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Series 79 Exam > 79 Study > Flashcards

79 Study Flashcards

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Series 79 Top-Off Exam flashcards
1
Q

Form 8-K - filed when?

A

Within four days of triggering event

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2
Q

Schedule 13D threshold and when filed?

What info does it contain?

A

Report by owner of >5% voting class

Filed within 10 days after purchase

info about purchaser, source of funds for trans, interest held, agreements w/purchaser, purpose of transaction

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3
Q

Schedule 13G

who for?

when filed?

what info does it contain?

A

simplified alternative to 13D for institutional investors (and some who don’t intend to affect control of issuer)

Filed w/i 45 days after end of calendar year of purchase for institutional investors

w/i 10 days of purchase for non-institutional investors

*doesn’t include info on source of funds or purpose of trans

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4
Q

Form 13F

who for?

when filed?

what info does it contain?

A

quarterly report for large investment managers (investment discretion >$100mm exchange-traded equities)

filed w/i 45 days after end of each calendar quarter

includes name of investment manager, securities managed, shares owned

*doesn’t include info on short positions or non-equity holdings

other nuances:

  • Mutual funds AREN’T reported on 13F
  • foreign instit investment managers are required to file when they do biz in US and manage >$100mm in assets
  • ETFs ARE reported on form 13F
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5
Q

Schedule 14A

Who for?

when prepared/filed?

what info?

A

Co prepared schedule with info on what issues the shareholders will need to vote on by proxy

contains holdings of largest shareholders

must be sent to shareholders 20 days in advance of the annual meeting and filed before sent

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6
Q

Beneficial Ownership Reports

List the Forms they come in, what they contain, and when filed

A

Form 3 - initial stmt. filed w/i 10 days of becoming insider

Form 4 - discloses change in beneficial ownership. must be filed when insiders owning >10% of outstanding buy or sell shares.
*Filed w/i two business days of trans that caused change

Form 5 - annual stmt of changes in beneficial ownership. shows changes of Forms 3 and 4 and must be filed w/i 45 days of company’s FYE

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7
Q

Accelerated filers

what makes you one?

when do you have to file your docs?

A

reporting for more than a year

public float of >=$75 million

must file 10-K w/i 75 days of end of fiscal year (regular filers 90 days)

40 days to file 10-Q (regular filers 45 days)

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8
Q

Large accelerated filers

what makes you one?

when do you have to file your docs?

A

reporting more than a year

public float >$700 million

60 days to file 10-K (regular filers 90 days)

40 days to file 10-Q (regular filers 45 days)

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9
Q

Examples of 8-K triggering events

A

instructions specify more than two dozen

  • entry into or termination of a “material definitive agreement”
  • bankruptcy
  • closed acq or sold assets
  • results of ops and financial condition disclosure
  • off-balance sheet arrangements
  • material impairments
  • notice of delisting or transfer of listing
  • chngs to rights of security holders
  • chng in fiscal year
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10
Q

NASD Rule 2711(b) and NYSE Rule 472(b)IB’s role with regards to research reports

A

IB can’t have control over a research analyst

IB can’t review or approve a research report other than to verify factual accuracy or identify a conflict of interest (ie restricted list)

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11
Q

NASD 2711(j) and NYSE Rule 472(g)(2)IB and retaliation

A

IB not allowed to retaliate against a research analyst for releasing a negative report

can’t threaten to retaliate either

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12
Q

NASD Rule 2711 on bake-offs

A

research analysts can’t attend bake-offs

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13
Q

Balance Sheet

‘aka’s and key considerations

A
  • Statement of Financial Condition
  • Statement of Condition

“snapshot” in time, not a period stmt

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14
Q

Income Statement

‘aka’s and key considerations

A
  • Profit and Loss Stmt
  • P&L
  • Earnings Statement
  • Operations Stmt
  • Stmt of Operating Results

most often accrual based (revenue recognized even if not actually received and expenses may show up as accrued before they are paid)

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15
Q

Cash Flow Statement

‘aka’s and key considerations

A
  • Statement of Cash Flows
  • Funds Flow Statement

shows revenue when received and expenses when paid

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16
Q

Marketable Securities

account on the BS - how are they valued?

A

They are valued at the LOWER of their cost or their market value.
No mark-to-market here

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17
Q

PP&E how is it valued on the BS?

A

equipment valued less depreciation

Real estate valued at the cost at purchase

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18
Q

Organization Costs

how are they handled on the IS and BS?

A

they are expenses associated with starting a new business enterprise can include legal fees, business filing fees, and registration fees, etc.

*generally considered an intangible asset and amortized on the balance sheet

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19
Q

Intangible Assets
- Goodwill

Define and how is it calculated and assessed?

what are other intangible assets and how are they handled?

A

Goodwill is the value of an acquired company in excess of pure asset value

Annual goodwill impairment test compares the fair mkt value of an acquired co to its carrying value (book value) of assets and liabilities
- goodwill will be impaired by the difference if the carrying value is higher than its FMV

other intangibles include IP like patents, trademarks, copyright, trade secrets, etc.

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20
Q

Treasury stock

what is it?

what are its rights/powers?

A

stock repurchased by the Company

no voting rights and doesn’t receive a dividend

don’t treat it as common stock for EPS multiples and such

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21
Q

Current Ratio

A

CA / CL

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22
Q

Quick Ratio

A

aka Acid Test

(CA - Inv.) / CL

or

(Cash + AR) / CL

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23
Q

Acid Test Ratio

A

aka Quick Ratio

(CA - Inv.) / CL

or

(Cash + AR) / CL

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24
Q

Debt-to-Capital Ratio

A

Debt / (D + E)
*note that some analysts use LT Debt rather than total as numeratoror

(less frequently)

TL / TA

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25
Q

Cash Conversion Cycle

A

Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding

express as the avg number of Days in each cycle

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26
Q

Inventory Turnover Ratio

Days Inventory Outstanding

A

COGS / Avg Inventory

365 / Inventory Turnover

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27
Q

Receivables Turnover Ratio

Days Receivables Outstanding (what’s other name for it?)

A

Net Credit Sales / Avg. AR

*can use Sale is net credit sales not available

365 / Receivables Turnover

*also called Average Collection Period

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28
Q

Payables Turnover Ratio

Days Payable Outstanding (other name?)

A

COGS / Avg. AP

365 / Payables Turnover

*aka Average Payable Period

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29
Q

Free Cash Flow to the Firm (FCFF)

unlevered or levered?

what val method uses it?

three ways to calculate, what are they?

A

This is unlevered FCF b/c it’s CF before interest on debt considered. therefore this is the FCF used for the DCF, which uses unlevered FCF.

EBIT(1-tax rate) + Noncash (D&A) - Capex - Increases in WC

or calculate by:

NI + Noncash + Interest(1-tax rate) - Capex - increase in WC

or calculate by

CF from Ops + Interest(1-tax rate) - Capex

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30
Q

Free Cash Flow to Equity

unlevered or levered?

