 369

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.

Front 370

NASDAQ Global Select Standard and Enhanced Requirements for listing?

Back 370

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

Front 371

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

Back 371

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

Front 372

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

Back 372

National Best Bid and Offer

Front 373

Net Income:

Back 373

Operating Income – Interest – Taxes

Front 374

Net Profit Margin:

Back 374

Net Income/Sales or Revenue

Front 375

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

Back 375

Next twelve months

Front 376

NYSE Rule 77, addressing Prohibited Dealings and Activities, states that a member on the Floor may not:

Back 376

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.

Front 377

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

Back 377

New York Stock Exchange – Physical stock exchange for listed securities

Front 378

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

Back 378

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

Front 379

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?

Back 379

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.

Front 380

Operating Income (EBIT):

Back 380

Operating Profit +/- Other Income or Expenses

Front 381

Operating Profit Margin:

Back 381

Operating Profit/Sales or Revenue

Front 382

Operating Profit:

Back 382

Gross Profit – Operating Expenses

Front 383

Order from low to high:

discount rate
prime rate
fed funds rate
broker's call rate

Back 383

Order of interest rates from lowest to highest - fed funds rate/discount rate/broker's call rate/prime rate.

Front 384

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

Back 384

Office of Supervisory Jurisdiction

Front 385

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

Back 385

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

Front 386

P/E Ratio:

Back 386

Market Price Common/EPS

Front 387

P/E to Growth (PEG) Ratio:

Back 387

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

Front 388

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?

Back 388

A broker-dealer may not execute a trade in PDQ away from the NYSE until an opening transaction occurs on the NYSE.

Front 389

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

Back 389

Private equity

Front 390

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

Back 390

Public offering price

Front 391

Pre-IPO shares will have _____ that states______.

Back 391

Pre-IPO shares will have a legend attached confirming they are not registered.

Front 392

Price to Book Ratio:

Back 392

Market Price Common/Book Value

Front 393

Price to Free Cash Flow:

Back 393

Market Price Common/Free Cash Flow per Share

Front 394

Price to Sales Ratio:

Back 394

Market Price Common/Sales or Revenue

Front 395

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

Back 395

90 days for IPOs.

Front 396

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

Back 396

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

Front 397

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

Back 397

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

Front 398

Quick Ratio:

Back 398

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

Front 399

Quotes for non-Nasdaq, over-the-counter-traded equities can be obtained from the:

Back 399

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.

Front 400

Regulation A offerings are not aggregated with other offerings made _______ months after the ________________.

Back 400

Regulation A offerings are not aggregated with other offerings made more than six months after the completion of the transaction.

Front 401

Regulation A:

Back 401

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

Front 402

Regulation D (506):

Back 402

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

Front 403

Regulation FD applies to what type of players in securities? What does it mean?

Back 403

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.

Front 404

Regulation FD:

Back 404

Fair disclosure rules applying to issuers (reporting companies)

Front 405

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?

Back 405

-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.

Front 406

Regulation M-A:

Back 406

Communication/disclosure rules for firms involved in merger activities

Front 407

Regulation M:

Back 407

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

Front 408

Regulation S-K:

Back 408

Guidelines for presenting projections in nonfinancial statements

Front 409

Regulation S-X:

Back 409

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

Front 410

Regulation S:

Back 410

Offshore offering to non-U.S. persons

Front 411

Regulation SHO:

Back 411

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

Front 412

Regulation SP:

Back 412

Privacy Notice required for firms sharing customer information with other institutions

Front 413

Regulation T:

Back 413

Establishes initial margin requirements for non-exempt securities

Front 414

Regulation TO:

Back 414

Tender offer rules

Front 415

Regulation U:

Back 415

Credit extension for securities by non-broker dealers

Front 416

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

AND WHY?

Back 416

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

Front 417

Requirements for an S Corp?

Back 417

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.

Front 418

Return on Assets:

Back 418

Net Income/Average Assets

Front 419

Return on Equity:

Back 419

Earnings Available to Common/Ave. Com. Shareholder Equity

Front 420

Risk Premium (Excess Mkt Return):

Back 420

Rm-Rf

Front 421

ROE CALCULATION

Back 421

SEE EXAM 2 - Question 41…IMPT!

Front 422

ROE to common equity formula?

Back 422

(Net Income - PREFERRED divs / AVG common equity

Front 423

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

Back 423

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

Front 424

Rule 101 of Regulation M generally prohibits participants in a distribution from:

Back 424

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

Front 425

Rule 104 of Regulation M defines stabilizing as:

Back 425

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

Front 426

Rule 10b-18:

Back 426

Rule for issuers purchasing their own securities in the secondary market

Front 427

Rule 135:

Back 427

Rule for preliminary announcements not offering securities

Front 428

Rule 137:

Back 428

Rule for non-participants in an underwriting publishing research reports

Front 429

Rule 138:

Back 429

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

Front 430

Rule 139:

Back 430

Rule for an underwriting participant continuing regular coverage for a security

Front 431

Rule 144:

Back 431

Sale of restricted and control stock

Front 432

Rule 144A:

Back 432

Sale of unregistered securities to qualified institutional buyers

Front 433

Rule 145:

Back 433

Registration rule for issuing securities in a business combination transaction

Front 434

Rule 147:

Back 434

Intrastate offering

Front 435

Rule 163A:

Back 435

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

Front 436

Rule 415:

Back 436

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

Front 437

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:

Back 437

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.

Front 438

SEC Rule 10b-18, regarding purchases of equity securities by issuers, places limits on which factors in conjunction with such purchases?

Back 438

-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.

Front 439

SEC Rule 135

Back 439

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

Front 440

SEC Rule 145

Back 440

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

Front 441

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?

Back 441

-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.

Front 442

SEC rules related to record keeping require that broker-dealers whose primary business is investment banking….must maintain how and for how long?

Back 442

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

Front 443

Securities Exchange Act of 1934?

Back 443

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.
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All companies listed on stock exchanges must follow the requirements set forth in the Securities Exchange Act of 1934. Primary requirements include registration of any securities listed on stock exchanges, disclosure, proxy solicitations and margin and audit requirements.

Front 444

Selling concessions and discounts may be given:

Back 444

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.

Front 445

Shortcut to compute CAGR?

Back 445

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

Front 446

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

Back 446

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

Front 447

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

Back 447

Securities Investor Protection Corporation - protects against broker dealer failure

Front 448

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

Back 448

Self-Regulatory Organization – NYSE, FINRA and MSRB

Front 449

Steps in the M&A process?

Back 449

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.

Front 450

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

Back 450

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.

Front 451

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

Back 451

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

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

Front 452

T/F? The creditor committee in a bankruptcy does perfect liens for secured creditors

Back 452

The creditor committee in a bankruptcy does not perfect liens for secured creditors

Front 453

T/F? Transaction comps analysis would generally be used when pricing an IPO.

Back 453

Transaction comps analysis would generally not be used when pricing an IPO.

Front 454

T/F? 10Q does not include a list of company shareholders.

Back 454

A 10Q does not include a list of company shareholders.

Front 455

T/F? A company delisted for the NYSE or Nasdaq can subsequently be quoted on the Pink Sheets or OTCBB.

Back 455

A company delisted for the NYSE or Nasdaq can subsequently be quoted on the Pink Sheets or OTCBB.

Front 456

T/F? A fairness opinion makes a recommendation to shareholders as to whether or not to accept a deal.

Back 456

A fairness opinion does not make a recommendation to shareholders as to whether or not to accept a deal.

Front 457

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.

Back 457

An acquisition would not be a useful strategy for a corporate executive who wishes to retire and raise cash for his/her family.

Front 458

T/F? An asset purchase agreement would include debt covenants

Back 458

An Asset Purchase Agreement would not include debt covenants.

Front 459

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.

Back 459

An increase in net working capital (which is a use of cash) would lead to a lower valuation under a discounted cash flow model.

Front 460

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.

Back 460

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.

Front 461

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.

Back 461

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.

Front 462

T/F? During due diligence, a banker generally would interview the target's largest shareholder.

