Chapter 1 Flashcards by Evan Hoehne

What APO is

Additional Public Offering

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Who a person is defined as

Any human being or legal entity who can enter into a contract

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Best-Efforts Underwriting

Underwriters sell securities to investor without committing to purchase shares themselves (agent agency)

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All-or-non best-efforts underwriting

All shares must be sold by underwriter or the deal will be cancelled

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Mini-max best-efforts underwriting

Minimum amount issuer needs to raise from underwriting, and a maximum they are willing sell

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Firm Commitment Underwriting

Underwriters buy securities from issuer and then resell to the public for a higher price (principal agency)

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Syndicate

Group of broker-dealers who form a joint venture

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What a managing underwriter is

Leader of synidcate BD’s takes on responsibility and contributes largely financially

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What a Qualified Institutional Buyer (QIB) must have

Minimum of $100 mil in securities on discretionary basis

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Municipal advisors

Investment bank that advises municipalities on the issuing of their debt

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What municipal advisors cannot do

Change from advisor to underwriter and receive compensation for such services

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What Securities Act of 1933 covers

Primary issues

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Statements that must be contained in a registration statement (6)

Description of business
ID of who owns 10% or more of the company
Directors addresses, salaries, 5 yr business history
Capitalization
How proceeds will be used
Legal proceedings

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Cooling off period in days

20 days

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What tombstone ads can include (5)

POP
Issuer
Number of shares to be sold
Names of underwriting members
Type of security

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What advisory statement tombstone ads must include

“This announcement is neither an offer to sell nor a solicitation of any offer of securities”

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Purpose of preliminary prospectus

Prospecting tool

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When due diligence of a security takes place

During cooling-off period

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Shelf offering

Where issuers who are already publicly traded can register new securities without selling them until later

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How long a shelf offering is good for after being filed

2 years

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What are NMS securities

Those listed on an exchange

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What are non-NMS securities

Those not listed on an exchange

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Prospectus must be delivered when investor invests within this certain timeline in case of IPO NMS securities

25 days

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Prospectus must be delivered when investor invests within this certain timeline in case of IPO non-NMS securities

90 days

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Prospectus must be delivered when investor invests within this certain timeline in case of APO non-NMS securities

40 days

Exempt issuers (6)

U.S. Gov't Municipalities National/state banks Buildings/savings and loans Non-profit associations Common carriers

What type of bank is not considered exempt

Bank holding company

Example of a common carrier

Railroad equipment trust certificate

Exempt issues (2)

1. Commercial paper and banker's acceptances with maturities less than 270 days 2. Insurance policies and fixed annuities

What Regulation A allows

Small and medium sized companies to raise capital much more easily

How much can be offered in Tier 1 of Reg A

Up to $20 million in a 12-month period

How much can be offered in Tier 2 of Reg A

Up to $75 million in a 12-month period

For which tier of Reg A must investors be qualified

Tier 2

Qualifications for qualified investor

1. Be an accredited investor 2. Investment limit of 10% of investor net worth

What Rule 147: Intrastate Offering Rule says

Offering that take place in one state are exempt from registration when issuer has principal office in state and all purchasers are residents of the state

What percentage of income, issuer assets and offering proceeds must be from in-state

80%

How long securities sold under rule 147 may not be resold for

Within 6 months of initial purchase

What regulation D says

Registration is unnecessary for private placements with no more than 35 nonaccredited investors

What private placement stock is also called

Lettered stock

General advertising tules of private placement under 506(c) (2)

1. Can only advertise to accredited investors 2. The business must take reasonable steps to verify that all purchases are accredited

Other terms used for private placement stock

Restricted, unregistered, letter, legend

Who is not in family prohibited list

Aunts, uncles, nieces, nephews

What exchanges are defined by (2)

Physical location (must have a "floor"), pricing system (double-auction market)

What designated market maker does (2)

Maintains inventory and guarantees liquidity

Even though they have a hand in a transaction who is not actually "trading" on an exchange

Employees

Main difference between DMM and OTC

OTC trades include multiple market makers dealing same security

What is the "third" market

Nasdaq Intermarket

What is the "fourth" market (ECNs)

Market for institutional investors where large blocks of stock, listed and unlisted, are traded unassisted by BD's

"Dark pools"

Trading that is not open to the public

Who a "custodian" refers to (2)

1. Person who manages at UGMA or UTMA 2. A firm that holds assets in qualified retirement accounts

Trustee

Fiduciary that oversees a trust

Three-prong IA test

1. Gives investment advice 2. Regular part of day-to day business 3. Receives compensation

Carrying (Clearing) broker dealer firm

Carries customer accounts and and accepts funds from them

What must be kept separate in a carrying firm

Broker funds and client funds

Fully disclosed broker dealer firm

Introduces customers to clearing firms; acts as clearing firm's office

Prime broker

One member firm provides custody while other firms called executing brokers handle certain trades dependent on their specialty

Advantage of a prime broker

Large volume traders can keep one centralized master account while keeping the ability to trade between multiple brokerage houses

Responsibilities of transfer agents (4)

1. Securities are issued in correct owner's name 2. Maintain records of ownership 3. Handle any problems with certificates 4. Cancel old and issue new certs

Fill-or-kill order

Instruction to fill entire order immediately or otherwise cancel it in it's entirety

Immediate-or-cancel order

Instruction where any part of an order that can be filled is, and the rest is cancelled

All-or-none order

Killed if not able to be filled in entirety, but can be held for a period instead of transacted immediately

Act of a broker (agency) capacity in trading

Trade on behalf of customer for a commission

Act of a dealer (principal) capacity in trading

Trade with customers from own inventory and make profit on markup spread

What settles in one business day? (T+1)

T-bills, t-notes, t-bonds

What settles in two business days? (T+2)

Corporate issues, municipal debt, agency securities, GSE securities

What cash settlement requires

Securities from seller and funds from buyer to be executed on the same day

When settlement for options generally occurs

T+1

When settlement for equity option exercise generally occurs

T+2

What an investor could sign aside from a physical stock certificate to be approved for trading it

Stock power

Do customers buy stock at bid or ask price?

Ask

Who blue-sky laws are regulated by

State securities regulators

What [25 x 10] translates to

2500 shares x 1000 shares