A

Levered FCF

NI + noncash - Capex - Increase in WC + Increases in Net Borrowing

or

FCFF - Interest(1-tax rate) + Increases in Net Borrowing

or

CF Ops - Capex + Increases in Net Borrowing

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31
Q

Free Cash Flow Yield

A

FCFE / Market Cap

or

FCFF / EV

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32
Q

Earnings Yield

A

EPS / Mkt Price

or

NI / Mkt Cap

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33
Q

Equity Turnover

A

Sales / Avg. SE

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34
Q

Return on Equity

A

NI / Avg. SE

or

NI / Beginning SE

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35
Q

Return on Assets

A

NI / Avg. TA

or

NI / Beginning TA

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36
Q

Return on Invested Capital

A

EBIT / (Net Debt + Equity)

or

(EBIT * (1-tax rate)) / (Net Debt + Equity)

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37
Q

Total Expense Ratio

A

Total Fund Op Costs / Avg. Total Fund Assets

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38
Q

Interest Coverage Ratio

A

EBIT / Interest Expense

*OI typically same as EBIT

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39
Q

Operating Leverage

A

% change in EBIT / % change in sales

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40
Q

Equity Value (different from market cap how)

A

takes into account all equity interests

Market cap plus value of in-the-money stock options, warrants, and convertible securities

*when computing use fully diluted shares if info is available

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41
Q

Enterprise Value

A

Mkt Value of Equity + Net Debt

or

Mkt Value Equity + Mkt Value Pfd Shares + Net Debt + Non-Controlling Interests

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42
Q

PEG Ratio

A

P / E / G

Growth is the growth % multiplied by 100 to make it an integer

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43
Q

Stated Book Value

A

Assets - liabilities

in other words, SE

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44
Q

Tangible Book Value

A

Assets - Intangible assets - liabilities

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45
Q

Net Asset Value

A

equals Book Value

Assets - Liabilities

therefore also equals SE

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46
Q

Dividend Yield

A

Annual Dividend per share / Mkt price

or

Div to common / Mkt Cap

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47
Q

Dividend Payout Ratio

A

Yearly Div per share / EPS

or

Yearly Div to common / (NI+Pfd dividends)

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48
Q

WACC

A

(rd(D/(D+E))(1-tax rate)) + (re*(E/(D+E)))

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49
Q

Economic Profit

A

Net profit minus opportunity cost of capital

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50
Q

Present Value

A

Coupon / ((1+r)^n)

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51
Q

Net present value

A

PV of CFs - (Investment Amount + PV Cash Outflows)

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52
Q

IRR

A

discount rate at which the NPV is $0

IRR needs to be higher than cost of borrowing for a project to feasible

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53
Q

CAGR

what’s the way to calc on the exam?

A

((End / Begin)^(1/n)) - 1

won’t have an exponential calculator - so if get a question on CAGR then grow the number by the various answers to determine approximate CAGR

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54
Q

Dividend Discount Model

What is it?

How is it calculated?

If Dividends growing at constant rate?

A

used to determine is a stock is over- or undervalued

calcs predicted value of share based on NPV of future dividends

works same way as a DCF using dividends rather than FCF

If dividends growing at constant rate:
Stock Price = Annual Div/(Required Rate of Return - Growth Rate)

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55
Q

Asset Turnover

A

Revenue / Avg. TA

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56
Q

Inventory (calculations)

A

Beginning Inventory + Purchases - COGS

remember LIFO and FIFO, will be tested on them

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57
Q

Essential functions of a financial marke

tWhat attributes are generally necessary for an effective market

A
  • Raising capital
  • Valuing assets and enabling trading
  • Facilitating commercial activity
  • Managing and transferring risk

attributes:

  • Liquidity
  • Transparency
  • Operational efficiency
  • Informational efficiency
  • appropriate regulation
  • enforcement mechanisms
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58
Q

Market capitalization

What are the ranges for mega, large, mid, small, and micro cap, respectively

A

Mega cap
- mkt cap >$200 billion

Large cap
- mkt cap >$10 billion and $2 billion and $300 million and

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59
Q

Dow Jones Industrial Average (DJIA)

How is it weighted?

A

price weighted index of 30 companies ranging from tech, telecomm, financial consumer services, and retail

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60
Q

Leading economic indicators

A
  • Department of Labor’s monthly employment report
  • initial applications for unemployment
  • new manufacturing orders for consumer goods
  • new manufacturing orders for non-defense capital goods
  • vendor delivery times
  • housing starts
  • capacity utilization rate
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61
Q

Department of Labor’s monthly employment report

what kind of indicator?

A

Leading economic indicator

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62
Q

initial applications for unemployment

what kind of indicator?

A

Leading economic indicator

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63
Q

new manufacturing orders for consumer goods

what kind of indicator?

A

Leading economic indicator

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64
Q

vendor delivery times

what kind of indicator?

A

Leading economic indicator

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65
Q

housing starts

what kind of indicator?

A

Leading economic indicator

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66
Q

capacity utilization rate

what kind of indicator?

A

Leading economic indicator

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67
Q

inflation-adjusted money supply

what kind of indicator?

A

Leading economic indicator

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68
Q

spread btwn short- and long-term interest rates

what kind of indicator?

A

Leading economic indicator

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69
Q

performance of the S&P 500

what kind of indicator?

A

Leading economic indicator

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70
Q

index of consumer sentiment

what kind of indicator?

A

Leading economic indicator

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71
Q

Coincident economic indicators

A
  • Gross domestic product
  • personal income (excluding transfer payments)
  • Non-farm payrolls
  • Producer Price Index
  • Industrial production
  • retail and manufacturing Sales
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72
Q

Gross domestic product

what kind of indicator?

A

Coincident economic indicator

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73
Q

Personal income

what kind of indicator?

A

Coincident economic indicator

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74
Q

Non-farm payrolls

what kind of indicator?

A

Coincident economic indicator

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75
Q

Producer price index

what kind of indicator?

A

Coincident economic indicator

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76
Q

Industrial production

what kind of indicator?

A

Coincident economic indicator

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77
Q

Retail and manufacturing sales

what kind of indicator?

A

Coincident economic indicator

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78
Q

Lagging economic indicators

A
  • unemployment rate
  • business spending
  • consumer Price Index
  • change in Labor cost per unit of output
  • ratio of manufacturing and retail inventories to Sales
  • bank loans Outstanding
  • prime rate charged by banks
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79
Q

Unemployment rate

what kind of indicator?

A

Lagging economic indicator

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80
Q

Business spending

what kind of indicator?

A

Lagging economic indicator

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81
Q

Consumer price index

what kind of indicator?

A

Lagging economic indicator

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82
Q

Change in labor cost per unit of output

what kind of indicator?

A

Lagging economic indicator

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83
Q

Ratio of manufacturing and retail inventories to sales

what kind of indicator?

A

Lagging economic indicator

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84
Q

Bank loans outstanding

what kind of indicator?

A

Lagging economic indicator

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85
Q

Prime rate charged by banks

what kind of indicator?

A

Lagging economic indicator

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86
Q

Dividends Paid

what happens on the dividend declaration date?

A

NI - Increase in retained earnings

on the dividend declaration date the retained earnings account is debited the dividend and the dividends payable account is credited the same amount

**remember this b/c even if the divdend is declared to be paid in the next fiscal period it will affect earnings in the period it was announced

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87
Q

IRR

A

Rate than produces an NPV of $0 from CFs of a project - a project is economically feasible if IRR>Cost of Borrowing

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88
Q

Trustees rights upon default

A

Accelerate a bond to maturity - their rights center around the best interest of investors

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89
Q

FINRA Rule 5150

fairness opinions

A

fairness opinions need to be disclosed to the public but they are rendered to the board of directors by sell side bankers

***fairness opinions of M&A only state that the transaction is fair from a financial perspective

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90
Q

Inventory Turnover Ratio (COGS Version)

A

COGS / Avg. Inventory

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91
Q

Bonds @ Call

A

Call price times par (typically $1000) plus interest -

***remember to divide by two , semi-annual coupons

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92
Q

363 Sale

A

Asset sale in bankruptcy - Section 363 is part of bankruptcy code

Debtor or trustee files a motion in bankruptcy court seeking approval - court typically allows if beneficial to creditors

***unlike a reorganization plan (Ch. 11), 363 sale doesn’t require approval of creditors

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93
Q

NYSE Rule 342

A

each office of supervisory jurisdiction must have at least one qualified principal b/c that office is deemed as having regulatory significance by either FINRA or member firm

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94
Q

Rule 147

A

Intrastate offering exemption

falls under Section 3(a)11 of Securities Act of 1933

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95
Q

Intrastate offering exemption - what’s the rule?

A

Rule 147”Safe harbor” rule that exempts issues from registration

80% of assets and revenues in the state

80% of proceeds used in state

idea is they’re local enough in nature to not need fed involvement

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96
Q

Trust & indentures contain?