Back 462

During due diligence, a banker generally would not interview the target's largest shareholder.

Front 463

T/F? Open end funds are required to not register under the Securities Act of 1933.

Back 463

Open end funds are required to register under the Securities Act of 1933.

Front 464

T/F? There is a price/book value requirement to list on Nasdaq.

Back 464

There is no price/book value requirement to list on Nasdaq.

Front 465

T/F? When an issuer is SEC registered it does confirm the integrity of the issuer's dealings with investors.

Back 465

When an issuer is SEC registered it does NOT confirm the integrity of the issuer's dealings with investors.

Front 466

Tangible Book Value:

Back 466

Total Assets – Total Liabilities – Intangible Assets – Goodwill

Front 467

The accounting process of modifying financial statements in pro forma analysis is referred to as? What factors are considered?

Back 467

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

Front 468

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

Back 468

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

Front 469

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

Back 469

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.

Front 470

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

Back 470

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

Front 471

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?

Back 471

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.

Front 472

The parties that may be sued for untrue statements and material omissions from a registration statement according to the Securities Act of 1933 include:

Back 472

--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

Front 473

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

Back 473

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

Front 474

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

Back 474

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

Front 475

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

Back 475

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

Front 476

The tendering of securities is permitted if an individual is:

Back 476

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

Front 477

The two principal reasons that investors enter into futures contract positions are:

Back 477

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.

Front 478

The underwriting spread in a new corporate stock issue depends on:

Back 478

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.

Front 479

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?

Back 479

more than 5 business days before! Wed, July 7

Front 480

Time required for: Amount of time a customer account is frozen (based upon a Regulation T violation) ?

Back 480

90-days:

Front 481

Time required for: B/D required to make restitution after arbitration proceedings ?

Back 481

Within 30 days:

Front 482

Time required for: Cooling off period for new issues ?

Back 482

20-days:

Front 483

Time required for: Effective date for SB-1 or SB-2 ?

Back 483

20-days:

Front 484

Time required for: Filing deadline to FINRA corp. finance review for listed securities ?

Back 484

One business day:

Front 485

Time required for: Filing deadline to FINRA corp. finance review for un-listed securities ?

Back 485

15-days prior:

Front 486

Time required for: Filing of advertising for Investment Companies ?

Back 486

10-days after use:

Front 487

Time required for: Form 4 filed by insiders ?

Back 487

2-business days after transaction:

Front 488

Time required for: Frequency of inspection of an OSJ ?

Back 488

1-year:

Front 489

Time required for: Frequency of verification for purchasers of equity IPOs ?

Back 489

1-year:

Front 490

Time required for: Management response to a tender offer ?

Back 490

Within 10 days:

Front 491

Time required for: Maximum time allowed for a shelf-registration (from 2 to 3 years) ?

Back 491

3-years:

Front 492

Time required for: Maximum time to settle syndicate accounts ?

Back 492

90-days:

Front 493

Time required for: Minimum duration of tender offer ?

Back 493

20-business days:

Front 494

Time required for: Minimum time to keep open a revised tender offer ?

Back 494

10-business days:

Front 495

Time required for: Payment for securities according to Regulation T (settlement + 2 business days) ?

Back 495

5th business day:

Front 496

Time required for: Penalty for unexcused withdrawals by market makers ?

Back 496

20-business days:

Front 497

Time required for: Prospectus delivery for IPO's of non-listed (non-Nasdaq) securities ?

Back 497

90-days:

Front 498

Time required for: Prospectus delivery for new issues of non-listed (non-Nasdaq) securities ?

Back 498

40-days:

Front 499

Time required for: Prospectus delivery requirement for Nasdaq and listed securities ?

Back 499

25-days:

Front 500

Time required for: Regular way settlement ?

Back 500

3rd business day (T+3):

Front 501

Time required for: Restricted period if market cap < $25MM ?

Back 501

Five business days:

Front 502

Time required for: Restricted period if market cap > $25MM ?

Back 502

One business day:

Front 503

Time required for: Settlement cash transaction ?

Back 503

Same day:

Front 504

Time required for: Statutory disqualification if convicted of a securities related misdemeanor or any felony ?

Back 504

10-years:

Front 505

Time required for: Stop transfer to out-of-state resident of securities acquired through 147 ?

Back 505

9 months:

Front 506

Time required for: Time as investment banker to be a Qualified IB (Schedule E underwriting) ?

Back 506

5-years:

Front 507

Time required for: Time period during which restricted or control stock may be sold under Rule 144 ?

Back 507

90-days

Front 508

Time required for: Treasuries and options ?

Back 508

Next business day settlement:

Front 509

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

Back 509

30-days:

Front 510

Time required for: Wait period for failing a regulatory exam the third time ?

Back 510

180-days:

Front 511

tock acquired by an underwriter as compensation may be sold:

Back 511

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.

Front 512

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:

Back 512

Product extension merger

Front 513

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.

Back 513

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..

Front 514

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

Back 514

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

Front 515

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

Back 515

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

Front 516

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

Back 516

Underwriter

Front 517

Under anti-money laundering requirements, brokerage procedures should provide for notification to the exchange? True or false?

Back 517

Exchange notification is not required

Front 518

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

Back 518

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

Front 519

Under Regulation D, which of the following private placements may require a purchaser representative for individuals?

Back 519

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.

Front 520

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

Back 520

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

Front 521

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:

Back 521

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.

Front 522

Under SEC rules, a tender offer must normally be held open for at least:

Back 522

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.

Front 523

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

Back 523

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

Front 524

Under the Code of Arbitration, if the dispute involves two FINRA members, what are the restirctions on the composition of the arbitration panel?

Back 524

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.

Front 525

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

Back 525

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

Front 526

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

Back 526

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

Front 527

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

Back 527

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

Front 528

Upon maturity of a bond, an investor would receive:

Back 528

Upon maturity of a bond, an investor would receive par value and the final semi-annual coupon payment.

Front 529

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

Back 529

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

Front 530

WACC:

Back 530

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

Front 531

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?

Back 531

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.

Front 532

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?

Back 532

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.

Front 533

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?

Back 533

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.

Front 534

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

Back 534

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

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

Front 535

Wha tis diff between marginal and effective tax rate?

Back 535

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).

Front 536

Whaen would SEC halt a Regulation A registration?

Back 536

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.

Front 537

What are 3 forms that are relevant to an "insider"? What are they for? When are they filed?

Back 537

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.

Front 538

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

Back 538

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

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

Front 539

What are 425 Filings?

Back 539

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

Front 540

What are Accredited Investors?

Back 540

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

Front 541

What are booster shot IPOs?

Back 541

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

Front 542

What are conditions for an issuer repurchasing stock in marketplace?

Back 542

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

Front 543

What are differences in the use of ADRs and GDRs?

Back 543

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.

Front 544

What are exempted from Rule 145?

Back 544

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

Front 545

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

Back 545

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

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

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

Front 546

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

Back 546

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

Front 547

What are listing requirements for NYSE?

Back 547

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

Front 548

What are OTC stocks?

Back 548

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

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

Front 549

What are piggyback rights?

Back 549

“Piggyback” rights allow investors to sell previously unregistered shares when the issuer registers a public offering.

Front 550

What are pink sheets and OTCBB?

Back 550

¨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.

Front 551

What are private placements?

Back 551

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

Front 552

What are qualifications to be a WKSI?

Back 552

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

Front 553

What are rules about the time frame of projections in Regulation S-K?

Back 553

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.

Front 554

What are rules and conditions regarding the acceleration of an effective date?

Back 554

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.

Front 555

What are some of the guidelines for a Reorganization plan under Ch.11?

Back 555

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.

Front 556

What are some of the items and activities reviewed in a fairness opinion?

Back 556

-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

Front 557

What are tax implications for general partnerships?

Back 557

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

Front 558

What are the conditions under Regulation A for foreign issuers?

Back 558

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.

Front 559

What are the dates (in relation to a lockout expiration) that a booter shot for IPOs cannot be published?

Back 559

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

Front 560

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

Back 560

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

Front 561

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

Back 561

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

Front 562

What are the requirements of Regulation A?

