7. The Security Is Act Of 1933 And The Primary Markets Flashcards
True or false
The primary market is where securities are sold to the investing public in what are known as issuer transactions.
- in other words, the issue of the securities receives the proceeds generated by the sale of securities.
True
In contrast to primary markets
Secondary markets are where securities trade between investors.
True or false
True
Another term for primary and secondary markets is __________.
Capital markets
True or false?
When you see the term primary offer or primary market, you know that we are talking about an issuer (corporation or a government) that is selling a security to raise capital.
True
A _______ offering is one in which the proceeds raised go to the issuing corporation.
- the corporation increases its capitalization by selling stock (are there a new issue or previously authorized but unissued stock).
- it may do this at any time and in any amount, provided. The total stock outstanding never exceeds the amount authorized in the corporations bylaws
Primary offering
True or false?
Public offerings of securities are regulated under the securities act of 1933
True
True or false?
The primary purpose of the Securities Act of 1933 is to require full and fair disclosure and connection with the sale of securities to the public
True
This act requires that a new issue, unless specifically exempted from the act, be registered with the SEC before public sale
Securities act of 1933
Known as the first time an issuer distributes securities to the public.
- any subsequent money raises are known as _________ offerings or additional public offerings (APOs).
- are popular methods for companies to raise additional equity capital in the capital markets through a stock issue.
Initial public offering
Follow-on offerings
Are defined as
- Member firms
- Employees of member firms
- Finders and fiduciaries acting on behalf of the managing underwriter, including attorneys, accountants, financial consultants and so on
- Portfolio managers, including any person who has the authority to buy or sell securities for a bank, savings and loan association, insurance company, or investment company
- Any person owning 10% or more of a member firm?
Hint
This relates to those not allowed to purchase shares at the public offering price (POP)
Restricted persons
How many primary offerings can a corporation issue?
A. One primary offering
B. Two primary offerings
C.. Three primary offerings
D. Unlimited
D.
A corporation can sell as many shares, and have as many offerings, as a can get people to buy the stock.
What federal law regulates the initial sale of securities to the public?
A. The securities act of 1933
B. The security is exchange Act of 1934
C. The investment company act of 1940
D. The truth in investing act
A.
Which of the following may purchase an IPO at the POP?
A. Jim, a registered representative for seacoast securities
B. Jim’s brother Robert, a. Contractor
C. Jim’s niece, Amber, a. Chef
D. Jim’s father Roy, a retired engineer
C.
Jim, an employee of a broker dealer, is a prohibited person, as our his spouse, parents, siblings, children, and various “in-laws”.
Aunts and uncles are not on the prohibited list, nor are nieces and nephews
Take note
In securities, the term person refers to a natural person (human being) or a legal entity (such as a corporation or a government). Any entity that can legally enter into a contract as a person
An _____ is a corporation, government, or other entity that is selling a security to raise capital for itself.
- they are issuing the security.
- corporations may issue both equities and debt issues (stocks and bonds).
- a government entity may issue debt
Issuer
Larger corporations stock (after issued) that trade on a national exchange (listed) or the Nasdaq system are called?
National market system securities
Those who stock will not be listed
Non- NMS securities
Our governments at the state or or lower level, such as counties and cities.
This debt is sometimes called munis
Municipalities
Is considered the largest issue or of debt in the United States?
Treasury department
Debt issued by the government is sometimes called _____.
Govies
Are groups of BDs or investment bankers that work with an issuer to bring its securities to the market and sell them to the investing public.
Underwriters
_______ bankers help the issuer to structure, capital raises and, at times, form syndicates with other underwriters to facilitate this money - raising process.
Investment bankers
_________ underwriting calls for the underwriters (syndicate) to buy securities from the issuer acting simply as an agent, not as the principal.
- This means that the underwriters are not committed to purchase the shares themselves and therefore are not at risk
- closed by collecting client funds into an escrow account, so no underwriter capital is at risk in these types of offerings
- the underwriter is acting as an agent contingent on the underwriters ability to sell shares in either a public offering or a private placement
- the underwriter is not at risk for the shares, but the issuer is.
- if all the shares cannot be sold, the issuer will not raise the capital needed.
Best efforts underwriting
What are the two types of best efforts underwriting to be familiar with?
All-or-none (AON)
Mini-max
______ underwriting, the issuing corporation has determined that it wants an agreement outlining that the underwriter must either sell all the shares or cancel the underwriting.
- because of the uncertainty with this type of underwriting, any funds collected from investors during the offering. Must be held in escrow, pending final disposition of the underwriting
All- or- none underwrit
_______ underwriting sets a floor or minimum (the least amount the issuer needs to raise to move forward with the underwriting), as well as a ceiling or maximum on the dollar amount of securities the issuer is willing to sell.
- the underwriter must locate enough interested buyers to support the minimum (floor) issuance requirement.
- once the minimum is met, the underwriter can expand the offering up to the maximum (ceiling) amount of shares the issue or specified.
Mini-max underwriting
Type of underwriting where the investment banker is acting as principal
Firm commitment underwriting
_____________ underwriting is a widely used type of underwriting contract. Under its terms, the underwriters contract with the issuer to buy the securities.
- the underwriter buys shares from the assure and resells the securities to the public at a higher price – the POP – and earns this price differential (spread) for its efforts.
- here, the underwriters are acting as principles rather than agents.
- they are committing to purchasing any unsold shares for the syndicate account.
- it is the underwriters who are at risk for any shares they cannot sell to the public, not the issuer.
- if the shares cannot be sold, the underwriter must place the securities into his inventory and run the risk of losing money, should the position fall in value.
- The issuer knows that ultimately all the securities will be sold and all the capital needed will be raised
Firm commitment underwriting
Note
A firm may never guarantee to a customer that it will agree to repurchase the shares at the POP if the deal subsequently trades lower.
A type of joint venture where the BDs form up to share both the risk and the profits from the offering.
- One of its members will take on a lead role and provide significant resources to the venture - this role is called the managing underwriter.
Syndicates
A type of joint venture where the BDs form up to share both the risk and the profits from the offering.
- One of its members will take on a lead role and provide significant resources to the venture - this role is called the managing underwriter.
Syndicates