Chapter 03 : Sales Supervision - New Issues

Question 1

Once Form 144 is filed, owners have __________ to sell their securities.

Answer 1

Once Form 144 is filed, owners have 90 days to sell their securities.

Question 2

Which federal law governs the registration of new issues?

Answer 2

The Securities Act of 1933

Question 3

True or False: Form 144 must be filed within 90 days of selling restricted or control stock.

Answer 3

False. Form 144 must be filed concurrent with the placement of a sell order.

Question 4

Shelf Registration is valid for up to _____ years.

Answer 4

Shelf Registration is valid for up to 3 years.

Question 5

Accredited investors have net worth of at least $_________ or pre-tax income in each of the last two years of $________.

Answer 5

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.

Question 6

What is another name for a preliminary prospectus?

Answer 6

The Red Herring. This document is distributed during the 20-day cooling-off period.

Question 7

List the securities that are exempt from registration.

Answer 7

Government/municipal bonds, commercial paper, bankers’ acceptances, bank issues, non-profit and small business issues

Question 8

The maximum number of non-accredited investors in a Reg. D offering is _____.

Answer 8

The maximum number of non-accredited investors in a Reg. D offering is 35.

Question 9

If a completed registration must be amended, when will it become effective?

Answer 9

Upon SEC declaration

Question 10

True or False: If a BD is involved in an offering it may not publish research during the offering process.

Answer 10

False, Rules 138 and 139 allow BDs to publish research if involved in an underwriting in limited situations.

Question 11

May an RR summarize a prospectus?

Answer 11

No. Any prospectus summary (profile) must be produced by the fund’s sponsor.

Question 12

May a prospectus be delivered electronically?

Answer 12

Yes. A prospectus may be viewed electronically or downloaded.

Question 13

The ____________________ is the disclosure document concerning a Regulation A issue.

Answer 13

The Offering Circular is the disclosure document concerning a Regulation A issue.

Question 14

The holding period for unregistered (restricted) securities under Rule 144 is __________.

Answer 14

The holding period for unregistered (restricted) securities under Rule 144 is 6 months.

Question 15

According to the Equity IPO Rule, firms must update the eligibility of purchasers ___________ .

Answer 15

According to the Equity IPO Rule, firms must update the eligibility of purchasers annually.

Question 16

In a best-efforts underwriting, unsold securities are retained by ______________.

Answer 16

In a best-efforts underwriting, unsold securities are retained by the issuer.

Question 17

What is the document that establishes the agreement between the issuer and the underwriter?

Answer 17

Underwriting Agreement

Question 18

The New Issue Rule covers what new issues?

Answer 18

All equity IPOs

Question 19

____________ is the only form of price manipulation allowed by the SEC.

Answer 19

____________ is the only form of price manipulation allowed by the SEC.

Question 20

An investor’s eligibility to purchase an equity new issue must be confirmed _______________.

Answer 20

An investor’s eligibility to purchase an equity new issue must be confirmed annually (called the pre-condition of sale).

Question 21

A BD must _________ verify whether an investor is eligible to purchase a new issue.

Answer 21

A BD must annually verify whether an investor is eligible to purchase a new issue.

Question 22

Are immediate family members of member firm employees always restricted from purchasing equity IPOs?

Answer 22

Not if the individual receives no material support and is not purchasing from the firm employing their family member

Question 23

True or False: An investor with a net worth of less than $1 million is prohibited from purchasing a private placement.

Answer 23

False. The investor may purchase the offering as a nonaccredited investor.

Question 24

During the Regulation M Restricted Period, underwriters may not_______________________________________.

Answer 24

During the Regulation M Restricted Period, underwriters cannot purchase (bid) for the securities for their own account.

Question 25

The final settlement of a syndicate account must occur within _________ of the syndicate closing.

Answer 25

The final settlement of a syndicate account must occur within 90 days of the syndicate closing.

Question 26

True or False: Regulations A, D, and S represent exempt offerings.

Answer 26

True. Reg. A is for small issues, Reg. D is for private placements, and Reg. S is for offshore offerings.

Question 27

What does Rule 145 of the Securities Act of 1933 cover?

Answer 27

Registration/prospectus requirements of any reclassification of securities (primarily from mergers or acquisitions).

Question 28

A Regulation A+ Tier 1 exemption is permitted for issuers that raise no more than $__________ over 12 months.