Back 562

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.

Front 563

What are the requirements to be considered a WKSI?

Back 563

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.

Front 564

What are the restrictions placed on Purchaser representatives?

Back 564

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

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

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

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

Front 565

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

Back 565

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

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

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

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

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

Front 566

What are the Safe Hardbor provisions associated with "gun-jumping"? What are examples of stuff not allowed?

Back 566

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.

Front 567

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

Back 567

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

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

Front 568

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

Back 568

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

Front 569

What are treasury STRIPS?

Back 569

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

Front 570

What are true in long vs. short bonds?

Back 570

-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.

Front 571

What are two broker-dealer's suitability obligations to institutional customers?

Back 571

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.

Front 572

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

Back 572

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

Front 573

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

Back 573

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

Front 574

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

Back 574

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

Front 575

What can structured products be used for? What types of securities may it be linked to in terms of offering returns?

Back 575

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.

Front 576

What conditions are typically found in a private placement confidentiality agreement?

Back 576

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.

Front 577

What conditions refer to an OSJ?

Back 577

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

Front 578

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

Back 578

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

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

Front 579

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

Back 579

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

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

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

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

Front 580

What do insider purchases typically do to the stock price of a company?

Back 580

Insider purchases in a security typically increase the stock price of the company.

Front 581

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

Back 581

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

Front 582

What documents would you see a capitilization table in?

Back 582

A capitalization table is included in a prospectus.

Front 583

What does "Factual Business Information" consist of?

Back 583

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

Front 584

What does "Forward-Looking" Information include?

Back 584

¨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.

Front 585

What does a B/D not have to keep record off?

Back 585

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.

Front 586

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

Back 586

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

Front 587

What does PIK interest do to the fin statements? And where?

Back 587

PIK interest increases interest expense on the income statement.

Front 588

What does Regulation M refer to?

Back 588

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

Front 589

What does Rule 105 of Regulation M state?

Back 589

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

Front 590

What does SEC Rule 165 say?

Back 590

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

Front 591

What does Section 14 say?

Back 591

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

Front 592

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

Back 592

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

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

Front 593

What does the NSMIA do?

Back 593

The National Securities Markets Improvement Act (NSMIA) places limits on states' power to regulate federal covered securities.

Front 594

What does the tombstone advertisement show?

Back 594

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

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

Front 595

What exchanges provide exemption to filing compensation by underwriters? Any exceptions?

Back 595

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.

Front 596

What exemption is granted in Rule 14d-10?

Back 596

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

Front 597

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

Back 597

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

Front 598

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

Back 598

Schedule 14D-9

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

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

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

Front 599

What happens during the cooling off period in registration?

Back 599

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.

Front 600

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

Back 600

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

Front 601

What happens in a reverse merger? What is tax implication for target shareholders?

Back 601

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.

Front 602

What happens in Chapter 7 bankruptcy?

Back 602

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.

Front 603

What happens in forward triangular merger? What is the tax implication for target shareholders?

Back 603

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.

Front 604

What happens in two-step merger? Do target shareholders approve?

Back 604

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

Front 605

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

Back 605

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

Front 606

What information is usually NOT found in a potential buyer's final bid?

Back 606

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.

Front 607

What is shareholder rights plan and what is it used for?

Back 607

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.

Front 608

What is "BW" on the OTC?

Back 608

Bid Wanted

Front 609

What is "de minimis"?

Back 609

An amount that is so small it is not material

Front 610

What is "Economies of Scope"

Back 610

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

Front 611

What is "OW" on the OTC?

Back 611

Offer Wanted

Front 612

What is "Painting the Tape"?

Back 612

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.

Front 613

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

Back 613

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

Front 614

What is "subject" security? What is a "covered security"? What is a "reference security"?

Back 614

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.

Front 615

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

Back 615

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

Front 616

what is a 363 sale?

Back 616

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

Front 617

What is a best efforts agreement?

Back 617

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

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

Front 618

What is a blank check company?

Back 618

a development stage company that has no specific business plan or purpose

Front 619

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

Back 619

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

Front 620

What is a block trade or order? Why would someone execute it?

Back 620

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".

Front 621

What is a blotter?

Back 621

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.

Front 622

What is a bring down due diligence meeting?

Back 622

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.

Front 623

What is a bring down due diligence meeting?

Back 623

A bring-down due diligence meeting brings parties up to speed on any new information since the last due diligence meeting.

Front 624

What is a broker-dealer's common sales account used for?

Back 624

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.

Front 625

What is a capital Shortfall?

Back 625

The amount by which the capital required to fulfill a financial obligation exceeds available capital.

Front 626

What is a CMO?

Back 626

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

Front 627

What is a conglomerate merger?

Back 627

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.

Front 628

What is a contingency offering?

Back 628

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

Front 629

What is a covered person?

Back 629

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

Front 630

What is a Creditor's Committee? Where is relevant and what does it do?

Back 630

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.

Front 631

What is a cross-default clause?

Back 631

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.

Front 632

What is a custodian account?

Back 632

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

Front 633

What is a DEA? What is it for?

Back 633

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.

Front 634

What is a DESIGNATED MARKET MAKER'S ROLE? What is another name of designated market maker?

Back 634

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.

Front 635

What is a development stage company? Eligible for registered offering?

Back 635

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.

Front 636

What is a dutch auction?

Back 636

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

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

Front 637

What is a fixed value agreement?

Back 637

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.

Front 638

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

Back 638

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

Front 639

What is a forward triangular merger and from whom is approval required?

Back 639

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.

Front 640

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

Back 640

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

Front 641

What is a FWP? When can it be issued before registration? Is it a solicitation to sell securities?

Back 641

¨√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.

Front 642

What is a go-shop provision?

Back 642

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

Front 643

What is a golden parachute ?

Back 643

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

Front 644

What is a golden parachute?

Back 644

A golden parachute is a package (often lucrative) given to senior management upon termination.

Front 645

What is a horizontal merger?

Back 645

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.

Front 646

What is a jump ball basis?

Back 646

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

Front 647

What is a limited partnership able to do?

Back 647

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

Front 648

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

Back 648

It is a current liabilityin CA/CL

Front 649

What is a lockup agreement?

Back 649

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.

Front 650

What is a market maker

Back 650

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

Front 651

What is a market out clause?

Back 651

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

Front 652

What is a matched order?

Back 652

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

Front 653

What is a negotiated offering?

Back 653

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

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

Front 654

What is a no-shop provision

Back 654

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

Front 655

What is a passive market maker? And rules governing the bid?

Back 655

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

Front 656

What is a penalty bid? What is the acronym?

Back 656

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.

Front 657

What is a poision pill?

Back 657

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.

Front 658

what is a pool order?

Back 658

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

Front 659

What is a prospectus?

Back 659

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

Also known as an "offer document".

Front 660

What is a prospectus? What is included in the defininition of a prosepectus? Is there an exception and if so describe it?

Back 660

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.

Front 661

What is a proxy statement?

Back 661

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

Front 662

What is a purchaser representative?

Back 662

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

Front 663

What is a QIB? What can they do?

Back 663

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.

Front 664

What is a red herring?

Back 664

preliminary prospectus on offering

Front 665

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

Back 665

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.

Front 666

What is a roll up transaction?

Back 666

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

Front 667

What is a RW trade?

Back 667

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

Front 668

What is a section 363 sale?

Back 668

A section 363 sale is an asset sale in bankruptcy.

Front 669

What is a Split-Off?

Back 669

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

Front 670

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

Back 670

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

Front 671

What is a stalking horse?

Back 671

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

Front 672

What is a standby underwriting? What is the negative for a issuer?

Back 672

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.

Front 673

What is a stop order ?

Back 673

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.

Front 674

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

Back 674

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

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

Front 675

What is a term sheet?

Back 675

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

Front 676

What is a trust indenture?

Back 676

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

Front 677

What is a two dollar broker? Are they allowed on NYSE floor?

Back 677

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.

Front 678

What is a wash sale?

Back 678

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

Front 679

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

Back 679

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

Front 680

What is a yield curve? What is it also referred to as?

