Chapter 1 pt 2 series 7 Flashcards
Securities act of 1933 requires
issuers of new securities to file registration statements with the SEC in order to provide investors with complete and accurate information in the form of a printed document. Think of this as the paper act.
The following securities are exempt from the securities act of 1933
commercial paper- MAT less than 270 days
Bankers acceptance- MAT less than 270 days
securities acquired in private placements- restricted stock
Blue sky laws require
registration of securities, broker/dealers and registered representatives
An issuer or investment banker may blue sky an issue by one of the following methods
qualification
coordination
notice filing
due diligence
preliminary studies, investigations, research, meetings, and compilation of information about a corporation and a proposed new issue that go on during underwriting.
The issuer knows a lot about
they don’t know a lot
they will do what to attract who
manufacturing or accounting or software or whatever it is they do
about what it takes to sell securities to the public
they will place a notice in order to attract an underwriter.
underwriter
is any party that evaluates and assumes another party’s risk for a fee.
underwriting manager or syndicate manager
the investment banker who negotiates with the issuer
investment bankers help
issuers raise money through the sales of securities
do investment bankers loan money
no
investment bankers are also called
underwriters
all underwriters of corporate securities must be
FINRA member firms
syndicate agreement/ letter
describes the participants responsibilities and allocation of syndicate profits
negotiated underwriting
the issuer and the investment banker negotiate the offering terms.
competitive bid underwriting arrangements are the standard for
underwriting most municipal securities and are often required by state law
syndicates are usually formed to
spread the risk among several underwriters instead of one underwriter taking all the risk of an offering
*Selling group members
act as agent with no commitment to buy securities
*Syndicate members take
on the financial liability and act in principal capacity
*Do selling group members take on financial liability
no
firm commitment
most commonly used type of underwriting contract.
under its terms the underwriter(investment bank) commits to buy the securities from the issuer and resell them to the public
*In a firm commitment underwriting who takes risk and why
the manager underwriter takes on the financial risk because he purchases the securities from the issuer. Because he purchases and resells the shares, he is acting in a principal(dealer) capacity.
*By engaging a standby underwriter
an issuer is assured of selling all the shares being offered.
Best efforts arrangement
underwriter acts as agent from the issuing corporation
the underwriter sells as much as possible without liability for what cannot be sold
all or none underwriting
The issuing corporation has determined that it wants an agreement outlining that the underwriter must either sell all of the shares or cancel the underwriting.
mini-max offering
a best efforts underwriting setting a floor or minimum, which is the least amount the issuer needs to raise in order to move forward with the underwriting, and a ceiling or max on the dollar amount of securities the issuer is willing to sell
After an issuer files a registration statement with the SEC, a ________
20 day cooling off period begins.
Red herring(preliminary prospectus) used for what
used to gauge investor reactions and gather indications of interest for corporate securities.
*The term tombstone advertisement is derived
from the bare bones minimum information they provide.
*Information found in a tombstone advertisement includes
Name of issuer type of security underwriter price effective date of sale
- Stabilizing bids must
not be made at a price higher than the public offering price
*stabilization is illegal or legal
however what can’t be done
legal
if the stabilization bid is made at a price higher than the public offering price, its called pegging or fixing which is prohibited
*if public buying interest does not increase
the managing underwriter may have no choice but to abandon the Public offering price, pull the stabilizing bid, and let the stock find its own price level
underwriting proceeds
the price the issuer receives
underwriting spread
difference between the two prices
underwriting spread consists of
managers fee
underwriting fee
selling concession
managers fee
for negotiation the deal and managing the underwriting and distribution process
underwriting fee
for assuming the risk of buying securities from the issuer without assurance that the securities can be resold
selling concession is for
for placing the securities with investors
*a member can grant discounts and other concessions
the only exception
only to other finra member firms
that a member firm can grant concessions to a foreign nonmember firm that is ineligible for finra membership
Anything that says the SEC approved or disapproved an issue of securities is
wrong
*The SEC does not approve or disapprove- T or F with explanation
T- it clears or releases issues of securities for sale. When the SEC has completed its review, the registration becomes effective
*issuers and underwriters are responsible for the
information found in the prospectus and will conduct due diligence meetings to ensure that the prospectus is true and accurate
*Trust indenture
a series of promises between the issuer and the trustee for the benefit of the bondholders.
official statement
the full and fair disclosure document for municipal securities
when a municipality wants to raise money through a bond offering _________ is published
an official notice of sale
cooling off period is effective before or after the registration statement has been filed
after
nonbinding indications of interest may be gathered with what
preliminary prospectus or tombstone ad
a firm commitment underwriting can be ether a
negotiated underwriting contract or a competitive bid arrangement.
In regulation A+ offering , the issuer
files an abbreviated notice of sale(offering circular) with the regional SEC office
private placement stock is also called
legend stock and lettered stock
All of the following are synonymous with private placement stock
restricted
unregistered
letter stock
legend stock
*If an investor is accredited does it mean they automatically qualify them for investing in a private placement or any other investment for that matter.
NO
*Suitability must be determined before or after recommendations
before(prior)
*To quality under the rule 147 exemption(what is 147 rule)
offerings that take place entirely in one state are exempt from registration when
only one of the three 80% test notes must be met
those are the issuer has its principal office and receives at least 80% income in the state
at least 80% of the issuers assets are located within the state
at least 80% of the offering proceeds are used within the state
rule 144 regulates
the sale of control and restricted securities
control securities
those owned by directors, officers, or person who own or control more than 10% of the issuers voting stock
how much % of interest held is required to be considered a control person
10% and if married combined amount must be 10%
restricted securities
those acquired through some means other than a registered public offering
when you encounter a rule 144 question always look for 2 things
what kind of stock is being sold(restricted or control)
who is selling it(insider or noninsider)
Only restricted stock has a holding period. Control stock, unless restricted can be sold immediately, but volume limits always apply.
rule 144a
allows nonregistered foreign and domestic securities to be sold to certain institutional investors in the usa without holding period requirements.
to qualify for the 144a
buyer must be qualified institutional buyer.
spinning
the practice of allocating highly sought after ipo share to individuals who are in a position to direct securities business to the firm.