A

payment schedule that shows priority of payments

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97
Q

Cooling off period

A

aka Waiting Period and formal name: Registration Period

after registration has been filed with SEC but before it’s effective

written offers allowed

  • limited to prelim prospectus (red herring), generic ads, & road show presentations
  • also allowed to post tombstones which alert public that transaction is comingSales of security not allowed
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98
Q

Regulation S-X

A

lays out form and content of financial stmts that must be filed with registration statement

All companies must file:

  • audited BS for last two years (or if new audited BS from w/in 135 days of filing)
  • Audited IS & CF stmts for last three years (or as long as existence)
  • Analysis of chng in stockholder’s equity
  • PF financial info if biz combination occured
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99
Q

S-4

A

submitted for M&A btwn companies and for exchange offersfiled by the acquirer when the acquirer issues securities to pay for the acquisition

details executive comp, text of merger agreement, risk factors of deal, Q&A, financial infoincludes info about voting procedures and whether or not trans will be taxable for the investor

Signed by registrant, its principal exec officers, financial officer, acctng officer, majority of BoD

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100
Q

FINRA Rule 5121 regarding conflicts of interest of member firms

Member firms with conflicts are prohibited from participating in an offering unless one of two conditions are met. What are those two conditions?

A

prohibits member firm w/a conflict of interest from participating in public offering unless one of below holds:

  1. nature of conflict is disclosed in prospectus/offering circular/etc. AND either
    a) member firm primarily responsible for managing offer doesn’t have conflict and is not affiliate of firm with conflict
    b) offered secs are exchange-listed and satisfy bona fide public market
    c) investment grade
  2. qualified independent underwriter (QIU) helped prepare reg stmt or prospectus - they don’t have to assist is pricing the issue
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101
Q

Unpriced indications in OTC market

A

Registered rep IS allowed to enter a “bid wanted” to see levels of indication interest in OTC market

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102
Q

Regulation M - participation complete when…

A

Selling group members not part of underwriting syndicate considered to have their participation complete when they sell their allotment

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103
Q

Inverted yield curve

A

ST rate > LT rates

ST credit severely tightened (rates are higher, credit tighter, harder for cos to borrow)

Means about to be a slowdown in the economy - happens when investors EXPECT a loosening of monetary policy

occur when investors seek out safety of returns - buy LT bonds, prices rise, yields go down below ST yields

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104
Q

FINRA Rule 3270

Outside Business Activities

A

Outside Business Activities

anything have a role in (director, partner, etc.), paid or not, has to be approved by member firm

Private securities transactions not under this rule though - they’re under NASD 3040

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105
Q

FINRA Rule 3110

A

Annual compliance meeting must be held but there’s not minimum time limit required

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106
Q

Exempt securities under Securities Act 1933

A

securities guaranteed by a bank

munis

commercial paper with maturity of 9 months or less

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107
Q

Arbitration

what are the levels denoting panel of arbitrators?

what happens to awards?

other characteristics?

A

Claims:
$100,000 panel will have three UNLESS parties agree IN WRITING to one

awards are always made public

if the customer is the claimant, they may demand that a panel of three arbitrators be comprised entirely of public arbitrators, instead of just a simple majority

***FYI arbitration provisions need to be on the account agreement signed by the customer

if the customer files an initial stmt of claim that brings the dispute to arbitration, the rep has 45 days to respond in a defense or a counterclaim, then the customer have 20 days w/i receipt of the counterclaim to respond

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108
Q

Spike in interest rates - what happens?

A

could cause a recession as it would be too expensive for companies to borrow

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109
Q

Corp bonds secured by mortgaged prop must

A

provide the trustee with a certificate of opinion from an “outside expert” if:

  • the FV of property or securities is at least 10% of the agg principal of the outstanding indenture securities (& at least $25,000 in agg)
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110
Q

Regulation S-K

A

requires a bona fide price range in the preliminary prospectus

Range must be:

  • $2 range of stocks prices @ $20 or below
  • 20% of the upper end point for stocks price >$20 per share
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111
Q

C corp acquiring C corp

A

stock for stock purchase most tax friendly to target shareholders b/c they can defer taxation until the acquirer stock

  • for this to work buyer must meet the requirements of SEction 338
  • 338(h)(10) elections unavailable to acquirers of C corps
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112
Q

S&P bond ratings

A 
AAA
AA+
AA
AA-
A+
AA-
BBB+
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113
Q

Rule 134

A

communications allowed after filing of registration statement:

  • info not deemed a prospectus as long as stmt filed
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114
Q

Widening of credit spreads indicate

A

economic contraction

fed would loosen money supply

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115
Q

Form S-3

A

Used by large, seasoned issuers that already report with the SEC

  • Large seasoned issuers must have
  • public float of at least $75 million OR have securities listed on a public exchange
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116
Q

Public float

A

total mkt value of shares not held by insiders or affiliates

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117
Q

S-2

A

doesn’t exist - trick question

118
Q

S-8

A

Employee Stock Purchase Plans (ESOPs)

119
Q

Prospectus

A

offering doc filed with the SEC

SEC doesn’t approve the accuracy of it, they just need it filed with them

120
Q

Sarbanes-Oxley, Section 402

A

companies lending to executives isn’t allowed except for home improvement projects

can’t do medical or educational expenses loans

can’t do loans to buy company stock

*this rule also exempts loans made by FDIC insured banks to executives

121
Q

M1

A

physical currency in the market as measured by the Fed- currency held by public

  • checking accounts
  • demand deposits
  • negotiable order of withdrawal (NOW) accounts
122
Q

M2

A

expands M1 to add

  • savings accounts
  • money market accounts
  • money market funds
123
Q

Trust Indenture Act of 1939

characteristics of bonds held by the trustee?

what are the characteristics of bonds that fall under its scope?

A

outstanding bonds (those not held by issuer or an affiliate) have voting rights upon default

**bonds held by the trustee ARE considered outstanding and therefore have voting rights

act applies to corporate bond offerings that are in excess of $5 million over 1 year and mature in more than 270 days (9 months)

  • companies that sells bonds that fit in those parameters (>$5mm in 1 yr w/maturities >9mos) must sell them under an indenture or contract
  • the indenture will be held by a trustee who represents the bondholders interests
  • company must appoint this outside trustee

**government issued debt are NOT covered under the ACT

124
Q

Regulatory element training

A

must take w/in 3 years or become Continuing Education (CE) inactive

if CE inactive:
- not allowed to engage in or be compensated for securities transactions

if CE inactive for 2 years:
- must retake qualifying exams

125
Q

both buy and sell side bankers on a transaction

A

help prepare fairness opinion

perform val analyses

126
Q

DPP Rollups

A

Direct Participation Plans

  • only a rollup when investors terms are changed adversely
  • done to make a DPP investment liquid- investor vote typically required
  • disclosure docs required that lay out risk factors, GP’s belief in fairness of the transaction, and fairness opinions

FINRA members prohibited from receiving compensation tied to whether or not trans goes through

127
Q

Direct Participation Plans (DPP) rollups and member firms

A

FINRA members prohibited from receiving compensation tied to whether or not trans goes through

Comp can only be:

  • certain amount regardless of how investors vote
  • comp must be less than 10% of gross proceeds
128
Q

Agencies back by US Government faith and credit

A

Government National Mortgage Association (Ginnie Mae)
Tennessee Valley Authority (TVA)
Small Business Administration (SBA)
Private Export Funding Corporation (PEFCO)

129
Q

Agencies NOT back by US Gov faith and credit

A

Federal Agriculture Mortgage Corporation (Farmer MAC)
Federal Home Loan Banks (FHLB)
Federal Home Loan Mortgage Association (Fannie Mae)
Federal Farm Credit Bank (FFCB)

130
Q

Acquisitions may be approved by the following organizations

A

FTC
SEC
DOJ

131
Q

Rule 430A on changes in price of an offering in a registration stmt

A

Securities Act 1933

need to submit a revised registration statement if price changes 20%

if the change in price isn’t 20% greater or less than the upper and lower limits of the range, the company is allowed to make a 424(b) filing instead to note the change in price

132
Q

Regulation S safe harbor issues must be disclosed where?

A

on the company’s 10Q

133
Q

Regulation M, Rule 104

Stabilizing bids - when can they be made?