Back 680

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.

Front 681

What is ADTV?

Back 681

Average Daily Trading Volume

Front 682

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

Back 682

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

Front 683

What is an "insider"?

Back 683

An insider is defined as any person who is an officer, director, or owner of more than 10% of the equity.

Front 684

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

Back 684

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

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

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

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

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

Front 685

What is an all-firm commitment offering?

Back 685

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

Front 686

What is an engagement letter?

Back 686

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

Front 687

What is an exception to Rule 145 in business mergers?

Back 687

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

Front 688

What is an exemption for a restricted person?

Back 688

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.

Front 689

What is an ideminification basket?

Back 689

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.

Front 690

What is an odd-lot?

Back 690

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.

Front 691

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

Back 691

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

Front 692

What is an S-4?

Back 692

SEC Registration form used when issuing securities in a merger

Front 693

What is an unseasoned issuer?

Back 693

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).

Front 694

What is Barbell? Why is it done?

Back 694

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.

Front 695

What is blanket approval?

Back 695

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

Front 696

What is book value? Formula?

Back 696

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

Front 697

What is Code of Procedure?

Back 697

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

Front 698

What is Coincident Indicator?

Back 698

Coincident indicators usually mirror the movements of the
business cycle. The makeup of the coincident economic indicators includes four components.

Front 699

What is Commerical Paper?

Back 699

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.

Front 700

What is Control Stock?

Back 700

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

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

Front 701

What is convertible Bond?

Back 701

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

Convertibles are sometimes called "CVs".

Front 702

What is convertible preferred stock?

Back 702

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

Also known as "convertible preferred shares"

Front 703

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

Back 703

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

Front 704

What is convexity?

Back 704

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

Front 705

What is cumulative preferred Stock?

Back 705

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

Front 706

What Is cumulative voting?

Back 706

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.

Front 707

What is diff btw primary and secondary offering?

Back 707

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

Front 708

What is difference between unsponsored and sponsored ADR?

Back 708

n American Depositary Receipt may be sponsored by the company whose common stock underlies the ADR, or it may be unsponsored. 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 the Pink Sheets.

Front 709

What is Dividend Exclusion?

Back 709

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

Front 710

What is Duration?

Back 710

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

Front 711

What is earnings yield?

Back 711

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

Front 712

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

Back 712

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

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

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

Front 713

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

Back 713

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

Front 714

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

Back 714

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

Front 715

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

Back 715

Form 5 is filed annually by insiders about their transactions.

Front 716

What is formula for ROIC?

Back 716

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

Front 717

What is free retention?

Back 717

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

Front 718

What is Free writing Prospectus?

Back 718

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

Front 719

What is gun jumping

Back 719

Gun jumping is a violation if the company discusses a new issue after deciding to proceed with an IPO but prior to registration of its shares.

Front 720

What is in a 13d filing? What is not?

Back 720

A 13D filer is required to provide certain information such as:

The security and issuer
The identity and background of the filer, which may be an individual or a group
The source and amount of funds, or considerations that were used for the purchase. This section will indicate if the funds used to purchase the securities were borrowed, or came from an existing cash position of the filer.
The purpose of the transaction. This important section indicates if the filer wants to acquire the company, or is purchasing the shares as an investment.
The number of shares and the percentage ownership of the filer
Contracts or relationships regarding the securities of the issuer, e.g., a standstill agreement
Any material to be filed as exhibits, e.g., a merger agreement or a tender offer agreement



Although the source of the funds is disclosed, the NAME of the financial institution providing the funds is not a required disclosure. The filer is required to update the schedule promptly for any material changes.

Front 721

What is Investment Company Act of 1940?

Back 721

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

Front 722

What is Laddering? Why is it done?

Back 722

Laddering is a strategy 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.

Front 723

What is lagging indicator?

Back 723

The index of lagging indicators represents items that change after
the economy has moved through a given stage of the business cycle. The index of lagging indicators
should confirm the economic condition portrayed by previous leading and coincident indexes.

Front 724

What is leading Indicator?

Back 724

Leading economic indicators precede the upward and downward
movements of the business cycle. They may also be used to predict the near-term activity of the
economy. The government index of 10 leading economic indicators is released monthly.

Front 725

What is Linked Financing?

Back 725

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

Front 726

What is lockup and what is it designed to do?

Back 726

A lock-up period is designed to prevent immediate flipping of a new issue and to force company management to continue holding shares.

Front 727

What is major advantageYou would explain that the major advantage of an S Corporation versus a C Corporation i?

Back 727

May elect to be treated like partnerships for federal tax purposes

For most businesses, the major advantage of forming an S Corporation (a limited liability 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. 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.

Front 728

What is market momentum?

Back 728

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

Front 729

What is market neutral?

Back 729

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

Front 730

What is Mini-maxi?

Back 730

minimum-maximum (mini-maxi) basis

Front 731

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

Back 731

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

Front 732

What is odd-lot shares?

Back 732

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

Front 733

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

Back 733

File an 8-k

Front 734

What is organic growth? What is in-organic growth?

Back 734

A manufacturing company in a perfectly competitive market could achieve organic growth by introducing a new product in a different market or increasing market share. Acquiring another business would not be organic growth.

Front 735

What is OTCBB? What are listing requirements?

Back 735

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

Front 736

What is parity?

Back 736

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

Front 737

What is passive market maker's daily purchase limit?

Back 737

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

Front 738

What is passive market maker's net purchases?

Back 738

(purchases in excess of sales) for that day

Front 739

What is positive convexity?

Back 739

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

Front 740

What is predispute arbitration agreement?

Back 740

Under the FINRA Code of Arbitration, a dispute between a member firm and a customer require:

- that the majority of the arbiters be from OUTSIDE the securities industry (public arbiters), although a customer may request that the arbitration panel be composed entirely of industry arbiters. HOWEVER, if the dispute is between member firms, all the arbiters will be from within the industry.

The decision reached by the arbitration panel is final and binding.

Additionally, the arbiters do not need to explain their reasoning

all parties abandon (vacate) the right to sue if dissatisfied with the decision.

Front 741

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

Back 741

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

Front 742

What is public float?

Back 742

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

Front 743

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

Back 743

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

Front 744

What is Regulation D?

Back 744

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

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

Front 745

What is Regulation FD designed to do? Protect who?

Back 745

Regulation FD is designed to protect individual investors.

Front 746

What is Regulation FD?

Back 746

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

Front 747

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

Back 747

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

Front 748

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

Back 748

Regulation M-A relaxes communication restrictions between broker-dealers and investors prior to the filing of statements in the case of cross-border mergers, tender offers, rights offerings, and other similar transactions.

Front 749

What is reinvestment risk?

Back 749

The risk to bond investors that interest income or principal repayments will have to be reinvested at lower rates in a declining rate environment. Zero-coupon bonds do not have interest payment reinvestment risk.

Front 750

What is resistance level?

Back 750

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

Front 751

What is restricted and control stock? How long is the hold period? What rule applies?

Back 751

There is a required holding period of six months for all restricted stock. Restricted stock is unregistered stock that was acquired as a result of a private placement. There is no required holding period for control stock. However, if an affiliate (control person) acquires stock as a result of a private placement, this stock would be considered restricted stock rather than control stock and would be subject to the holding period. Control stock acquired as a result of an open-market purchase is exempt from the holding period.

Rule 144

Front 752

What is restricted stock?

Back 752

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

Front 753

What is ROIC?

Back 753

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

Front 754

What is round-lot shares?

Back 754

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

Front 755

What is Rule 101 of Regulation M?

Back 755

Atlas may execute buy orders for customers on an unsolicited basis.

If a broker-dealer is participating in the distribution of a security subject to Rule 101 of Regulation M, it may not solicit orders from its customers to purchase already outstanding securities of the same issuer. This applies whether it is acting in an agency or dealer capacity. Unsolicited transactions are always permitted. A broker-dealer is permitted to solicit an offer to buy the securities being distributed. The firm must notify FINRA through the Restricted Period Notification Form (a.k.a. a regulatory wire) if it is changing its market-maker status, based on an upcoming offering, or is engaged in stabilizing transactions.

