Ch. 3 Underwriting

Question 1

Who prepares are firms offering documents?

Answer 1

Corporate Financing Department

Question 2

Does a block trade expose an underwriter to a larger amount of capital risk than a one-day or fully marketed road show?

Answer 2

Yes

Question 3

When must final settlement of a syndicate account occur?

Answer 3

90 days

Question 4

What does the Green Shoe Clause permit?

Answer 4

A maximum of 15% additional shares to be issued and is good for 30 days

Question 5

In a best-efforts underwriting, underwriters charge a higher or lower underwriting fee?

Answer 5

Lower, since they are not committing any capital

Question 6

For a syndicate short covering transactions, if the stock is trading above the IPO price, the _____ should be exercised; if it is trading below the IPO price, the share should be ______.

Answer 6

If above - Green Shoe Clause; if below - purchased in the open market

Question 7

T/F: Prior to the IPO date, if the syndicate manager believes the offering is over-subscribed, it may notify the issuer and the issuer may choose to increase the number of shares and/or offering price

Answer 7

True

Question 8

T/F: If an offering is being done exclusively by selling shareholders, the issuer will not receive any of the proceeds

Answer 8

True

Question 9

Are a syndicate’s expenses deducted from the underwriting fees?

Answer 9

Yes

Question 10

Can a research analyst attend a road show for an investment banking deal?

Answer 10

No

Question 11

Can an investment banker contact a research analyst to demand the increase of its stock rating?

Answer 11

No

Question 12

While distributing securities, is a firm permitted to ask clients about the price that they would be willing to pay for the stock in the secondary market?

Answer 12

No

Question 13

Where is the possibility of placing a stabilized bid disclosed?

Answer 13

Prospectus

Question 14

Where can a stabilizing bid be entered?

Answer 14

At the lower of the offering price or highest independent bid

Question 15

What is used by an underwriting syndicate primarily to expand the distribution of the securities being offered.?

Answer 15

Selling group

Question 16

What is a discount to the POP and is the fee that’s paid to a broker-dealer that contacts an underwriting member to purchase part of a new issue to fill its own customer orders?

Answer 16

Reallowance

Question 17

What is the typical underwriting fee %?

Answer 17

7% (of offering proceeds)

Question 18

For an underwriting fee, maximum compensation that’s generally considered fair and reasonable will vary directly with the amount of ____ being assumed

Answer 18

Risk being assumed

Question 19

T/F: A member of a BD’s investment banking department is permitted to be included on the committee that reviews and approves the compensation of a research analyst

Answer 19

False

Question 20

An RA who’s employed by any member of the syndicate or selling group may NOT prepare a research report on an IPO for _____ days (____ period).

Answer 20

10 days; quiet period

Question 21

How long is the quiet period for a follow on offering?

Answer 21

(3) calendar days and only applies to the manager / co-manager

Question 22

Do the (3) and (10) day quiet periods apply to Emerging Growth Companies?

Answer 22

No

Question 23

T/F: In order for a security to be listed on the NYSE or Nasdaq, a majority of the members of the company’s board of directors must be independent

Answer 23

True

Question 24

Is an issuer required to maintain a minimum price/book or PE ratio to be listed on the NASDAQ?

Answer 24

No

Question 25

T/F: The OTCBB is a quotation system for securities that are NOT listed on either the NYSE or Nasdaq

Answer 25

True