Ch. 11 Offerings Flashcards
1
Q
May an RR modify a prospectus?
A
No. The underlining, photocopying, or highlighting of a prospectus is prohibited.
2
Q
All securities sold in the primary market must be sold with a _______________.
A
All securities sold in the primary market must be sold with a final prospectus.
3
Q
To issue securities under Rule 147, an issuer must satisfy how many of the four “doing business” requirement?
A
It must satisfy only one of the four “doing business” requirements.
4
Q
The holding period for unregistered (restricted) securities under Rule 144 is __________.
A
6 months
5
Q
What stipulation in the registration statement relieves underwriters of their contractual obligations?
A
Market out clause
6
Q
Shelf Registration is valid for up to _____ years.
A
3 years
7
Q
True or False: The Syndicate Letter is also referred to as the Agreement Among Underwriters.
A
True
8
Q
True or False: A prospectus is not required to be delivered if a buyer received the red herring.
A
False. All purchasers of a new issue must receive a copy of the final prospectus.
9
Q
What type of underwriting is cancelled if a specified portion is not sold?
A
Mini-max
10
Q
What is the difference between a syndicate member and a firm in the selling group?
A
Syndicate members assume liability, while firms in the selling group do not.
11
Q
What is unique about the new Rule 147A Exemption?
A
An issuer organized in State A, but with its principal office in State B, may offer securities to residents of State B.
12
Q
For how long must a prospectus be provided in the after-market for the IPO of a stock to be listed on an exchange?
A
25 days
13
Q
What is the difference between what the syndicate pays the issuer for the new issue and the public offering price?
A
Underwriting spread
14
Q
Who is expected to apply for a CUSIP number on a new municipal bond?
A
Underwriters
15
Q
Identify the acronym: PIPE
A
Private investment in public equity
16
Q
In a firm commitment underwriting, unsold securities are retained by ________________.
A
In a firm commitment underwriting, unsold securities are retained by the syndicate.
17
Q
The Securities Act of 1933 regulates ____________.
A
New issues
18
Q
True or False: Securities issued by the U.S. Treasury and U.S. agencies are deemed exempt securities under the USA.
A
True
19
Q
Rule 144 allows for the sale of __________ stock and _______ stock.
A
Restricted and control stock
20
Q
What type of municipal bond requires a feasibility study?
A
Revenue bonds. Feasibility studies are conducted to determine whether a project is financially viable.
21
Q
QIBs are financial institutions that have at least $_________________ invested in securities of non-affiliated issuers.
A
QIBs are financial institutions that have at least $100 million invested in securities of non-affiliated issuers.
22
Q
True or False: A research report that includes information about a new offering could be a violation of the Act of 1933.
A
True
23
Q
True or False: The legal opinion addresses the creditworthiness of an issue.
A
False. Legal opinions address the legality (authority/validity) of the issue and the tax exemption of the interest.
24
Q
For how long may a new issue be sold under a shelf registration?
A
3 years
25
What is the primary purpose of the Securities Act of 1933?
Provide investors with full and fair disclosure regarding new issues (prospectus)
26
May a preliminary prospectus (red herring) be sent during the cooling-off period?
Yes. The red herring is used to obtain indications of interest from potential purchasers.
27
Securities received from a private placement are called ___________ securities.
Restricted securities
28
What type of underwriting is cancelled if the entire issue is not sold?
All-or-none
29
True or False: A new issue is required to be registered in all 50 U.S. states.
False. A new issue is only required to be registered in any state(s) in which it will be offered or sold.
30
What is the maximum sale allowed under Rule 144?
1% of the outstanding shares or average trading volume over the last 4 weeks - whichever is greater
31
How is the underwriter determined for a Competitive Sale?
The issuer invites syndicates to bid on the issue, with the best bid (lowest interest cost) winning the competition.
32
Public offerings of securities require the delivery of a ___________.
Prospectus
33
Where can investors get access to official statements for new municipal bond issues?
Electronic Municipal Market Access (EMMA), a database that's run by the MSRB.
34
Control and ___________ securities have legends placed on them to limit their transfer.
Restricted
35
In the after-market, a prospectus must be provided for ____ days following a non-exchange follow-on offering.
40 days
36
May a preliminary prospectus (red herring) be sent during the cooling-off period?