Front 756

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

Back 756

If a broker-dealer is participating in the distribution of a security subject to Rule 101 of Regulation M, it may not solicit orders from its customers to purchase already-outstanding securities of the same issuer. Unsolicited transactions are always permitted.

This rule applies whether the firm is acting in an agency or dealer capacity.

A broker-dealer is permitted to solicit an offer to buy the (new) securities being distributed. The firm must notify FINRA by way of a Restricted Period Notification Form (aka regulatory wire) if it is changing its market-maker status based on an upcoming offering, or if it is engaged in stabilizing transactions.--------Regulation M refers to Restricted period rules and stabilization rules for secondary market activities associated with new issues.

Front 757

What is Rule 105 of Regulation M?

Back 757

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 purchase the offered security from the 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.

Front 758

What is Rule 144?

Back 758

Sale of restricted and control stock

Front 759

What is Rule 144?

Back 759

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

Front 760

What is Rule 144A

Back 760

Rule 144A allows issuers to sell securities to Qualified Institutional Buyers within the U.S.

Front 761

What is rule 144a for?

Back 761

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

Front 762

What is Rule 144A?

Back 762

Sale of unregistered securities to qualified institutional buyers

Front 763

What is Rule 14d-10 also called?

Back 763

Best Price Rule

Front 764

What is Rule 14d-10?

Back 764

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

Front 765

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

Back 765

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

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

Front 766

What is rule 165?

Back 766

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

Front 767

What is Sarbanes-Oxley Act ?

Back 767

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

Front 768

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

Back 768

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

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

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

Front 769

What is section 11 defense?

Back 769

If an underwriter sells a security based on an untruthful statement, or the omission of a material fact, it may be held liable to the purchaser for any monetary damages suffered. However, the underwriter will not be held liable if it can demonstrate that reasonable care (due diligence) was used, and the underwriter was unaware of the untruthful statement or omission. This is known as the Section 11 defense. In addition, directors of the issuer and any person who signed the registration statement may also use this defense. An issuer is not permitted to use this defense.

Front 770

What is Securities in Trade provision?

Back 770

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

Front 771

What is Seller assisted financing?

Back 771

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

Front 772

What is short form registration?

Back 772

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

Front 773

What is SOX? What are two key provisions?

Back 773

Sarbanes-Oxley.

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

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

Front 774

What is Stabilization?

Back 774

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

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

Front 775

What is stapled financing?

Back 775

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

Front 776

What is tangible book value? Formula?

Back 776

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

Front 777

What is tender offer? When is discolusre necessary?

Back 777

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

Front 778

What is the Best Price Rule?

Back 778

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

Front 779

What is the common benchmark for fixed Income instruments?

Back 779

The most common benchmark for fixed income securities is U.S. Treasuries.

Front 780

What is the criteria for being a WKSI?

Back 780

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

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

Front 781

What is the difference between a development stage company and a blank check company?

Back 781

A blank check company is defined as an entity with either no specific business plan, or one that has indicated that it intends to merge with an unidentified company (or companies). The development company has already begun business operations and would not be classified as a blank check company

Front 782

What is the Green Shoe Clause?

Back 782

A clause in an underwriting agreement that allows the syndicate to sell more of an issue than was originally available, and acquire those shares from the issuer, is known as a Green Shoe option. This clause is found in the offering's overallotment provision.

Front 783

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

Back 783

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

must meet certain threshholds.

Front 784

What is the holding period under 144A? What type of securities? Can they be resold to other similar investors? What type of investors?

Back 784

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.

Front 785

What is the Interest Coverage Ratio?

Back 785

EBIT or EBITDA Divided by Interest Expense

Front 786

What is the most frequently used valuation metric for REIT? How is it calculated?

Back 786

¨The most frequently used valuation metric for a REIT is Funds from Operations (FFO). This is determined by taking the net income plus depreciation, and subtracting gains from the sale of assets

Front 787

What is the MPO? When is it used?

Back 787

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).

Front 788

What is the procedure for customer complaints and the SRO?

Back 788

Member firms are required to report to the appropriate SRO statistical and summary information regarding customer complaints, on a quarterly basis. If the complaint from a customer involves theft, forgery, or misappropriation of funds, the firm must notify the SRO promptly

Front 789

What is the Quick acid test ratio?

Back 789

Another often-used form of the Quick Assets Ratio is (Cash + Cash Equivalents + Accounts Receivable) / Current Liabilities.

Front 790

What is the Quiet Period and when it relevant?

Back 790

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

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

Front 791

What is the Selling Concession?

Back 791

In securities underwriting, the fee that the underwriting group pays to a securities firm that isn't part of the syndicate, but who still sells shares in the offering.

Front 792

What is the shortcut to calculate P/E ration (given div. payout and yield)

Back 792

The P/E ratio equals the dividend payout ratio divided by the dividend yield. (DPR/DY)

Front 793

What is the sydicate desk primarily responsible for?

Back 793

The syndicate desk is primarily responsible for selling IPO shares.

Front 794

What is the Third market and where can quotes be found?

Back 794

The third market refers to exchange-listed securities trading over-the-counter, and these quotes can be found on the Consolidated Quotation System.

Front 795

What is the total takedown? What is also referred to?

Back 795

The total takedown might also be referred to as the “underwriting concession” or “underwriting allowance.”

Front 796

What is total underwriting spread comprised of?

Back 796

manager's fee, underwriting fee, selling concession

Front 797

What is Treasury Stock?

Back 797

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

Front 798

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

Back 798

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

Front 799

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

Back 799

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

Front 800

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

Back 800

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

Front 801

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

Back 801

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

Front 802

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

Back 802

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

Front 803

What price must underwriters sell IPO at? Who sets price?

Back 803

Under industry rules, syndicate and selling group agreements set the price at which the securities are to be sold to the public, or the formula to determine the price. The agreements must also state to whom and under what circumstances concessions are permitted. An underwriter's sale of a new issue below the public offering price is not permitted.

Front 804

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

Back 804

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

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

Front 805

What regulation refers to directors who missed ____% of meetings last year? What % too?

Back 805

Regulation S-K requires an issuer to disclose the name of each director who attendance less than 75% of board meetings during the previous year.

Front 806

What scenarios constiture "owning" a stock?

Back 806

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

Front 807

What SEC filing arises from SEC Rule 145?

Back 807

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

Front 808

What securities are ineligible for exemption under Rule 144a?

Back 808

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

Front 809

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

Back 809

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

Front 810

What to REITs generally do?

Back 810

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

Front 811

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

Back 811

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

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

Front 812

what type of company sale helps limit tax liability?

Back 812

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

Front 813

What type of firms must maintain restricted and watch lists?

Back 813

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

Front 814

What type of liability do general partnerships hold?

Back 814

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

Front 815

What type of sale do C corps prefer and why?

Back 815

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

Front 816

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

Back 816

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

Front 817

What would a teaser include?

Back 817

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. Details of the teaser may include:

The nature of the business
The size of the business
A basic P & L presentation
A proposed deal timeline
Reasons why a buyer may find the business attractive

Front 818

What would be a Branch Office?

Back 818

A branch office is any location where one or more associated persons of a member regularly conduct the business of effecting any transactions in, or inducing or attempting to induce the purchase or sale of, any security, or is held out as such

Front 819

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

Back 819

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

Front 820

When a broker-dealer hires an individual who was previously employed by a different broker-dealer, the hiring firm is required to:

Back 820

Review the Termination Notice (aka U-5) filed by the previous employer (must be done within 60 days of filing U-4)

FINRA Rule 3010(e) requires firms to investigate the qualifications of the newly hired individual by reviewing the U5 submitted by the previous securities industry employer, within 60 days of filing the U4 with FINRA.

Front 821

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

Back 821

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

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

Front 822

When a member firm attempts to raise capital for itself through a private placement of unregistered secuities, what is this called? What disclosures are required and what to do they contain? And to whom?

Back 822

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.