Answer 28

A Regulation A+ Tier 1 exemption is permitted for issuers that raise no more than $20 million over 12 months.

Question 29

What is the primary purpose of the Securities Act of 1933?

Answer 29

Provide investors with full and fair disclosure regarding new issues (prospectus)

Question 30

What are the requirements to qualify for a Tier 1 exemption under Regulation A+?

Answer 30

A maximum offering of $20 million over 12 months, with no more than $6 million being offered by selling shareholders

Question 31

What type of underwriting is cancelled if the entire issue is not sold?

Answer 31

All-or-None

Question 32

Underwriters that have made a firm commitment to an issuer are acting in a ________________ capacity.

Answer 32

Underwriters that have made a firm commitment to an issuer are acting in a ________________ capacity.

Question 33

Who assists a nonaccredited investor in the purchase of securities offered through a private placement?

Answer 33

A purchaser's representative

Question 34

If a BD is going public with its own shares, may an RR buy the new issue?

Answer 34

Yes, since she is an employee of the issuer.

Question 35

The Securities Act of 1933 regulates ____________.

Answer 35

The Securities Act of 1933 regulates new issues.

Question 36

Corporate syndicate settlement must occur within ____ days of settlement with the issuer.

Answer 36

Corporate syndicate settlement must occur within 90 days of settlement with the issuer.

Question 37

A Purchaser Representative for a non-accredited investor may be an officer of the issuer if ________________________.

Answer 37

A Purchaser Representative for a non-accredited investor may be an officer of the issuer if related to the purchaser.

Question 38

The private placement disclosure document is the _____________________.

Answer 38

The private placement disclosure document is the Offering Memorandum.

Question 39

May a preliminary prospectus (red herring) be sent during the cooling-off period?

Answer 39

Yes. The red herring is used to obtain indications of interest from potential purchasers.

Question 40

In a firm commitment underwriting, unsold securities are retained by ________________.

Answer 40

In a firm commitment underwriting, unsold securities are retained by the syndicate.

Question 41

During the registration cooling-off period, what should an agent do if a client sends a check to purchase securities?

Answer 41

Return the check to the customer

Question 42

How often must a BD verify an investor's eligibility to purchase an equity IPO?

Answer 42

Annually

Question 43

Besides BDs and their employees, who else is restricted from purchasing equity IPOs?

Answer 43

An employee's immediate family if materially supported by, or sharing household with, the employee

Question 44

What amount of time must elapse before equity securities issued under Regulation S may be resold into the U.S.?

Answer 44

One year

Question 45

Indications of interest are _______________ on both the customer and BD.

Answer 45

Indications of interest are non-binding on both the customer and BD.

Question 46

May an RR modify a prospectus?

Answer 46

No. The underlining, photocopying, or highlighting of a prospectus is prohibited.

Question 47

True or False: Aunts and uncles are not considered immediate family under the New Issue Rule.

Answer 47

True

Question 48

What must issuers have to qualify for the Rule 147 intrastate exemption?

Answer 48

The issuer must have its principal place of business in that state

Question 49

Is a UIT actively managed?

Answer 49

No. These products are supervised and have a fixed portfolio.

Question 50

Under Rule 144, what are the potential volume limitations placed on sales effected over 90 days?

Answer 50

1% of the issuer's outstanding shares or the stock's average weekly trading volume over the last four weeks

Question 51

A Regulation A+ Tier 2 exemption is permitted for issuers that raise no more than $__________ over 12 months.

Answer 51

A Regulation A+ Tier 2 exemption is permitted for issuers that raise no more than $50 million over 12 months.

Question 52

When should an investor receive a private placement memorandum?

Answer 52

Prior to purchase

Question 53

What are the requirements to qualify for a Tier 2 exemption under Regulation A+?

Answer 53

A maximum offering of $50 million over 12 months, with no more than $15 million being offered by selling shareholders

Question 54

True or False: Stabilization is designed to artificially raise the price of a new issue.

Answer 54

False. Stabilization is designed to support or keep a new issue’s price from falling.

Question 55

Does Rule 144 require a specific holding period for control stock?

Answer 55

No, but the SEC must be notified when a sell order is placed and volume limitations apply.

Question 56

What is the maximum sale allowed under Rule 144?

Answer 56

1% of the outstanding shares or average trading volume over the last 4 weeks - whichever is greater

Question 57

What type of underwriting is cancelled if a specified portion is not sold?