Yes, so potential purchasers can provide indications of interest.
37
An offering of shares of the issuer and selling shareholders (e.g., officers) is a _____________________ offering.
An offering of shares of the issuer and selling shareholders (e.g., officers) is a combined primary/secondary offering.
38
An offering of shares with the proceeds being directed to the issuing corporation is called a ________ offering.
Primary
39
Are CMOs exempt from registration under the Securities Act of 1933?
No. CMOs are corporate securities that must be registered.
40
What is a combined offering?
One in which the proceeds will be split between the issuing company and selling shareholders
41
Define restricted security.
A security acquired directly, or indirectly, from the issuer or an affiliate, and not from a public offering
42
The _________ date is the first date on which orders for a new issue may be accepted.
Effective date
43
What is the purpose of providing investors with a preliminary prospectus (red herring)?
To disclose information and obtain indications of interest
44
The final ________ _____ will not appear in a red herring.
Final offering price
45
True or False: Mutual funds and ADRs are required to register their securities with the SEC.
True. Mutual funds and ADRs are not exempt from the SEC's registration requirements.
46
When acting in an ________ capacity, firms assist customers, but do not assume risk.
Agency
47
Accredited investors have net worth of at least $_________ or pre-tax income in each of the last two years of $________.
Accredited investors have net worth of at least $1,000,000 or pre-tax income in each of the last two years of $200,000.
48
True or False: Stocks listed on a national exchange are exempt from registration under the Securities Act of 1933.
False. Exchange-listed stocks are nonexempt securities and must be registered under the Act.
49
___________ securities are acquired from the issuer or an affiliate of the issuer, but not from a public offering.
Restricted
50
What is the document that establishes the agreement between the issuer and the underwriter?
Underwriting agreement
51
A company is incorporated in OH, but does its principal business in NJ, will Rule 147A allow it to sell to NJ residents?
Yes, since its principal business is in NJ, it may sell to NJ residents.
52
True or False: There is no aftermarket prospectus delivery requirement for listed follow-on offerings.
True. No prospectus requirement applies to follow-on offerings.
53
What is the disclosure document, similar to a prospectus, that is used for municipal bonds?
Official Statement
54
What two types of offerings are issued in the primary market?
Initial public offerings (IPOs) and subsequent public offerings
55
True or False: During the pre-filing period, certain issuers may be prohibited from communicating with the public.
True
56
Does Rule 144 require a specific holding period for control stock?
No, but the SEC must be notified when a sell order is placed and volume limitations apply.
57
True or False: 100% of investors must be state residents to qualify for the Rule 147 intrastate exemption.
True
58
For how long must a prospectus be provided in the after-market for a non-exchange IPO?
90 days
59
True or False: Unless it is exempt, a security must be registered before it may be sold publicly.
True
60
True or False: Securities offered through a Reg D private placement are considered unregistered.
True. The unregistered (restricted) stock may be sold publicly only if registered or sold under a suitable exemption.
61
For an unlisted IPO, how long must a prospectus be made available in the secondary market?
90 days
62
In a best-efforts underwriting, unsold securities are retained by ______________.
Issuer
63
A BD that is a part of the selling group (not a syndicate member) would only be entitled to the ____________________.
Sales concession
64
What is a QIB?
Qualified Institutional Buyer (institutions defined under Rule 144A)
65
For what offerings is there no after-market prospectus requirement?
For follow-on offerings of exchange-listed stocks
66
The private placement disclosure document is the _____________________.
The private placement disclosure document is the Offering Memorandum.
67
The aftermarket prospectus delivery requirement for listed IPOs is ___ days.
25 days
68
True or False: Registration provisions apply when securities are offered through a private placement.
False. Private placements are exempt from registration.
69
The maximum number of non-accredited investors in a Reg. D offering is _____.
35
70
What is the name of the disclosure document used for a private placement?
Offering Memorandum
71
Under Reg. D ____ is the maximum number of non-accredited investors allowed in a Private Placement.
35
72
True or False: Both U.S. government and municipal securities are subject to registration provisions.
False U.S. government and municipal securities are exempt from registration.
73
What rules govern the registration of an issue in any state in which it will be offered?
Blue-sky laws
74
What is the name of the offering of additional shares after a company has conducted its initial public offering (IPO)?