These include the intended use of the offering proceeds, the offering expenses, and the amount of selling compensation that will be paid to the member firm. Every investor (unless excluded by rule) is required to receive this document.

Front 823

when a member firm issues unregistered securities through a private placement, what % of proceeds must be used for business purposes? And what can remainder be used for?

Back 823

at least 85%. The remaining 15% may be used for underwriting expenses and compensation.

Front 824

when a member firm issues UNREGISTERED securities through a private placement, what is this offering referred to? How does it relate to Regulation D?

Back 824

It is also referred to as a Member Private Offering (MPO).

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. This rule SUPPLEMENTS (rather than replaces) the private placement rules of Regulation D of the Securities Act.

Front 825

When a prospectus is filed as part of the registration statement, what information may be omitted?

Back 825

A prospectus may be filed as a part of the registration statement and may be used prior to the effective date of the registration statement. Certain information may be omitted, such as:

-The offering price of the issue
-The underwriting discounts (or commissions)
-Discounts to dealers
-The amount of proceeds to be received by the issuer
-Conversion rates
-Call prices
-Other matters dependent upon the offering price

The number of shares or amount of bonds to be issued will be disclosed, as well as the use of the proceeds of sale.

Front 826

When a registered rep opens an account at another broker dealer, when must employer be notified?

Back 826

When a registered rep opens an account at another broker dealer, the employer must be notified prior to the initial transaction in the account.

Front 827

When an issuer files an amendment to the registration statement, it will delay the effective day _____days?

Back 827

When an issuer files an amendment to the registration statement, it will delay the effective date of an offering as the 20-day cooling off period will restart.

Front 828

When an issuer requests to accelerate the effective date of an SEC filing, the SEC will:

Back 828

When an issuer requests to accelerate the effective date of an SEC filing, the SEC will review the information to ensure the issuer has submitted all the required data.

Front 829

When and why is the 13G filed?

Back 829

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

Front 830

When applying for listing on the NYSE, which TWO statements are TRUE concerning the minimum number of round-lot shareholders?

Back 830

- Only U.S. shareholders are considered.(NOT foreign)

- Beneficial shareholders of stock held in street name and stockholders of record will be considered. (NOT Only those of record)

Front 831

When calculating Common Stockholders Equity for a ROE calculation, what must be taken into account? What is also the BS calculation to get there?

Back 831

If you are given 2 years data, need to average.

Common Stockholders' Equity = common stock at par + APIC + Retained Earnings MINUS T-stock

(don't include preferred divs in numerator or stock in denominator for "Common ROE"

Front 832

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

Back 832

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

Front 833

When Can a road show be conducted?

Back 833

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

Front 834

When can an unseasoned issuer use an FWP?

Back 834

An unseasoned issuer can use a free-writing prospectus ONLY AFTER the registration statement has been filed.

Front 835

When can convertible bond or stock be converted?

Back 835

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

Front 836

When can IB and research have a conversation?

Back 836

Personnel in investment banking and research could have a conversation in the presence of a chaperone, but an investment bank rep could not attend an analyst teach-in (forum).

Front 837

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

Back 837

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

Front 838

When does a company file 10Qs and 10Ks?

Back 838

A company files 10-Qs are the first three fiscal quarters and a 10-K at the end of its fiscal fourth quarter.

Front 839

When does a schedule TO and/or 13D be filed?

Back 839

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 outstanding shares of a company, is required to file a Schedule TO (tender offer) as soon as practical on the commencement date. In addition, according to SEC rules, a 13D filing is made within 10 days when a person or group of persons acquires ownership of more than 5% of a company's equity. George's ownership is 4.8% (1,200,000 / 25,000,000). He does not need to file Schedule TO or Schedule 13D. This type of offering is referred to as a mini-tender offer. The disclosure and investor protection rules would not apply to this type of tender offer. The only applicable rules would be the antifraud regulations, the minimum open tender offer period (20 business days), and the mandate that investors must be paid promptly.

Front 840

When does Continuing Education have to be completed?

Back 840

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

Front 841

When entering mediation, is it voluntary for both parties? Is the mediator required to be a finra member? How many mediators on panel? DO you give up rights under code of arbitration?

Back 841

Mediation is a VOLUNTARY process entered into in an effort to solve a dispute.

There is a SINGLE mediator who may be any NEUTRAL 3rd party agreed to by the participants.

Parties may withdraw from mediation and pursue other remedies, such as arbitration, or civil court proceedings, hence they DON'T GIVE UP ARBITRATION RIGHTS.

Front 842

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

Back 842

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

Front 843

When is 8-K filed?

Back 843

All companies that are registered with the Securities and Exchange Commission are required to file Form 8-K for current reporting, upon the occurrence of any material event that would affect its financial condition or the value of its shares and that would be deemed of significant interest to the public. Each occurrence listed would necessitate the filing of Form 8-K. It would also be required if the firm were involved in a bankruptcy proceeding or if the firm acquired or disposed of a significant amount of assets not deemed to be in the ordinary course of business.

Front 844

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

Back 844

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

Front 845

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

Back 845

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

Front 846

When is a fairness opinion most likely used?

Back 846

A fairness opinion is most likely to be used when a target company's board is recommending that shareholders sell their shares.

Front 847

When is a married couple an accredited investor?

Back 847

A married couple with $300,000 in net income or $1,000,000 in net worth is an accredited investor.

Front 848

When is a Restricted Period Notification Form used?

Back 848

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

Front 849

When is an offering circular used?

Back 849

An offering circular is a disclosure document provided to an investor who is purchasing exempt securities under Regulation A (a public offering not exceeding $5,000,000).

Front 850

When is Corporate Debt or Commecial Paper exempt from registration?

Back 850

Corporate debt with a maturity of 270 days or less (commercial paper) is exempt from registration.

Front 851

When is DCF not a good valuation methodology?

Back 851

Discounted cash flow analysis is typically used for mature companies with stable and predictable cash flows. It is not a suitable metric when examining companies with little or no sales.

Front 852

When is EV/EBITDA a good metric and when is Price-to-Sales a good metric?

Back 852

EV/EBITDA is the best metric for valuing the companies in the industry. Price to sales is applicable in an industry when the earnings are nonexistent or low but the likelihood for growth of earnings is significant. The industry described is mature. The significance of the capital expenditures, depreciation, and size of market capitalization would justify the use of EV/EBITDA.

Front 853

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

Back 853

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

Front 854

When is P/E not an effective valuation metric?

Back 854

A P/E ratio is not an effective valuation metric for a company with recent operating losses and significant earnings volatility.

Front 855

When is preliminary proxy statement required? When would it not be required?

Back 855

A preliminary proxy statement is required for any shareholder votes involving a proposed merger. A preliminary proxy is not required for shareholder votes for the election of directors or accountants.

Front 856

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

Back 856

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

Front 857

When is S-8 filed?

Back 857

An S-8 is filed when securities are offered to company employees through an employee benefit plan.

Front 858

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

Back 858

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

Front 859

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

Back 859

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

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

Front 860

When is the use of pro forma statements considered fraudulent?

Back 860

When assumptions aren't clearly stated

Front 861

When must a creditor file a "proof of claim"?

Back 861

In Chapter 11, a creditor does not need to file a proof of claim if the debtor lists them on the debt schedule and the creditor does not disagree with the amount listed. If the creditor disagrees with the amount or is not listed, a proof of claim must be filed in a timely fashion.

Front 862

When must a definitive proxy statement be filed with SEC?

Back 862

A definitive proxy statement must be filed with the SEC at the same time it is sent to shareholders

Front 863

When must a person who sells restricted securities file a Form 144 notice of sale?

Back 863

An individual selling securities under Rule 144 must notify the SEC by filing a notice of sale. This must be done at the time a sell order is placed with a broker, or when the order is executed directly with a market maker.

Front 864

When must a red herring be amended and resubmitted to the SEC by an issuer?

Back 864

When the financial statements are outdated or "stale"

According to Regulation S-X, financial statements in a registration statement become stale and cannot be used, based on the number of days between the date of the statements in the filing and the effective date of the registration statement. For most issuers, this period cannot exceed 135 days and, in the case of an accelerated filer (a WKSI or seasoned issuer), the period is 130 days. On the effective date, the final prospectus is prepared since the red herring is no longer relevant.