Answer 57

Mini-max

Question 58

What amount of time that must elapse before debt securities issued under Regulation S may be resold into the U.S.?

Answer 58

40 days. The securities would remain exempt from registration.

Question 59

Who typically buys hedge funds?

Answer 59

Accredited (sophisticated) investors through Regulation D offerings

Question 60

True or False: 100% of investors must be state residents to qualify for the Rule 147 intrastate exemption.

Answer 60

True

Question 61

The highest price at which a stabilizing bid may be placed is the ________________________.

Answer 61

The highest price at which a stabilizing bid may be placed is the public offering price (POP).

Question 62

Is there a maximum number of stabilizing bids that may be placed?

Answer 62

Yes, one. It is usually placed by the syndicate manager.

Question 63

If a firm is acting as an underwriter of an issuer's equity, on what may it provide research?

Answer 63

Non-convertible debt securities of the same issuer

Question 64

Under Reg. D private placement, ___ is the maximum number of non-accredited investors allowed.

Answer 64

Under Reg. D private placement, 35 is the maximum number of non-accredited investors allowed.

Question 65

True or False: Form 144 must be filed for any sale of restricted or control stock, regardless of the size.

Answer 65

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.

Question 66

U.S. companies may issue securities abroad and claim an exemption from registration under what provision?

Answer 66

Regulation S

Question 67

May a firm advertise a hedge fund being offered through a Reg. D private placement to the general public?

Answer 67

Yes. Under Rule 506(c), general advertising is permitted; however, sales are limited to accredited investors.

Question 68

Rule 144A exempts sellers from the holding period and volume limitations of Rule 144 if trading is done with a _____.

Answer 68

Rule 144A exempts sellers from the holding period and volume limitations of Rule 144 if trading is done with a QIB.

Question 69

True or False: BDs and their employees may buy shares of equity IPOs from the syndicate.

Answer 69

False. They are considered restricted.

Question 70

Reclassifications, merger or consolidation activities, and transfers of assets are regulated under what provision?

Answer 70

Rule 145

Question 71

True or False: Shelf Registration gives flexibility to the issuer by allowing delayed or continuous sales.

Answer 71

True

Question 72

What regulation restricts activities that could be deemed manipulative during an offering?

Answer 72

Regulation M

Question 73

A financial commitment is made in which type of underwriting?

Answer 73

A firm-commitment offering. In a firm-commitment, the BD is acting as a principal.

Question 74

For how long may a new issue be sold under a shelf registration?

Answer 74

Up to 3 years

Question 75

Restricted stock has a ____ month holding period.

Answer 75

Restricted stock has a six month holding period.

Question 76

True or False: Canadian companies are not eligible to use the Regulation A+ exemption.

Answer 76

False. Both U.S. and Canadian companies are eligible to use the Regulation A+ exemption.

Question 77

True or False: If a BD is not involved in an underwriting, it may publish research during the cooling-off period.

Answer 77

True, Rule 137 allows BDs to publish research if not involved in the underwriting.

Question 78

Funds received from clients in an all-or-none underwriting are placed in an _______ account.

Answer 78

Funds received from clients in an all-or-none underwriting are placed in an escrow account.

Question 79

Identify the acronym: IPO

Answer 79

Initial Public Offering

Question 80

True or False: All customer account-related information must be delivered physically.

Answer 80

False. On request, BDs are permitted to deliver both confirmations and statements electronically.

Question 81

What is the purpose of a Tombstone Ad?

Answer 81

It calls attention to the new issuance of securities and members of the syndicate.

Question 82

Underwriters operating under a best-efforts agreement with an issuer are acting in a ________________ capacity.

Answer 82

Underwriters operating under a best-efforts agreement with an issuer are acting in a agency/broker capacity.

Question 83

Rule 147 offerings may not be sold to an out-of-state investor for ____ months following the last sale of a new issue.

Answer 83

Rule 147 offerings may not be sold to an out-of-state investor for six months following the last sale of a new issue.

Question 84

Though some securities are exempt from registration, nothing is exempt from the ____________ provisions of the Act.

Answer 84

Though some securities are exempt from registration, nothing is exempt from the anti-fraud provisions of the Act.

Question 85

Securities issued under the intrastate exemption may not be sold outside the state until ____________ have passed.

Answer 85

Securities issued under the intrastate exemption may not be sold outside the state until 6 months have passed.