A

Syndicate manager can put in a stabilizing bid at the LOWER of the IPO price or the highest independent bid

  • stabilizing transactions may only be used to slow or stop the fall of the price of a security
  • independent bids must be granted priority
  • only one stabilizing bid may be entered per market
  • bid must be identified as a stabilizing bid
134
Q

S-4

A

business combination form filed with SEC

DOESN’T include an underwriting discount - that’s only included in S1

135
Q

Form U-5

A

must be provided by the member firm to the person requesting within 2 business days of the request

136
Q

PORTAL market

A

NASDAQ market for unregistered securities

137
Q

SE Act 1934 - Section 9(a)(1)-(a)(6)

A

rules on manipulation of security prices

138
Q

SE Act 1934 set up what?

A

regulations on secondary marketestablished SEC

required broker-dealers to be registered

DID NOT institue regs on how securities are registered, issued, and distributed to public for first time - Securities Act 1933 did that

139
Q

CAPM

A

rf+B(rm-rf)

140
Q

PIK toggles - when are they most often used

A

LBOs, apparently

  • never seen one but that’s the FINRA thought on it
141
Q

Cash Ratio

A

Cash/CL

best ratio for short term lenders b/c shows immediate liquidity

142
Q

Current Ratio

A

CA/CL

143
Q

Quick Rato

A

aka acid test ratio

(CA-Inventory)/CL

144
Q

Acid test ratio

A

aka Quick Ratio

(CA-Inventory)/CL

145
Q

Yankee bonds

A

issued by foreign issuer in the US and dollar denominated

Minimal liquidity risk (big market)

Credit risk possible if not issued by a foreign gov (who would have strong credit)

Biggest risks:- interest rate risk (bonds in general)- currency risks (if buyer is foreign)

146
Q

Earnings Yield

A

EPS/Mkt Price

or

NI/Mkt Cap

147
Q

Dividend Payout Ratio

A

Dividend per common share / EPS

where EPS= (NI - Pfd. Div) / Common Outstanding

or

Div paid to common / (NI - Pfd. Dividends)

148
Q

Balance Sheet

A

aka Stmt of Financial Position

149
Q

Retained earnings of a C corp

A

not subject to double taxation

LLC and S corp retained earnings would be taxed at capital gains for the individuals

150
Q

Treasury receipts

A

issued by broker dealers and backed up by treasury securities held in escrow by broker-dealer

NOT backed by faith and credit of US gov

151
Q

Systematic Risk

A

risk applied to entire market or entire asset class

Business risk isn’t a systematic risk

Examples of systematic risk include:

  • interest rate risk
  • market risk
  • inflation risk
152
Q

TIPS

A

treasury securities that are inflation protectedthe PRINCIPAL varies based on the CPI (not the interest)

exempt from state and local taxes (**note they might get tricky and ask if exempt from federal taxes, they aren’t, they have to pay federal income tax)

at maturity pay out greater of inflation adjusted principal or original principal

the interest on them is fixed but it’s calculated off of the principal, which move based on the CPI so while the rate is always the same the interest payment can fluctuate

153
Q

Well-known seasoned issuers

A

public float >$700 million

may use free-writing prospectus both before and after registration statement has been filed

  • if NOT a WKSI then can only use free-writing after filing
154
Q

Securities Act 1933 - data in prospectuses

A

if used more than 9 months after effective date of registration then info must not be more than 16 months old, dated from time of use

155
Q

NASDAQ listing requirements

A

not an OTC market

  • it’s a listed exhange

Requirements:

  • 1 million publicly held shares (not counting directors/offices and any shares owned by person(s) that own 10% or more of co.)
  • 300 round lot shares
  • 3 market makers
  • Bid price of at least $4
156
Q

144A securities and QIBs

A

offered to ppl that aren’t qualified institutional buyers BUT ONLY BOUGHT BY QIBs

  • non-QIBs can see but not touch so to speak
157
Q

When must final prospectus be sent to purchaser?

A

no later than confirmation of purchase

158
Q

Syndicate settlement date

A

date securities are delivered from issuer to underwriters

manager of syndicate then has 90 days after syndicate settlement to finalize syndicate accounts - which will include an itemized stmt of syndicate expenses to be divided pro rata among underwriters

159
Q

When must lead underwriter notify NASDAQ of IPO price?

A

by 6:45PM ET the day before the offering

160
Q

Rule 344

distributing 3rd party research reports

A

NYSE Rule 344

registered principal or supervisory analyst must provide a SIGNATURE or INITIAL before a member can distribute a 3rd party research report

161
Q

SEC Rule 15c2-4 on escrowing funds

A

Rule on escrowing money from prospective purchasers

checks and money orders from prospective purchasers must be delivered promptly (by noon next day) to escrow agent

  • escrow agent must be a national bank not affiliated with issuer or underwriter OR a savings & loan institution that is DIF-insured (depositors insurance fund, all DIF member banks are also members of the FDIC) and OCC-regulated (office of the comptroller of the currency, independent bureau of the treasury)

This happens in contingency offereings (all-or-none and mini-max offerings) where money might have to go back to investors if order isn’t filled

162
Q

Mini-max offering

A

designates a minimum amount of shares that must be sold or the offering is cancelled

163
Q

Regulation M, Rule 102 on exempt securities

A

exempts securities with:

ADTV >=$1 million AND public float of >= $150 million

164
Q

Rule 144 - how long restricted securities must be held

A

Restricted securities must be held for:

  • 6 months if company reporting under 1934 act
  • 1 year if issuer not subject to reporting requirements
165
Q

Restricted securities

A

defined under Rule 144 to include securities acquired from the issuer in a private placement or other exempt offering

166
Q

Control securities

A

defined under Rule 144 as securities held by an affiliate of the issuer - a person that directly or indirectly controls, is controlled by, or is under common control with the issuer

167
Q

Section 4 - Securities Act 1933

  • exemptions on unregistered securities
A

lays out exemptions for issuing unregistered securities

if offered in a private transaction to accredited investors the offering is exempt from a registration statement

168
Q

Accredited investors defined as

A
  • Net worth >=$1 million not including value of primary residence
  • individual w/income last 2 years >=$200K both years (and reasonable assumption to do the same in current year)
  • joint income w/spouse last 2 years >=$300K both years (and reasonable assumption to do same in current year)
169
Q

Regulation M, Rule 103

passive market making

A

Regulation M

Passive market making

  • market makers can’t bid in restricted period any higher than highest independent bid
  • can bid lower than highest bid ==> called passive market making
  • must notify FINRA in advance
  • net purchases IN A DAY during restricted period can’t exceed 30% ADTV OR 200 shares
170
Q

Rule 504

A

Regulation D - offerings exempt if

up to $1 million in 12 months

no limit of non-accredited investors

restricted from general advertising

only available to non-reporting issuers (except investment companies, shell or blank-check companies, penny stock issuers)

171
Q

Rule 505

A

Regulation D - offerings exempt if

up to $5 million in 12 months

35 non-accredited investors, unlimited accredited

restricted from general advertising

available to all issuers other thna investment companies and issuers previously disqualified by prior securities law violations

172
Q

Rule 506

A

Regulation D - offerings exempt if

no size limit, 35 unaccredited if advised by a sophisticated advisor, unlimited accredited

restricted from general advertising

available to all issuers

173
Q

can brokers accept unsolicited trade offers?

A

yes

if the client hasn’t provided the appropriate suitability information the broker wouldn’t be able to give advice or suggest securities

but yes, they could take a trade order and fill it the customer says the stock and says how many shares to buy in what capacity (ie at market)

174
Q

SEC Rule 15c2-4 on investing escrowed funds by escrow agent

A

escrow agent can only invest in:

  1. bank accounts
  2. bank money-market accounts
  3. short time CDs issued by a bank
  4. ST securities issued or guaranteed by US gov
175
Q

SEC Rule 15c2-4 investments escrow agent NOT allowed to do

A

again, NOT ALLOWED:

Money-market funds

Corporate equity or debt securities

Repurchase agreements

Banker acceptances

Commercial paper

Municipal securities

176
Q

“Non-qualified” with regards to an annuity

A

refers to the tax deductibility of the principalthe principal in the annuity has already been taxed so only the earnings in a non-qualified annuity are taxable upon withdrawal

177
Q

Whether or not to exercise a greenshoe option as an underwriter if stock trading down

A

Price below which not to use greenshoe = Offer Price - (Spread * Offer)

178
Q

Rule 15c2-8

A

Delivery of Prospectus rule

Broker-dealer managing underwriter must take reasonable steps to provide other broker dealers participating in the underwriting with copies of the following, as requested:

  • prelim prospectus
  • amended prospectus
  • final prospectuis (if substantially different and the associated persons received a prelim)
179
Q

Positive affirmation letter

A

must be provided by a customer in writing saying that the account is not restricted before they’re allowed to buy shares of an IPO

180
Q

Negative consent letter

A

annual testing to make sure the account that bought the IPO shares still not restricted.