Front 865

When must OFAC be notified if there is an issue?

Back 865

he Office of Foreign Asset Control (OFAC) administers U.S. economic sanctions and embargos with a number of countries such as Cuba, North Korea, Iran, and Syria. Any U.S. bank which has knowledge of a payment to or from one of these countries is required to block the transaction and report it to OFAC within 10 days

Front 866

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

Back 866

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

Front 867

When responding to a tender offer, what can management/bod recommend to shareholders?

Back 867

When responding to a tender offer, the subject company can accept, reject, remain neutral or state that it cannot take a position. It cannot recommend that shareholders purchase more shares of the company.

Front 868

When selecting members to the fairness committee, regulators require that broker-dealers set selection standards and employ a process that promotes a balanced view. Which of the following statements best describes how to accomplish this objective?

Back 868

The brokerage firm must appoint some members of the committee who are not part of the deal team.

A firm that will issue fairness opinions must have written procedures for approving the opinion. Most firms will use a fairness committee to approve the fairness opinion, and the firm must have a process for selecting the members and the qualifications of the persons serving on this committee. The fairness committee must include some members from outside the firm's deal team to promote balanced views. Deal team members may have an inherent bias, since their compensation may be contingent on the closing of the deal. The firm must also have a process to determine whether the different types of valuation metrics used in the opinion are appropriate.

Front 869

When should each of the following be inspected:

Nonsupervisory branches
Supervisory branches
OSJs
Nonbranch offices

Back 869

Offices of Supervisory Jurisdiction (OSJs) and supervisory branch offices (branch offices that supervise nonbranch offices) must be inspected by member firms at least annually.

Nonsupervisory branch offices are to be inspected at least every three years.

nonbranch offices are to be inspected with regularity. No specific time applies.

Front 870

When the curve inverts, yields are? What else is inverted yield curve called?

Back 870

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.

Front 871

When the sell-side adviser is doing due diligence in an all cash transaction, what is it concerned with?

Back 871

When the sell-side adviser is doing due diligence in an all cash transaction, it is concerned only with the buyer's ability to pay.

Front 872

Where and when can Regulation S securities be sold?

Back 872

Regulation S securities can be sold immediately on an SEC designated offshore securities exchange.

Front 873

Where are subordinated debentures on the priority list for bankruptcy?

Back 873

Subordinated debentures are below unsecured debt but above common stock in a liquidation proceeding.

Front 874

Where can a list of company's largest shareholders be found?

Back 874

A list of a company's largest shareholders can be found in a proxy statement.

Front 875

Where can a list of company's largest shareholders be found?

Back 875

A list of a company's largest shareholders could be found in a proxy.

Front 876

Where can the fees for a B/D doing advisory work be found?

Back 876

The fees that a broker dealer is receiving for advisory work can be found in the engagement letter.

Front 877

Where does CAPEX and Depreciation sit in the CF Statement?

Back 877

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

Front 878

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

Back 878

In the PROXY STATEMENT.

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

Front 879

Where must the possibility of stabilization be disclosed?

Back 879

The possibility of a stabilization bid must be disclosed in the prospectus.

Front 880

Which are exempt securities?

Back 880

Municipal bonds, treasuries, commercial paper, commercial bank securities and securities issued by non-profits are exempt securities.

Front 881

Which are the 3 types of companies that are not allowed to use the Reguation D exemption?

Back 881

Rule 504 of Regulation D allows an issuer to offer securities of up to $1,000,000 within a 12-month period. Provided the issuer complies with all the provisions of Regulation D, this private placement is exempt from SEC registration. There are three types of issuers that are not permitted to use this exemption: a company subject to the SEC's reporting requirements (a reporting company), an investment company, and a development stage company that has no specific business plan or purpose (e.g., a blank check company). In addition, the issuer is not required to provide a disclosure document under Rule 504. Under Regulation D, if the issuer offers securities exceeding $1,000,000, any nonaccredited investor must receive a disclosure document.

Front 882

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

Back 882

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

Front 883

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

Back 883

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

Front 884

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

Back 884

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

Front 885

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

Back 885

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

Front 886

Which of the following parties would file with the court in a voluntary bankruptcy?

Back 886

A Chapter 11 bankruptcy may be voluntary or involuntary. A voluntary bankruptcy is filed by the debtor or company filing the plan. In most circumstances, that entity is known as the debtor-in-possession (DIP). An involuntary bankruptcy is filed by the creditors that are owed money by the debtor or company.

Front 887

Which of the following registration activities require the use of Form S-8?

Back 887

Form S-8 is filed with the SEC to register securities that are made available through employee benefit plans

Front 888

Which of the following statements BEST describes the process used by the SEC when an issuer wants to accelerate the effective date of a filing?

Back 888

The SEC would review the issuer's filing to make sure there is adequate information concerning the securities being offered

Front 889

Which of the following statements is TRUE concerning Rule 144A transactions?
-The securities may be offered only to accredited investors.
-The securities may be offered only to qualified institutional buyers.
-An investor buying these securities must hold them for a period of six months.
-Only domestic issuers may offer securities under this type of offering.

Back 889

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.

Front 890

Which of the following transactions would NOT require approval by the board of directors of the target company?
-An offer to purchase a company where shareholders will receive stock of the acquiring company
-A cash tender offer by a third party to purchase the shares of a company
-An offer to purchase a company with a combination of cash and stock of the acquiring company
-A private equity firm making an offer to a company to purchase its stock for cash

Back 890

A tender offer by a third party to purchase shares of the company for cash can be made directly to shareholders and would not require approval by the board of directors. The board of directors must approve the other M&A transactions, whether the target company shareholders would receive cash or stocks, or a combination of the two. Although the offer by the third party bidder will not be subject to approval by the board, the bidder is still required to file a Schedule TO with the SEC and provide information to shareholders.

Front 891

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

Back 891

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

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

Front 892

Which TWO of the following statements are TRUE concerning the minimum criteria that a company must meet in order to be considered a well-known seasoned issuer (WKSI)?
-It must have been a reporting company for the previous12 months.
-It must have been a reporting company for the previous 36 months.
-The company must have a certain public float of debt or equity.
-The company must have a certain amount of annual revenue.

Back 892

It must have been a reporting company for the previous12 months. The company must have a certain public float of debt or equity.

Front 893

Which TWO of the following statements are TRUE regarding a fixed exchange ratio?

1.The buyer will not know how many shares it will need to issue to acquire the seller.
2.The buyer will know how many shares it will need to issue in order to acquire the seller.
3.The seller will not know the final purchase price of the transaction.
4.The seller will know the final purchase price of the transaction.

Back 893

2&3

If an M&A transaction has a fixed exchange ratio, the board of directors of the buyer have agreed to purchase the seller for a fixed number of shares. This amount will not fluctuate between the announcement date and the closing. Therefore, the buyer will know how many shares it will need to issue to acquire the seller. For example, RSR agrees to purchase all of the outstanding shares of EXA for $14.00 per share. The company has 1,000,000 shares outstanding. The transaction is valued at $14,000,000. If RSR stock is trading at $56.00 per share, it must issue 250,000 shares ($14,000,000 / $56.00), and the fixed exchange ratio would be .25 ($14.00 / $56.00). The seller will not know the final purchase price of the transaction, since the buyer's stock may fluctuate. If RSR stock declined to $54.00, the transaction would be valued at $13,500,000 (250,000 shares x $54.00). For this reason, a seller that is in a strong negotiating position may ask for a collar, or a minimum dollar value per share.

Front 894

Which TWO of the following statements are TRUE when a member firm issues unregistered securities through a private placement?
-The firm must disclose both the use of proceeds and the offering expenses.
-The firm is required to file the offering document with the Corporate Finance Department 10 days prior to first use.
-At least 90% of the offering proceeds must be used for business purposes.
-The firm is required to provide both accredited and nonaccredited investors with a disclosure document.

