Chapter 5: Underwriting Securities Flashcards
Which of the following types of underwriting agreements specify that any unsold securities are retained by the underwriters?
A. mini max
B. firm commitment
C. all or none (AON)
D. best efforts
B. firm commitment
A firm commitment underwriting is one in which any unsold securities are retained by the underwriters. All or none and mini max are types of best efforts underwriting in which certain amounts of securities must be sold or the offering is cancelled.
A broker dealer is offering an IPO that will not be listed on the NYSE, NASDAQ, or any other exchange. How long after the effective date must the broker dealer provide a final prospectus to all purchasers?
A. 20 days
B. 30 days
C. 40 days
D. 90 days
D. 90 days
IPOs that aren’t sold on an exchange have a 90 day prospectus requirement. All other new offerings have a 40 day prospectus requirement.
The cooling off period for a new issue lasts approximately how many days?
- A. 20
- B. 30
- C. 40
- D. 60
A. 20
- The cooling off period is when the SEC is reviewing a company’s registration statement before bringing new issues to market. The cooling off period usually lasts 20 days.
ABC corp is planning on issuing new shares to the public. ABC has not yet filed a registration statement with the SEC. An underwriter for ABC may do which of the following?
A. accept money from investors for payment of the new issue of stock
B. send a red herring to investors
C. accept indications of interest
D. None of the above
D. none of the above
Although none of the above is rarely the correct aswer, in this case it is. You should remember that until a company files a registration statement for a new issue with the SEC, you can’t do anything. You can’t accept money, accept indications of interest, or send a red herring (preliminary prospectus).
Which of the following is not a type of bond underwriting?
A. mini max
B. best efforts
C. standby
D. AON
C. Standby
A standby underwriting is only for common stockholders. A standby underwriter purchases shares that aren’t purchased by existing shareholders during a rights offering.
A tombstone ad would include all of the following names EXCEPT
A. selling group members
B. syndicate members
C. the syndicate manager
D. the issuer
A. selling group members
A registered rep may use a preliminary prospectus to
A. solicit orders from clients to purchase a new issue
B. show prospective investors that the issue has been approved by the SEC
C. obtain indications of interest from investors
D. accept orders and payments from investors for a new issue
C. obtain indications of interest from investors
All of the following are included in the preliminary prospectus EXCEPT
I. the public offering price
II. the financial history of the issuer
III. the effective date
A. I only
B. I and II
C. II and III
D I and III
D I and III
The red herring would include such items as the financial history of the company (including financial statements) and what the company is going to do with the money. The effective date and the public offering price would be included in the final prospectus.
What is the underwriting arrangement that allows an issuer whose stock is already trading publically to time the sales of an additional issue?
- A. shelf registration
- B. a standby underwriting
- C. a negotiated offering
- D an Eastern account underwriting
A. shelf registration
- A shelf registration allows the issuer to sell securities registered with the SEC for up to 3 years from the effective (release) date. It allows an issuer to time the sale of its securities with market conditions.
A primary offering would do which of the following?
I. increase the number of shares outstanding
II. decrease the number of shares outstanding
III. raise additional capital for the issuer
IV. include treasury stock
A. I, III, and IV
B. II III, and IV
C. I and IV
D. I and III
D. I and III
Which of the following are types of state securities registration?
I. filing
II. communication
III. qualification
IV. coordination
- A. I, III, and IV
- B. II, III, and IV
- C. I, II, and III
- D. I, II, III, and IV
A. I, III, and IV
Which of the following securities acts covers the registration and disclosure requirements of new issues?
A. the Securities Act of 1933
B. the Securities Exchange Act of 1934
C. the Trust Indenture Act of 1939
D. all of the above
A. the Securities Act of 1933
The Securities Act of 1933 covers the sale of new issues (primary market). Designed to provide more transparency in financial statements and to curb fraudulent activities of issuers.
Which two of the following are considered securities under the Securities Act of 1933?
- I. variable annuities
- II. fixed annuities
- III. FDIC insured negotiable CDs
- IV. old and gas limited partnerships
- A. I and III
- B. I and IV
- C. II and III
- D. II and IV
B. I and IV
- Under the Securities Act of 1933, securities have to be an investment for profit and an investment risk.
Under the Securities Act of 1933, the SEC has the authority to
I. approve new issues of common stock
II. issue stop orders
III. review registration statements
A. I and II
B. II and III
C. I and III
D. all of the above
B. II and III
Be careful, any time you see something about the SEC or any SRO, approving or guaranteeing an issue, its false. The SEC just clears the issue. During the cooling off period the SEC reviews the registration statements and may issue stop orders.
Stabilizing bids may be entered at
A. a price at or below the public offering price
B. the stabilizing price stated in the final prospectus
C. a price at or above the public offering price
D. a price deemed reasonable by the Fed
A. a price at or below the public offering price
Stabilizing bids can’t be placed above the public offering price because they cannot be used to help raise the market price of an issue.