States that the person isn’t restricted unless they inform the firm otherwise.

181
Q

Secondary offering

A

one in which one or more major shareholders sell all or a major portion of their holdings

182
Q

the Pot

A

the pot is the part of the issue returned to the underwriter so that it can be sold to institutional investors

183
Q

Regulation A offerings

A

Securities Act 1933

companies wishing to sell up to $5 million of stock per year can file an offering circular
- miniature version of the detailed registration statement

***no more than $5 million over a 12 month period

after filing a 1-A because you are filing for less than $5 million in less than a year, you have a 20 day cooling off period like other registration stmts (you don’t have to file an S1 if you meet these requirements)

Reg A offerings may be integrated with other offers that occur w/i a 6 month period after the offering
- not integrated with offers that occur prior to the offering or more than 6 months after the offering

***integration is not the same aggregation, integration just means that the offerings are integrated such that all rules and stipulations of the integrated offerings must be met

aggregation on the other hand refers to the total dollar amount from any offerings and ALL Reg A offerings must be aggregated over a 12 months period (can’t be more that $5 mil in 12 most)

184
Q

MPO

A

Member Private Offerings (MPO)

private placements of unregistered securities issued by a member or a control entity.

firm must provide a private placement memorandum (PPM), term sheet, or other offering doc to describe intended use of funds and other details

these docs must be filed with the Corporate Financing Department

FINRA rules for MPOs are FINRA Rule 5122

185
Q

FINRA rule 5122

A

Member Private Offerings (MPO)

186
Q

Corporate Financing Rule - underwriting compensation

what counts and what doesn’t?

A

Underwriting compensation that will be shared pro rata among the underwriters includes:

  • discounts
  • commissions
  • reimbursements
  • fees and expenses of underwriters counsel (excepting blue sky registration fees)
  • finder’s fees
  • wholesaler’s fees
  • financial consulting or advisory fees
  • common or pfd stock
  • rights or warrants
  • fees of a qualified independent underwriter

Things that don’t count as underwriter compensation include:

  • expenses customarily borne by an issuer like printing costs
  • SEC, “blue sky”, and other registration fees not compensation
  • FINRA filing fees not compensation
  • accountant’s fees not compensation either
187
Q

Placement agents for private placements

A

almost always do best efforts commitments

188
Q

NYSE Rule 405

A

know your customer

189
Q

NASD Rule 2711

research analysts and appearances at IPO

A

research analysts of lead or co-managers of an IPO can’t make public appearances on that issuer for 40 days from the beginning of the offering

lead or co-manager research analysts of a follow-on offering can’t make public appearances for 10 days from the beginning of the offering

Exception to this rule for “actively traded” securities

190
Q

“Actively traded” securities

A

ADTV >=$1 million

Public float of >=$150 million

191
Q

Section 10 - Securities Act 1933

A

Final prospectus must include:

  • SEC disclaimer
  • legal opinion regarding formation of corp
  • material financials
  • descr. of mgmt
  • descr. of offering
  • price of offering
  • selling discounts
  • date of offering
  • use of proceeds
  • descr of underwriting
  • history of biz
  • stmt descr. possibility of price stabilization
  • risks to purchasers
192
Q

Accelerated Filer

A

Reporting co for at least 12 months

filed at least one annual report

public float >$75 and

193
Q

Large accelerated filer

A

Reporting co for at least 12 months

and filed at least one annual report

and public float >=$700 million (as measured on last day of cos’ second fiscal quarter)

must file 10-K w/in 60 days of end of fiscal year

10-Q w/in 40 days of quarter

they’re a kind of WKSI

When large accelerated filers or accelerated files fil a reg stmt, their financials are considered outdated if they are more than 130 days old at time of filing

194
Q

Regular filer

A

reporting co less than 12 months haven’t filed annual reportpublic float less than $75mm

10-K w/in 90 days

10-Q w/in 45 days

When files a reg stmt, their financials are considered outdated if they are more than 135 days old at time of filing

195
Q

SEC Rule 405, graphic communication

A

graphic communication defined as electronic media but NOT any comm that was initially live and in real-time, even if it’s later distributed graphically

196
Q

Equity syndicate desk primary responsibilities

A

pricing and marketing new equity issues

they don’t draft offering docs

after quiet period ends they’re expected to draft research reports on the stock

197
Q

Regulation A

A

new issue of $5 million or less during a 12 month period

198
Q

Limited business broker-dealer

A

a broker-dealer that is only authorized to trade in investment company/variable contracts securities and direct participation program securities

199
Q

Reg D private placements and private placement memoranda (PPM)

A

placement agent must file private placement memorandum, term sheet or other offering doc with FINRA within 15 days of first sale or indicate that no such document was used

200
Q

Liability for untrue statments in financial portion of a registration statement

A

everyone is liable - acctnt who certified financials, director of the issuer, everyone who signed registration stmt

201
Q

NASD Rule 3120

A

ownership of securities information obtained in a fiduciary capacity for the solicitation of sales, transfers, or exchanges may only be used at the request and on behalf of the issuer

202
Q

Rule 147(4)(f)

A

Intrastate Offering rules

issuer has to:

  • put a legend on each stock certificate that the securities are not registered
  • issue stop transfer instructions to the company’s transfer agent
  • obtain written representation from each purchaser regarding his/her residence
203
Q

Rule 176, Section 11

A

Securities Act 1933
Circumstances Affecting the Determination of What Constitutes Reasonable Investigation and Reasonable Grounds for Belief

person who bought a security under a false reg stmt can sue every person that signed the reg stmt

204
Q

Negative covenant

A

restrictions in a bond issue

usually restrict the amount of dividends paid out to shareholders of a corporation as well as how much additional debt the corporation can issue

205
Q

Section 726 of Bankruptcy Code

A

dictates order of payments under Ch. 7 bankruptcy

Secured claims paid first

Priority claims second - order detailed in Section 507

  • administrative expenses (including legal fees)
  • then wages to employees (up to a limited amt)
  • then contributions to employee benefit plans

Unsecured claims next

  • debentures
  • then pfd stockholders
  • then common stock
206
Q

longest section of an SPA

A

seller reps and warranties

usually longest because it states what the buyer is buying

207
Q

tender offer rules on size when you need to notify FTC

A

ok, so if a bidder purchases or intends to purchase more than 5% of cos outstanding shares, it must file a Schedule TO AND it must file a Form 13D

if there are recommendations on the tender offer by the targeted company, shareholders, the bidder, affiliates of either, OR ayone acting on behalf of those groups, they must be laid out in a Schedule 14D-9 form
**the bidder wouldn’t have to file a 14D-9 if they already filed a TO

same price must be given to all shareholders in an issuer’s offer but any third-party offers during this allow for exclusions of certain severance/benefits packages that have been approved by an employee comp committee

bidder can’t buy shares outside of tender offer during the offer period

target firm’s mgmt MUST communicate a position on the tender offer w/i 10 BUSINESS DAYS of the offer
- rec can be accept, reject, remain neutral, or take no position
(they really just need to say something and explain why they’re saying that)

208
Q

Rule 145 - shareholder votes and new shares in M&A

A

when shareholder vote authorized merger or asset acquisition and the target received acquirer shares, under rule 145 the new shares can be resold without restrictions

transactions here would need an S-4

the new shares will not need to be reregistered but instead they’re being registered for the first time using the S-4

209
Q

Rule 145 - Offer to Sell

A

there’s an offer to sell when shareholders elect to accept a new security in exchange for their current security

210
Q

Deals that don’t need to be registered under Rule 145

A

cash-only deals, stock splits, or an acquisition that doesn’t affect securities of either corporation would not require registering with the SEC under Rule 145

211
Q

Do all cash acquisitions require shareholder approval?