Follow-on offering
75
What is the after-market prospectus requirement for the follow-on offering of an exchange-listed stock?
No requirement exists for the follow-on offering of an exchange-listed stock.
76
How is the total spread calculated?
Total Spread = Manager's Fee + Underwriter's Fee + Selling Concession
77
Name the three components of the spread for a bond offering.
1. Manager’s fee 2. Additional takedown 3. Sales concession
78
True or False: Shelf Registration gives flexibility to the issuer by allowing delayed or continuous sales.
True
79
What type of municipal bond requires voter approval?
General obligation (GO) bonds are subject to voter approval since they use tax dollars to pay debt service.
80
May an RR summarize a prospectus?
No. Any prospectus summary (profile) must be produced by the fund's sponsor.
81
In the after-market, a prospectus must be provided for ____ days following a non-exchange IPO.
90 days
82
True or False: A significant goal of the Securities Act of 1933 is to prevent fraud in the sale of new issues.
True
83
A financial commitment is made in which type of underwriting?
A firm-commitment offering. In a firm-commitment, the BD is acting as a principal.
84
True or False: Form 144 must be filed for any sale of restricted or control stock, regardless of the size.
False. If a sale is for 5,000 shares or fewer, and has a market value of $50,000 or less, no notification is required.
85
Describe a Private Investment in Public Equity (PIPE) offering.
A private sale (i.e., exempt) by an issuer that has previously sold registered (i.e., publicly traded) securities.
86
When an investor buys a municipal bond in the primary market, what's on the confirmation?
The underwriting spread, agent fees, and the initial reoffering price for each maturity in the offering
87
If a syndicate member sells a new issue, to what part(s) of the spread is it entitled?
The syndicate member is entitled to the underwriter's fee plus the selling concession (i.e., the total takedown).
88
Define control security.
A security received or purchased by an affiliate of the issuer, such as a director, officer, or major shareholder
89
An investor has a net worth of $100,000 and had annual income of $1 million last year. Is he an accredited investor?
No. Although his income exceeds $200,000, it has not been at that level for the last two years.
90
True or False: The SEC judges an offering’s investment merit and provides approval.
False
91
True or False: Broker-dealers can accept payment from an issuer for making a market in the issuer's shares.
False. Accepting payment for market making is prohibited.
92
For how long must a prospectus be provided in the after-market for a non-exchange follow-on offering?
40 days
93
Complete the following statement: The SEC requires a securities offering to register unless it is _______.
Exempt
94
If a company has never issued securities before, what offering would it conduct to raise capital publicly?
IPO
95
What is a nonexempt security?
A security that is subject to the registration provisions of federal law
96
Is a foreign issuer that sells securities to wealthy U.S. investors and institutions required to register with the SEC?
No; in this instance, it is likely that the issuer will qualify for a Regulation D Rule 506 Exemption.
97
For how long must a prospectus be made available in the secondary market for an exchange-listed IPO?
25 days
98
In addition to providing a prospectus, a _________ advertisement may be published to announce an offering.
Tombstone
99
Identify the Acronym: POP
Public Offering Price
100
What is the purpose of a Tombstone Ad?
It calls attention to the new issuance of securities and members of the syndicate.
101
Securities issued under the Reg. D exemption are classified as __________ securities.
Restricted
102
Give some examples of items that may be deemed a free writing prospectus.
Term sheets, e-mails, press releases, and marketing material
103
Securities offered publicly must satisfy all applicable _____________ requirements.
Registration
104
In the after-market, for how long must a prospectus be provided following an IPO of a stock to be listed on an exchange?
25 days
105
At the federal level, with whom must securities be registered?
SEC
106
For an exchange-listed follow-on offering, how long must a prospectus be made available in the secondary market?
No prospectus requirement exists for an exchange-listed follow-on offering.
107
True or False: The placement agent for a private placement is not required to perform due diligence.
False. Although private placements are exempt, the placement agent is still required to perform due diligence.
108
What requirements apply to nonexempt securities?
Registration requirements
109
Reclassifications, merger or consolidation activities, and transfers of assets are regulated under what provision?
Rule 145
110
When acting in a ____________ capacity, a firm is assuming risk.
When acting in a principal capacity, a firm is assuming risk (e.g., a firm-commitment underwriting).
