Chapter 6 Flashcards
True or False: The SEC judges an offering’s investment merit and provides approval.
False
List the securities that are exempt from registration.
Government/municipal bonds, commercial paper, bankers’ acceptances, bank issues, non-profit and small business issues
Though some securities are exempt from registration, nothing is exempt from the ____________ provisions of the Act.
anti-fraud
Regulation A exemption is allowed if issuers raise no more than $____________ over 12 months.
$5 million (capital, not share limit)
The ____________________ is the disclosure document concerning a Regulation A issue.
Offering Circular
True or False: 100% of investors must be state residents to qualify for an intrastate exemption.
True
Securities issued under the intrastate exemption may not be sold outside the state until ____________ have passed.
9 months
What is the rule that issuers must follow to qualify for an intrastate exemption?
80% of assets located in-state, 80% of revenue produced in-state, and 80% of proceeds raised are used in-state.
____ is the maximum number of non-accredited investors allowed in a Private Placement.
35
The private placement disclosure document is the _____________________.
Offering Memorandum
May a preliminary prospectus (red herring) be sent during the cooling-off period?
yes
Indications of interest are _______________ on both the customer and BD.
non-binding
What should an RR do if a client sends a check to purchase securities going through the cooling-off period?
return the check to the customer
True or False: If a registration statement has not been filed with the SEC, BDs may not discuss new issue information.
True
The ____________________ will not appear in a red herring.
Final Offering Price
What rules govern the registration of an issue in any state in which it will be offered?
Blue-Sky
True or False: Blue-Sky Laws apply to broker-dealers and agents operating within a state.
True
In a firm commitment underwriting, unsold securities are retained by ________________.
the syndicate
In a best-efforts underwriting, unsold securities are retained by ______________.
the issuer
What type of underwriting is cancelled if the entire issue is not sold?
All-or-None
What type of underwriting is cancelled if a specified portion is not sold?
Mini-Max
A ___________ underwriting is used for shares not purchased through a rights offering.
Stand-By
____________ is the only form of price manipulation allowed by the SEC.
Stabilization
True or False: Stabilization is designed to artificially raise the price of a new issue.
False. Keep the price from falling
Is there a maximum number of stabilizing bids that may be placed?
yes. one, usually placed by syndicate manager
The highest price at which a stabilizing bid may be placed is the ________________________.
public offering price
The New Issue Rule covers what new issues?
all equity IPO’s
True or False: BDs and their employees may buy shares of equity IPOs from the syndicate.
False
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
An offering of shares of the issuer and selling shareholders (e.g., officers) is a _____________________ offering.
combined primary/secondary offer
The ___________ clause gives underwriters the ability to buy additional shares from the issuer to cover over-allotments.
Green Shoe
The Green Shoe Clause allows the issuer to expand the offering by a maximum of ____%.
15%
For how long may a new issue be sold under a shelf registration?
up to 3 years
True or False: Shelf Registration gives flexibility to the issuer by allowing delayed or continuous sales.
True
The holding period for unregistered (restricted) securities under Rule 144 is __________.
6 months
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
Once Form 144 is filed, owners have __________ to sell their securities.
90 days
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.
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.
QIB stands for ___________________________.
Qualified Institutional Buyer
QIBs are financial institutions that have at least $_________________ invested in securities of non-affiliated issuers.
$100 million
Rule 144A exempts sellers from the holding period and volume limitations of Rule 144 if trading is done with a _____.
QIB
Reclassifications, merger or consolidation activities, and transfers of assets are regulated under what provision?
Rule 145
Underwriters that have made a firm commitment to an issuer are acting in a ________________ capacity.
principal/dealer
Underwriters operating under a best-efforts agreement with an issuer are acting in a ________________ capacity.
agency/broker
What is the difference between a syndicate member and a firm in the selling group?
Syndicate members assume liability, while firms in the selling group do not.
According to the Equity IPO Rule, firms must update the eligibility of purchasers ___________ .
annually
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
What does Rule 145 of the Securities Act of 1933 cover?
Registration/prospectus requirements of any reclassification of securities (primarily from mergers or acquisitions).
Accredited investors have net worth of at least $_________ or pre-tax income in each of the last two years of $________.
$1,000,000
$200,000