Back 894

I and IV

Front 895

Which type of risk does NOT apply to the holder of a zero-coupon bond?

Back 895

Reinvestment Risk. The risk to bond investors that interest income or principal repayments will have to be reinvested at lower rates in a declining rate environment. Zero-coupon bonds do not have interest payment reinvestment risk.

Zero-coupon bonds are issued at a discount and do not pay semiannual interest. Therefore, there are no interest payments to reinvest, eliminating reinvestment risk. When investing in fixed-income securities, one of the uncertainties is whether interest rates will allow an investor to realize the total return that was calculated at the time of the investment (yield to maturity). Zero-coupon bonds do not have reinvestment risk, but they do have extreme interest-rate risk because the bonds' duration will equal the years to maturity.

Front 896

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

Back 896

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

Front 897

Whish securities are exempt from registration?

Back 897

Certain securities are exempt from the registration and prospectus requirements of the Act because of the nature of the issuer. Among the exempted securities are:

U.S. government and U.S. government agency securities
Municipal securities
Securities issued by nonprofit organizations
Short-term corporate debt instruments (such as commercial paper) that have a maturity not exceeding 270 days
Securities issued by domestic banks and trust companies (but not bank holding companies)
Securities issued by small business investment companies (exempted by federal legislation regarding small businesses

Front 898

Who can participate in a Regulation S offering as a buyer?

Back 898

Only a non-U.S. person may buy an overseas offering sold under Regulation S.

-The investor must not be defined as a U.S. person. A U.S. person is defined as any individual who is a resident of the U.S. as well as any partnership, estate, or account held for the benefit of a U.S. resident.
-A U.S. investor who is traveling, or resides outside the U.S. for a significant part of the year, would still be classified as a U.S. investor.

Front 899

Who does Regulation allow securities to be sold to?

Back 899

Regulation S allows U.S. issuers to sell securities to non-U.S. residents.

Front 900

Who does statuatory voting give more power to? Smaller or larger shareholders? And why?

Back 900

Larger, more substantial.

A method of voting that gives larger, more substantial stockholders a greater degree of voting power over smaller, less substantial stockholders is statutory voting. Under statutory voting, each stockholder has one vote per share, per election. For example, if a corporation is electing three directors, and a shareholder owns 100 shares, the shareholder could cast 100 votes in each election.

Front 901

Who has authority in general partnership?

Back 901

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

Front 902

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

Back 902

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

Front 903

Who is Free cash flow available to?

Back 903

All shareholders - equity and debt

Front 904

Who is required to be fingerprinted?

Back 904

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

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

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

Front 905

Who is responsible for organizing the IPO road show?

Back 905

The lead or managing underwriter(s) have many responsibilities in the IPO process. Some of the lead manager's responsibilities are to organize the road show, assist management, the CEO, and CFO in preparing for the IPO, establishing the underwriting syndicate, perform due diligence on behalf of the syndicate, assist in setting the public offering price (POP) and size of the offering, and marketing the offering (building the book). Senior management is permitted to participate and usually the CEO and CFO make presentations. Although the syndicate is responsible to market the issue, in most offerings, only the lead manager(s) will organize the road show.

Front 906

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

Back 906

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

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

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

Front 907

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

Back 907

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

Front 908

Who issues FNMA bonds and who backs them?

Back 908

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

Front 909

Who pays roll up transaction solicitation expenses?

Back 909

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

Front 910

Who prepares the fairness opinion? For whose benefit?

Back 910

A fairness opinion is prepared with a fairness committee (typically part of the sell-side adviser), for the benefit of the TargetCo. shareholders.

Front 911

Who typically provides the funds in a stapled financing transaction?

Back 911

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

Front 912

Who typically signs a confidentiality agreement in a proposed merger?

Back 912

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

Front 913

Why are spinoffs done?

Back 913

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

Front 914

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

Back 914

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

Front 915

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

Back 915

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

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

Front 916

Why is the reason for a "lockup agreement" in an IPO?

Back 916

A lock-up agreement establishes a period during which pre-IPO shareholders such as management, venture capitalists, and other insiders, must wait to sell shares of their securities after an IPO is trading in the aftermarket. 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. It is designed to prohibit management and venture capitalists that initially funded the company from trading the stock. In addition, it may provide a comfort level for investors who are concerned that holders of pre-IPO shares might sell (dump) their shares as soon as the IPO begins trading. This would put selling pressure on the stock and may cause the price to decline. The lock-up period also restricts or limits the supply of shares being sold in the market. Trading on material nonpublic information is a violation and would not be a reason for a lock-up period. Restricted shares may be sold by investors through an IPO without the volume limitations imposed by SEC Rule 144.

Front 917

Why might net earnings be different from Continued Earnings from operations?

Back 917

An earnings report should distinguish between the income arising from the normal activities of the company and those arising from any special activities or transactions that a company engages in. Its net income reflects interest expense. This is a cost incurred by most concerns. The gain/loss on the divestiture of a business segment should be isolated on the income statement, as well as any extraordinary items,

Front 918

Why would a comoany issue convertible bond?

Back 918

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

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

Front 919

Will you typically see financial projections in an IPO prospectus?

Back 919

NO.

Earnings projections will not usually be contained in a statutory prospectus. Projections may be contained relating to certain business discussions and forward-looking statements. The SEC, through Regulation S-K, establishes rules for the format used when presenting projections, and issuers must be very careful when making projections in a statutory prospectus of an IPO. The other items listed would normally be contained in a statutory prospectus.

Front 920

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

Back 920

Well Known Seasoned Issuer

Front 921

Working Capital:

Back 921

Current Assets – Current Liabilities

Front 922

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

Back 922

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

Front 923

You are attempting to determine outliers within the retail sector. Which of the following valuation methods would an investment banking representative apply when evaluating retail companies that have similar degrees of financial leverage?

Back 923

Price/Sales ratios among similar retailers are frequently within a narrow range of values. Companies outside of this range (outliers) are expected to have relatively strong or weak revenue growth

Front 924

You are seeking information on insider purchases. Which of the following filings would be the BEST source for such information?

Back 924

Form 4 is filed by any insider of a corporation who buys or sells shares of his company.

Front 925

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

Back 925

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

Front 926

Your client is President of XYZ Corporation and is selling XYZ shares pursuant to Rule 144. According to the Rule, a filing must be made with the SEC:

Back 926

The filing must be made at the time of the sale and is effective for 90 days.

Front 927

Your firm is representing a Nasdaq-listed company that is in the process of purchasing a privately held software developer. The seller has asked your client to include an indemnification basket in the Definitive Purchase Agreement. What is the meaning of this provision?

Back 927

The seller does not have any liability until the amount of the buyer's losses exceeds a certain dollar amount of the purchase price if there is a breach of the contract.

Front 928

Your firm is the lead underwriter for a Jupiter Oil Exploration debt offering. Jupiter is issuing $200 MM of 5 3/4% bonds, due July 1, 2026. The bonds are priced at 99 1/2% of par value. An institutional client would like to know the approximate yield to maturity on the bond. You would reply that the yield would be LOWER, SAME, GREATER THAN 5 3/4%, DON'T KNOW? AND WHY?

Back 928

LOWER THAN 5 3/4%

The 5 3/4 % bonds are priced at a discount (99 1/2%) to par value ($1,000). An investor who purchases the bonds at the offering price, and who holds the bonds to maturity, would receive the par value of $1,000. Additionally, the investor's semiannual interest received is also assumed to be reinvested at prevailing rates. The interest earned on interest, coupled with the increase in the value of the bond, will provide a yield to maturity that is greater than 5 3/4%.

Front 929

List in terms of most stringent criteria for listing

-NYSE
-The Nasdaq Global Market
-Nasdaq Capital Market
-Nasdaq Global Select

Back 929

Considering the three levels of Nasdaq, the Capital Market has the least stringent initial listing requirements. The Nasdaq Global Market introduces more stringent listing requirements for net income, publicly held shares, stockholders' equity, etc. The NYSE initial listing requirements are less stringent than Nasdaq Global Select in several area such as publicly held shares, and financial criteria.