Chapter 03 : Sales Supervision - New Issues Flashcards
Once Form 144 is filed, owners have __________ to sell their securities.
Once Form 144 is filed, owners have 90 days to sell their securities.
Which federal law governs the registration of new issues?
The Securities Act of 1933
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.
Shelf Registration is valid for up to _____ years.
Shelf Registration is valid for up to 3 years.
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.
What is another name for a preliminary prospectus?
The Red Herring. This document is distributed during the 20-day cooling-off period.
List the securities that are exempt from registration.
Government/municipal bonds, commercial paper, bankers’ acceptances, bank issues, non-profit and small business issues
The maximum number of non-accredited investors in a Reg. D offering is _____.
The maximum number of non-accredited investors in a Reg. D offering is 35.
If a completed registration must be amended, when will it become effective?
Upon SEC declaration
True or False: If a BD is involved in an offering it may not publish research during the offering process.
False, Rules 138 and 139 allow BDs to publish research if involved in an underwriting in limited situations.
May an RR summarize a prospectus?
No. Any prospectus summary (profile) must be produced by the fund’s sponsor.
May a prospectus be delivered electronically?
Yes. A prospectus may be viewed electronically or downloaded.
The ____________________ is the disclosure document concerning a Regulation A issue.
The Offering Circular is the disclosure document concerning a Regulation A issue.
The holding period for unregistered (restricted) securities under Rule 144 is __________.
The holding period for unregistered (restricted) securities under Rule 144 is 6 months.
According to the Equity IPO Rule, firms must update the eligibility of purchasers ___________ .
According to the Equity IPO Rule, firms must update the eligibility of purchasers annually.
In a best-efforts underwriting, unsold securities are retained by ______________.
In a best-efforts underwriting, unsold securities are retained by the issuer.
What is the document that establishes the agreement between the issuer and the underwriter?
Underwriting Agreement
The New Issue Rule covers what new issues?
All equity IPOs
____________ is the only form of price manipulation allowed by the SEC.
____________ is the only form of price manipulation allowed by the SEC.
An investor’s eligibility to purchase an equity new issue must be confirmed _______________.
An investor’s eligibility to purchase an equity new issue must be confirmed annually (called the pre-condition of sale).
A BD must _________ verify whether an investor is eligible to purchase a new issue.
A BD must annually verify whether an investor is eligible to purchase a new issue.
Are immediate family members of member firm employees always restricted from purchasing equity IPOs?
Not if the individual receives no material support and is not purchasing from the firm employing their family member
True or False: An investor with a net worth of less than $1 million is prohibited from purchasing a private placement.
False. The investor may purchase the offering as a nonaccredited investor.
During the Regulation M Restricted Period, underwriters may not_______________________________________.
During the Regulation M Restricted Period, underwriters cannot purchase (bid) for the securities for their own account.
The final settlement of a syndicate account must occur within _________ of the syndicate closing.
The final settlement of a syndicate account must occur within 90 days of the syndicate closing.
True or False: Regulations A, D, and S represent exempt offerings.
True. Reg. A is for small issues, Reg. D is for private placements, and Reg. S is for offshore offerings.
What does Rule 145 of the Securities Act of 1933 cover?
Registration/prospectus requirements of any reclassification of securities (primarily from mergers or acquisitions).
A Regulation A+ Tier 1 exemption is permitted for issuers that raise no more than $__________ over 12 months.
A Regulation A+ Tier 1 exemption is permitted for issuers that raise no more than $20 million over 12 months.
What is the primary purpose of the Securities Act of 1933?
Provide investors with full and fair disclosure regarding new issues (prospectus)
What are the requirements to qualify for a Tier 1 exemption under Regulation A+?
A maximum offering of $20 million over 12 months, with no more than $6 million being offered by selling shareholders
What type of underwriting is cancelled if the entire issue is not sold?
All-or-None
Underwriters that have made a firm commitment to an issuer are acting in a ________________ capacity.
Underwriters that have made a firm commitment to an issuer are acting in a ________________ capacity.
Who assists a nonaccredited investor in the purchase of securities offered through a private placement?
A purchaser’s representative
If a BD is going public with its own shares, may an RR buy the new issue?
Yes, since she is an employee of the issuer.
The Securities Act of 1933 regulates ____________.
The Securities Act of 1933 regulates new issues.
Corporate syndicate settlement must occur within ____ days of settlement with the issuer.
Corporate syndicate settlement must occur within 90 days of settlement with the issuer.
A Purchaser Representative for a non-accredited investor may be an officer of the issuer if ________________________.
A Purchaser Representative for a non-accredited investor may be an officer of the issuer if related to the purchaser.
The private placement disclosure document is the _____________________.
The private placement disclosure document is the Offering Memorandum.
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.
In a firm commitment underwriting, unsold securities are retained by ________________.
In a firm commitment underwriting, unsold securities are retained by the syndicate.
During the registration cooling-off period, what should an agent do if a client sends a check to purchase securities?
