Chapter 2: Execution and Distribution

Question 1

FINRA Rule 5141

Answer 1

Prohibits a member from selling a security below the offering price.

Question 2

FINRA Rule 5130

Answer 2

Prohibits the sale of a security to an account in which a restricted person has beneficial ownership.
Does not apply to mutual funds, insurance companies, or accounts in which beneficial ownership is less than 10%.

Question 3

FINRA Rule 6130: No IPO Sales Before Trading.

Answer 3

Prohibits a member from executing a transaction in a security being distributed in an IPO before the security opens for trading.

Question 4

FINRA Rule 5190: Notification Requirements Under Regulation M

Answer 4

Requires a Manager to notify FINRA of its intent to engage in stabilizing activities under reg. M.

Question 5

Reg. M Rule 105

Answer 5

Prohibits a person from buying IPO securities if that person has shorted the stock during the restricted period. Restricted period is the shorter of 5 days before pricing through pricing or from the filing date through pricing.

Question 6

Regulation M

Answer 6

Prohibits offering participants from causing a purchase during the restricted period.

Question 7

Reg. M Rule 103: Passive Market Making

Answer 7

Price Limitation - max bid = highest independent bid.
Purchase limit - greater of 30% ADTV or 200 shs.
Must identify bid.
Must notify FINRA in advance.

Question 8

Reg. M Rule 104: Stabilizing

Answer 8

Cannot boost the stock price.
Independent bids have priority.
Limited to a single bid at a time.
Max bid is the lower of the offering price or the current stabilizing bid in the primary market.
Requires disclosure to purchasers.

Question 9

Rule 17A-2

Answer 9

Syndicate Manager is responsible for record keeping. Must keep for 3 yrs, first 2 yrs must be easily accessible.

Question 10

Green Shoe (over allotment)

Answer 10

Limits the over allotment to 15% of the original amt. of shs. offered.

Question 11

Underwriting Spread

Answer 11

Most common - 20/20/60.