A

no, they don’t

212
Q

Tender offer on outstanding shares - less than all in a class

A

if more shares are tendered than the issuer is willing to pay for then the issuer must buy the shares on a pro rata basisie issuer makes tender offer for 80 shares, 100 are tendered ultimately.

Issuer only has to buy 80% of those shares that were tendered (80)

213
Q

Shareholder rights plans and mergers

A

Rights plan in a target company allows shareholders to acquire stock if a buyer acquires more a trigger amt (usually 15%)

reduces the target’s value owned by the buyer and makes the acq more expensive

bidder must negotiate with the BoD rather than directly with shareholders

Other bidders could be found by mgmt

No changes in debt though

214
Q

When must a registered rep notify FINRA of their registration being suspended?

A

thirty calendar days

215
Q

Stabilizing bids - who can make them?

A

Underwriters

Issuers can’t make stabilizing bids

216
Q

ADRs and taxes

What are their characteristics around home country treatment, capital gains, and dividends paid

A

Taxes may be withheld by the ADR issuers home country

When ADRs are sold, capital gains are taxed

Dividends paid by the ADR are generally taxable

IRS allows US investors to take foreign taxes paid as a credit or a deduction to reduce the possibility of double taxation on the ADR dividend

***note that ADRs do represent ownership in the company. Banks issue the ADRs so the bank is actually the one who owns shares in the foreign entity

217
Q

Soft dollar arrangements

what act do they fall under?

what are they?

A

fall under the Securities Act of 1934

where an investment advisor or investment company agrees to pay a certain number of dollars in commissions for brokerage services in return for research services

Investment Advisors and Investment Companies alllowed to use soft dollar arrangements to pay for research reports, research software, custodial and clearing services

those arrangements that don’t benefit clients (like furniture and office equip, salaries, overhead, vacations, cellphones, etc.) aren’t allowable compensation

218
Q

Regulation S securities, what are they and where can they be traded

A

allows foreign and US issuers to sell unregistered securities on a designated offshore securities exchange
- the buyer must be outside of the US at time of transaction or the security must be offered on an SEC designated offshore securities market or exchange

Reg S is a safe harbor for offshore transactions that are aimed at non-US residents (the word residents is important here - could be a national of another country living in the US and they couldn’t buy a Reg S security)

Subsection 8 states that Reg-S doesn’t apply to sales of shares of a US registered open-end investment company (mutual fund) or to sales of shares of a closed-end investment co

219
Q

Office of Supervisory Jurisdiction

what falls under their supervision but alone does not constitute an OSJ?

A

telemarketing

falls under their supervision but doesn’t constitute an OSj

220
Q

When is the ex-date for a dividend?

also called the ex-dividend date

A

two business days before the dividend is paid

in a regular way settlement if the buyer bought on the ex-dividend date they wouldn’t get the dividend (dividend was already announced)

221
Q

Insider Trading and Securities fraud Enforcement Act of 1988

how does it feel about sharing material insider information?

A

it’s NOT considered insider trading if someone tells someone insider info but no trade is made - it’s only insider trading if the TRADE on that info

222
Q

FINRA 5160 on selling group agreements

aka on syndicate agreements

what’s required to be disclosed in them?

A

the price at which the issue is to be sold to the public

a payment schedule (to who concessions are payable)

needs to state clearly to whom and under what circumstance concessions, if any, may be allowed

DON’T need to have criminal history (history of reg violations) of selling group members

223
Q

What is the federal funds effective rate?

A

the rate at which banks borrow from each other in the overnight market

224
Q

what is the discount rate?

A

discount rate is the short term rate set by the Federal Reserve for direct lending to banks and other institutions

discount rate is used at the Fed’s discount windor

225
Q

what is the prime rate?

A

the rate at which large banks lend to their most credit worth customers - this is usually pegged at ~3% above the federal funds rate

226
Q

What is a characteristic of the par value of common stock?

A

it’s an arbitrary number

227
Q

What are the roles of a placement agent in a private placement?

A

sign a placement agent agreement with the issuer

held determine the structure of the private placement and help draft the PPM

conducts due dili on the issuer and identifies potential investors

distributes the teaser to potential investors and gets interested ones to sign CAs

distributes PPMs to executed CA groups

confirms that potential investors meet suitability and sophistication requirements (ability to pay, etc.)

specific terms laid out in the term sheet

final terms in the subscription agreement

***note that this is a private placement, no need to register with the SEC as it’s exempt from registration

228
Q

Regulation A+

what’s the max amount?

who is this supposed to benefit?

A

helps small businesses raise capital

allows them to issue up to $50 million in securities without going through the standard registration process

***unlike many other kinds, SEC allows issuers of these securities “test the waters” ahead of filing the offering circular

so they can collect IOIs before filing the OC, during the reg period (cooling off), and after the circular has become effective

they can collect IOIs anytime

229
Q

SEC Rule 17a-3 on records

what do you need to verify with customers periodically?

A

need to verify suitability periodically with customers

doesn’t include SSN or dates of bith

verification done periodically and NOT only under circumstances where customer investment objectives have changed - have to do it periodically no matter what

230
Q

Sarbanes-Oxley Act of 2002

Section 404

what’s true when auditors find a “material weakness”

A

reasonable possibility of a material misstmt in the cos financial stmts

cos internal controls are inadequate

must be reported in the cos annual report

231
Q

Calls and Puts

what’s bearish and what’s bullish?

A

Bullish (positive):

  • Buy (long) a call (you expect price to go up to you’re buying the option to buy at the current price)
  • Sell (short) a put (expect price to go up so you short the option to sell at the mkt price)

Therefore:

Bearish (negative):

  • Buy (long) a put (buying the option to sell)
  • Sell (short) a call (shorting the option the buy at mkt)
232
Q

Chapter 11 reorganizational plan - classes of claims in bankruptcy

Section 1126(c), what are the parameters for a class of claims being accepted?

A

entire class of claims will be demed to accept a plan if the plan is accepted by creditors who hold at least two-thirds in amount and more than one half in number of the allowed claims in the class

233
Q

What is a forward triangular merger?

A

merger where the buyer sets up a shell subsidiary which merges with the target

in order for it to qualify as a Section 368 tax-free reorganization, at least 50% of the voting and non-voting shares of the target must be paid for in acquirer stock

**means that only 50% of the merger consideration can be paid in cash to target shareholders to qualify

in this the target merges into the sub, which is then taken back in to the buyer

like a reverse triangular merger, a forward is beneficial b/c the buyer can separate out the target liabilities from its own. buyer can also avoid a pre-merger buyer shareholder vote (also like a reverse)

234
Q

PIPE’s and registrations

and 8-Ks

A

PIPE is when public cos raise funds by selling share sin a private offering

co doesn’t need to file a registration stmt before the deal closes - most typically register the offering after the fact to make investors subject to resale restrictions

co typically files an 8-K after the PIPE to alert shareholders, pulic, and SEC of transaction

more common reason to file an 8-K is to comply with Regulation FD (Fair Disclosure), which requires a co to file an 8_K if the co reveals material, non-public info to ppl who may trade on the info in the future

235
Q

SEC Rule 13e

what does this rule restrict companies from doing to stop a takeover?

A

prevents a target company from buying back its own stock as a means of stopping a takeover without first disclosing its intentions to the public

would have to file its going to buy back stock with the SEC to stop a takeover before doing so

236
Q

Broker-dealers

can they retain shares of an offering?

A

typically not

B-Ds must make a genuine offering of all securities they are given to sell

they can’t retain any for themselves unless there’s no bona fide market

237
Q

how many shares can a shareholder tender?