111
In the sale of a new issue, what is the purpose for including a selling group?
To increase the number of potential purchasers
112
When registering securities, what is the minimum time for the cooling-off period?
20 days
113
True or False: In a private placement, investors are not required to be provided with information disclosure.
False. Investors must receive a disclosure that is similar to what is received for a registered offering.
114
An investor has a net worth of $2 million and annual income of $100,000 per year. Is she an accredited investor?
Yes, she is accredited since her net worth exceeds $1 million.
115
What does Rule 145 of the Securities Act of 1933 cover?
Registration/prospectus requirements of any reclassification of securities (primarily from mergers or acquisitions).
116
What is a private offering?
An offering by a company to individuals or a small group of investors that is usually exempt from registration
117
What is the dollar limit for a Rule 506 private placement?
Under Rule 506, an unlimited amount may be raised.
118
In which state(s) is a new issue required to be registered?
In any state(s) in which it will be offered or sold
119
True or False: Form 144 must be filed within 90 days of selling restricted or control stock.
False. Form 144 must be filed concurrent with the placement of a sell order.
120
The ____________________ will not appear in a red herring.
final offering price
121
What must issuers have to qualify for the Rule 147 intrastate exemption?
The issuer must have its principal place of business in that state
122
The aftermarket prospectus delivery requirement for non-listed IPOs is ___ days.
90 days
123
Rule 147 offerings may not be sold to an out-of-state investor for ____ months following the last sale of a new issue.
6 months
124
A company went public five years ago. Today, it wishes to raise additional capital publicly. What offering may be used?
Secondary offering (subsequent offering)
125
Under Reg. D, securities may be offered to an unlimited number of __________ investors.
Accredited
126
What is an exempt security?
A security that is not subject to the registration provisions of the Securities Act of 1933
127
What is another name for a preliminary prospectus?
The Red Herring. This document is distributed during the 20-day cooling-off period.
128
Reg. D exempts __________________ from the registration requirements of the Securities Act of 1933.
Private placements
129
For how long are securities restricted if received by the syndicate as compensation?
6 months
130
Indications of interest are _______________ on both the customer and BD.
non-binding
131
For an unlisted follow-on offering, how long must a prospectus be made available in the secondary market?
40 days
132
Rule 144A allows for the sale of restricted stock to _____________________________________.
Qualified Institutional Buyers
133
What advertises that municipal bonds are available and invites underwriters to bid on a new competitive issue?
Notice of Sale
134
Underwriters that have made a firm commitment to an issuer are acting in a ________________ capacity.
Prinicpal
135
Underwriters operating under a best-efforts agreement with an issuer are acting in a ________________ capacity.
Agency
136
Define free writing prospectus.
Written communication about an offering that does not meet the requirements of a statutory prospectus
137
True or False: There are no restrictions regarding the purchasers of securities that are issued privately.
False. Securities issued privately may be purchased only by select investors.
138
What are the benefits to an issuer who conducts a private placement of its securities?
Private placements are less expensive and a less time consuming method of raising capital.
139
Is an official statement or preliminary official statement considered retail communication?
No. However, a summary or abstract of an official statement is considered retail communication.
140
True or False: If a registration statement has not been filed with the SEC, BDs may not discuss new issue information.
True
141
A statutory preliminary prospectus is also referred to as a _____________.
Red Herring
142
What is the one requirement that is common to any issuer that is relying on a Rule 147 Exemption?
For an issuer to offer securities under the Rule 147 Exemption, it must maintain its principal place of business in-state.
143
Rule 144A exempts sellers from the holding period and volume limitations of Rule 144 if trading is done with a _____.
Qualified Institutional Buyer
144
Though some securities are exempt from registration, nothing is exempt from the ____________ provisions of the Act.
Anti-fraud
145
Once Form 144 is filed, owners have __________ to sell their securities.
90 days
146
A ___________ underwriting is used for shares not purchased through a rights offering.
Stand-by offering
147
Restricted stock has a ____ month holding period.
6 months
148
The total spread consists of what three parts?
Manager's fee, underwriter's fee, sales concession
149
To indicate that private placement securities are unregistered/restricted, a _______ is placed on the certificates.
Legend (legend is placed on the certificates)