Return the check to the customer
How often must a BD verify an investor’s eligibility to purchase an equity IPO?
Annually
Besides BDs and their employees, who else is restricted from purchasing equity IPOs?
An employee’s immediate family if materially supported by, or sharing household with, the employee
What amount of time must elapse before equity securities issued under Regulation S may be resold into the U.S.?
One year
Indications of interest are _______________ on both the customer and BD.
Indications of interest are non-binding on both the customer and BD.
May an RR modify a prospectus?
No. The underlining, photocopying, or highlighting of a prospectus is prohibited.
True or False: Aunts and uncles are not considered immediate family under the New Issue Rule.
True
What must issuers have to qualify for the Rule 147 intrastate exemption?
The issuer must have its principal place of business in that state
Is a UIT actively managed?
No. These products are supervised and have a fixed portfolio.
Under Rule 144, what are the potential volume limitations placed on sales effected over 90 days?
1% of the issuer’s outstanding shares or the stock’s average weekly trading volume over the last four weeks
A Regulation A+ Tier 2 exemption is permitted for issuers that raise no more than $__________ over 12 months.
A Regulation A+ Tier 2 exemption is permitted for issuers that raise no more than $50 million over 12 months.
When should an investor receive a private placement memorandum?
Prior to purchase
What are the requirements to qualify for a Tier 2 exemption under Regulation A+?
A maximum offering of $50 million over 12 months, with no more than $15 million being offered by selling shareholders
True or False: Stabilization is designed to artificially raise the price of a new issue.
False. Stabilization is designed to support or keep a new issue’s price from falling.
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.
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
What type of underwriting is cancelled if a specified portion is not sold?
Mini-max
What amount of time that must elapse before debt securities issued under Regulation S may be resold into the U.S.?
40 days. The securities would remain exempt from registration.
Who typically buys hedge funds?
Accredited (sophisticated) investors through Regulation D offerings
True or False: 100% of investors must be state residents to qualify for the Rule 147 intrastate exemption.
True
The highest price at which a stabilizing bid may be placed is the ________________________.
The highest price at which a stabilizing bid may be placed is the public offering price (POP).
Is there a maximum number of stabilizing bids that may be placed?
Yes, one. It is usually placed by the syndicate manager.
If a firm is acting as an underwriter of an issuer’s equity, on what may it provide research?
Non-convertible debt securities of the same issuer
Under Reg. D private placement, ___ is the maximum number of non-accredited investors allowed.
Under Reg. D private placement, 35 is the maximum number of non-accredited investors allowed.
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.
U.S. companies may issue securities abroad and claim an exemption from registration under what provision?
Regulation S
May a firm advertise a hedge fund being offered through a Reg. D private placement to the general public?
Yes. Under Rule 506(c), general advertising is permitted; however, sales are limited to accredited investors.
Rule 144A exempts sellers from the holding period and volume limitations of Rule 144 if trading is done with a _____.
Rule 144A exempts sellers from the holding period and volume limitations of Rule 144 if trading is done with a QIB.
True or False: BDs and their employees may buy shares of equity IPOs from the syndicate.
False. They are considered restricted.
Reclassifications, merger or consolidation activities, and transfers of assets are regulated under what provision?
Rule 145
True or False: Shelf Registration gives flexibility to the issuer by allowing delayed or continuous sales.
True
What regulation restricts activities that could be deemed manipulative during an offering?
Regulation M
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.
For how long may a new issue be sold under a shelf registration?
Up to 3 years
Restricted stock has a ____ month holding period.
Restricted stock has a six month holding period.
True or False: Canadian companies are not eligible to use the Regulation A+ exemption.
False. Both U.S. and Canadian companies are eligible to use the Regulation A+ exemption.
True or False: If a BD is not involved in an underwriting, it may publish research during the cooling-off period.
True, Rule 137 allows BDs to publish research if not involved in the underwriting.
Funds received from clients in an all-or-none underwriting are placed in an _______ account.
Funds received from clients in an all-or-none underwriting are placed in an escrow account.
Identify the acronym: IPO
Initial Public Offering
True or False: All customer account-related information must be delivered physically.
False. On request, BDs are permitted to deliver both confirmations and statements electronically.
What is the purpose of a Tombstone Ad?
It calls attention to the new issuance of securities and members of the syndicate.
Underwriters operating under a best-efforts agreement with an issuer are acting in a ________________ capacity.
Underwriters operating under a best-efforts agreement with an issuer are acting in a agency/broker capacity.
Rule 147 offerings may not be sold to an out-of-state investor for ____ months following the last sale of a new issue.
Rule 147 offerings may not be sold to an out-of-state investor for six months following the last sale of a new issue.
Though some securities are exempt from registration, nothing is exempt from the ____________ provisions of the Act.
Though some securities are exempt from registration, nothing is exempt from the anti-fraud provisions of the Act.
Securities issued under the intrastate exemption may not be sold outside the state until ____________ have passed.
Securities issued under the intrastate exemption may not be sold outside the state until 6 months have passed.