A

their net long position in the stock

so long holds minus shorts

238
Q

Bank Secrecy Act on money transfers

money services businesses must keep a record for five years of money transfers of:

A

$3,000 or more

239
Q

Regulation M on manipulative devices

A

manipulative devices include:

  • inflating indications of interest in the issue
  • giving the misleading impression of active trading
  • exaggerating the scarcity of an issue

imposing penalty bids is allowed under regulation M but written notification is required on the intent to impose oe prior to imposing it.
- written notification is also required within one business day of imposing the penalty bid to confirm it

240
Q

First Market

Second Market

Third Market

Fourth Market

A

First market
- auction market where securities are traded on an exchange floor

Second market

  • includes the Nasdaq exchange and the over the counter market in unlisted securities (OTCBB and Pink sheets here)
  • second market is a negotiated market

Third market
- negotiated OTC market that trades listed securities

Fourth market
- negotiated market where institutional investors trade listed and unlisted securities without a broker-dealer on an ECN

241
Q

at what level in an acquisition would you need to notify the FTC in advance?

if the acquisition resulted in the acquiring person holding between x and x in securities and assets of the acquired person

A

If an acquisition would result in the acquiring person holding between $75.9 million and $303.4 million in securities and assets of the acquired person, the both parties may be required to notify the FTC in advance.

242
Q

order of precedence in the event of bankruptcy

A
  1. secured creditors
  2. admin fees of bankruptcy
  3. employees
  4. the irs
  5. debentures and general creditors
  6. subordinated debentures
  7. pfd stock
  8. common stock
243
Q

taping rule

A

special supervisory procedures over the telemarketing activities of all registered personnel

if member firm found to employ too many (based on size parameters below) registered persons that have been previously associated with a disciplined firm over the past three years

taping rule put into effect if member firm exceeds these thresholds:

no more than 40% have associations with violated firms if firm employs 5 to 9 registered personnel

no more than 4 ppl if firm employs btwn 10 and 19 registered persons

20% if firm employs 20 or more registered persons

so the taping rule is literally a rule on taping phone conversations btwn employees and customers

if the firm sees it’s broken this rule it has 30 days to “opt-out” (that is 30 days from notice from FINRA or from self-discovery)

  • it can opt-out by firing employees that trigger the rule
  • it CAN’T opt out by hiring more employees to correct its ratio

if the firm firms a rep to opt-out, it can’t hire them back for 180 days

244
Q

when shareholders form a shareholders agreement how are they treated from an ownership and filing perspective?

A

since they formed a shareholders’ agreement, you would need to combine their % ownership of the company to get the total ownership.

If that combined ownership is less than 10% then they don’t need to file with the SEC b/c they wouldn’t own controlling interest of the stock

245
Q

What are the ways you can handle an institutional pot in an equity offering?

A

this is the “pot” concept - the amount of an equity offering for institutional investors

this is done to prevent the potential problem of an institutional investor placing an order that is too large for a single underwriter to handle
- also gives the lead underwriter better visibility of institutional demand

Jump ball pot (aka competitive pot)

  • institution designates the underwriter(s) that receive the concession
  • portions are sometimes limited to 60-70% of the total pot with the remainder divded on a fixed basis

lead underwriter usually receives a signif portion of designations by institutions

Capped jump ball
- limits the percentage of the pot available to the lead manager

Fixed pot
- compensation for institutional sales is predetermined

246
Q

What are the things a registration statement includes

A

price or price range

size of offering

expenses

commissions

net proceeds

user of proceeds

underwriters

name of exchange it will be listed on

names and addresses and holdings of those who own more than 10% of the security

issuer’s capitalization

financial info on the issuer

247
Q

Things included in a letter of intent

A

confidentiality provisions

walk-away fees

access to the selling entity’s books and records

no-shop agreement

sets out the various duties and obligations of each party to a proposed transaction

248
Q

what are the underlying shares reflected by an ADR issued by a bank?

A

American Depository Share (ADS)

the shares are what the investor buys and the share type and amount is documented on the ADR certificate, which the bank provides to the investor

249
Q

Who owns most of the government debt?

how can the gov reduce the deficit?

in many years of the last 40 has the gov run a deficit?

A

in 36 of the last 40 years the gov has run a deficit

~$17 trillion in debt

~65% of the current deficit is owned by US citizens and government entities in the US, such as federal agencies, the Federal Reserve, and state and local governments

the gove can finance its deficits by printing new money, which increases the money supply

can also finance its deficits by in increasing taxes, which draw money out of the economy

250
Q

what could make P/E different for two cos that are in the same industry w/~same size and gross margins?

A

demand for the respective stocks

taxes could be diff

debt could be diff

depreciation could be different

251
Q

what can’t suspended reps do?

what finra rule does it fall under?

A

FINRA Rule 8311 sets forth various restrictions on activities of a rep after being suspended by FINRA or the SEC

they can’t receive salary, can’t earn commissions on trades in a customer account, they can’t even file paperwork associated with a customer account

they can do research all they want at home but can’t relay those recs

252
Q

when must a broker-dealer report a standard written customer complaint to FINRA?

how long do they have to keep customer complaint letters?

A

under NASD / FINRA Rule 3070(c), you have to file summary information regarding customer complaints “by the 15th day of the month following the calendar quarter in which the customer complaints are received”

must be kept for 4 years

253
Q

MAC as it relates to a closing of an M&A transactions

A

Material Adverse Change (MAC) clause allows the buyer to pull out of the deal

since definition a moving target usually results in litigation if a buyer uses this clause

MAC clause in SPAs is kind of like the “market out” or “force majeure” clause in underwriting agreements which permit underwriters to terminate an underwritin agreement if something happens that undermines the chances of a successful offering (in the underwriter’s opinion), like a severe decline in the markets or a catastrophe in the issuer’s business

254
Q

When can’t a person sell a security short as it relates to offerings?

A

No person may sell an equity security short in the SHORTER of the following two periods (there are exceptions to this rule as an FYI):

  • 5 business days before the pricing of the security’s offering and actual offering
  • from the initial filing of the registration stmt or notification on Form 1-A or Form 1-E for the security to the pricing of the security’s offering
255
Q

what is a reverse triangular merger?

A

Reverse is where the acquirer has a subsidiary that merges INTO the target company before the buyer formally acquires the target

advantageous b/c the target’s liabilities could be isolated into a subsidiary of the acquirer
also advantageous b/c buyer shareholder vote is typically unnecessary

Disadvantages:
target shareholder vote IS required
substantially all (70-90%) of the assets of the target must be purchased, and the acquirer must exchange its stock for the target stock

in order for this type of merger to qualify as a tax free reorg under Section 368, at least 80% of the voting and non-voting shares of the target must be paid for in acquirer stock
- only 20% of merger consideration could be paid in cash to target shareholders

256
Q

list a few types of corporate bonds

A

debentures

collateralized bonds

mortgage bonds

equipment trust certificates

257
Q

how long must a tender offer be held open?

A

at least 20 business days

if an issuer changes the percentage of share offered by more than 2% it needs to leave the offer open at least 10 more business days

if an issuer decides to extend the length of time a tender offer is open, it needs to give public notice of the extension

issuer typically DOESN’T file a proxy stmt in a tender offer

258
Q

What are the characteristics of a Registered Coupon Bond

A

the registration is just for the principal while the interest coupons are payable to the bearer

259
Q

Sarbanes-Oxley Act of 2002 - what requirements did it impose?

A

aka SOX act

imposed requirements on companies to protect investors from corporate and accounting fraud

CEO/CFOs are required to certify that they have reviewed each annual and quarterly report to the SEC

must certify that the reports are accurate and that they have put proper internal controls in place to protect against financial fraud

prohibited a corporation’s auditors from providing non-auditing services to the corp

imposed enhanced diclosure of off-balance sheet transactions

allowed audit committees to engage independent counsel

required Audit committees to establish procedures to deal with issuer complaints regarding controls and auditing

260
Q

a contractionary monetary policy and an expansionary fiscal policy would do what to interest rates and exchange rates?

A

a contractionary monetary policy reduces the money supply and rives interest rates up (think less money to borrow) - since interest rates are rising the relative attractiveness in the US is increasing as well (higher returns here) so the exchange rate would increase as more investors try to buy dollars to invest in the higher rates

same deal in expansionary fiscal policy
- government borrowing more so interest rates pushed up by increased borrowing making dollar-denominated investments more attractive which makes investors pursue dollars and drive up the exchange rate

261
Q

Regulation M-A

what requires a “plain English” summary?

A

cash tender offers

cash mergers

going-private transactions

262
Q

what must a registered rep complete with regards to training and regulatory element to satisfy continuing education requirements?

A

an annual firm training session

periodic regulatory element based on the rep’s initial registration date

263
Q

what are the primary federal statutes relating to issuing publicly-traded corporate debt?

A

Securities act of 1933 and Trust Indenture Act of 1939

trick here is that it’s publicly-traded securities

typically think of the Securities Act of 1933 as one for IPOs but it’s really an act with goals of making sure public has enough info to make informed investing decisions and prohibits fraud/misrepresentation/deceit when selling securities
- remember exceptions to filing securities with Reg A, Reg S, Rule 147, and all fed securities exempt

don’t be tricked here - the Securities Exchange Act of 1934 is primarily focused on the “exchange” of securities in the secondary market and
- the Investment Company aCt of 1940 primarily regulates “investment companies” like mutual funds, ETFs, and Unit Investment Trusts by requiring investment companies to minimize conflicts of interest and disclose and report info to investors

264
Q

how are corporate bonds typically quoted?

A

as a percentage of par

ie 106.5, premium bond trading at 1,065

265
Q

in a tender offer can the buyer offer incentives to key executives to get them to stay at the co

A

short answer is yes with approval of target’s comp committee or BoD (if they act as the comp committee themselves)

Rule 14d-10 is the Equal Treatment of Security Holders

  • no bidder shall make a TO unless the TO is open to all security holders of the class of securities subject to the TO and that the consideration paid to any security holder for securities tender in the TO is the highest consideration paid to any other security holder for securities tendered
  • gotta pay everyone the same for their securities

exxception lies in ‘part d’ of Rule 14d-10 which allows special treatment of execs with approval per above

266
Q

who needs to be in the middle of convos btwn research analysts and non-research ppl?

A

authorized legal or compliance personnel

either works

267
Q

Rule 502 of Regulation D on general solicitation

A

neither issuer nor anyone on their behalf (ie advisor) can offer or sell securities by general solicitation or advertising such as:

  • ad article, notice or other comm published in a newspaper, magazine, or similar or broadcast on TV or radio
  • seminars considered general solicitation as well

issuer soliciting friends and family isn’t general solicitation

268
Q

refresher on the calc for fully diluted shares

A

Sum of the below:

basic outstanding shares

+ shares from in-the-money options (minus treasury shares that can be bought back with proceeds)

+ shares from convertible securities

269
Q

Blotters are?

A

daily records that must be kept for 6 years

270
Q

Wilshire 5000

A

intended to measure the US stock market

- has all US hq’d companies traded on the NYSE

271
Q

Russell 2000

A

small cap index

272
Q

S&P 500

A

mkt value rated index assumed to be best indicator of large-cap stock performance

273
Q

Modified dutch auction for a buyback

A

ok so they fill allotments from the lowest bid to the highest.

the highest bid that falls within the planned buyback will be the price that all shareholders receive

274
Q

Form D for Regulation D securities

A

so regulation D securities are exempt from registration - issuers do need to file a Form D though that includes the names and addresses of teh company’s executive offices, the stock promoters, and disclosure of the date of first sale in the offering

Form D actually contains little info about the Company

Must be filed within 15 days after the first sale of securities in the offering

275
Q

Rule 10b-18 safe harbor protects issuers from liability for manipulation

what are the rules around prices a Co is allowed to buyback shares to benefit from the safe harbor

A

under Rule 10b-18, a company and its affiliated purchasers can’t bid at or settle at a purchase price that exceeds:

  • the highest current independent bid OR
  • the price of the last transaction (LT)

whichever is higher (Bid or LT), that’s what the company can buy the shares back at

other aspects of this safe harbor:

  • transactions can only occur through one broker-dealer
  • transactions can’t exceed 25% ADTV measured over the four weeks prior to the repo (exception to this if making a once per week block purchase)
  • transaction can’t be first of the day or in the last ten minutes of trading for securities w/an ADTV of >=$1mm and public float of >=$150 million. no transaction w/i last 30 minutes of trading for all other securities
276
Q

Cash flow statement data can be found on what forms filed with the SEC

A

10-K
10-Q
14-A (surprisingly a proxy stmt contains CF stmt data)

beneficial ownership forms DON’T have CF data

277
Q

Rule 144 safe harbor and “current public information”

when multiple sales made over several months when does the issuer need to ensure that the standard is met?

A

every time a sale is made the issuer has to make sure they are meeting the “current public information” standard

every time a sale is made

278
Q

Restricted stock

vs

Control stock

A

both are sold under Regulation D and both are unregistered

the difference lies in who owns it

ppl with control or potential control of the company have additional restrictions placed upon them

so the difference is that control stock is owned by “control persons”, while restricted stock is not

279
Q

applications for registration by associated persons and FINRA bylaws for amendments and disqualifications

A

applications for registration must remain current at all times through the use of supplementary amendments

if there’s a disqualifying event, it must be filed with fINRA w/i 30 days of the event

other amendments must also b filed w/FINRA w/i 30 days after learning the circumstances giving rise to such an amendment

amendments are made via electronic process

280
Q

Duration

A

measure in years of how long it takes for the price of a bond to be repaid by its cash flows

higher coupon rates mean shorter durations

zero-coupons don’t have CFs so duration equals maturity

281
Q

who files the S-4

A

acquirer files

S-4 used to registered securities with the SEC for a business combination or exchange offer

filed by acquirer when they issue securities to pay for the transaction

  • securities could be euqity or debt
282
Q

GARP and PEG ratio

A

want a PEG ratio of less than one

PEG ratio of 1 means P?E is in line with earnings (reasonably priced)

283
Q

differences between ADRs and GDRs

A

ADRs are for investors who want to trade on the US markets and GDRs are issued to investors who want to trade in multiple countries

both are issued by banks and both have shares owned by banks backing them (ADSs and GDSs)

B/c GDRs are global they are typically issued by international banks

284
Q

Rule 415(a) on limitations for shelf registrations

A

three year time limit on shelf registrations for:

  • mortgage-backed debt offerings
  • continuous offerings lasting more than 30 days
  • offerings by S-3/F-3 issuers that do not relate to preexisting obligations

it imposes a two year limit on business combinations

The 2005 Public Offering Reforms removes the time limitation for shelf offerings involving preexisting obligations

285
Q

What form establishes the registration for a representative and which one terminates the registration

A

Form U4 registers a person as an Investment Adviser Representative (IAR) or a Broker-Dealer Agent by filing this with FINRA

Form U-5 is for terminating the registration of one of the above designations

286
Q

Rule 5141 on selling syndicates and reduced price sales

what constitutes selling at a reduced price?

A

selling concessions, selling at a discount, selling products and services below reasonable commercially available rates, and purchasing securities from a person at more than their FMV in exchange for securities

A broker providing research services to an investment adviser who directs customer orders through the broker IS NOT considered selling at a reduced price

287
Q

what kind of financial stmts are on a 10-Q

A

unaudited!

shouldn’t be messing that up

288
Q

what else is the Fourth Market called?

A

called the ECN market

it’s where institutional investors trade listed an unlisted securities through an ECN (Electronic Communications Network) that matches buy and sell orders 24 hours a day

they trade on this ECN WITHOUT a broker-dealer

289
Q

Schedule K-1

which business receive these?

A

LLCs, S corps, and partnerships as they are “pass through entities” must distribute a Schedule K-1 form to each member, shareholder, or partner reporting the net profits or losses on each member, shareholder, or partner’s proportional ownership in the business entity

these profits or losses are reported on personal income tax returns

***one member LLCs and sole proprietorships report earnings on form 1040 Schedule C

**C corps report on IRS form 1120

290
Q

futures markets and clearinghouses

hedgers

speculators

A

clearinghouses make it easier for traders to liquidate future positions

hedgers user future markets to insulate themselves against price movements

speculators use future contracts to profit from movements in future prices, based on their view of where those prices will be

Series 79 Exam (2 decks)

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