Chapter 6

Question 1

True or False: The SEC judges an offering’s investment merit and provides approval.

Answer 1

False

Question 2

List the securities that are exempt from registration.

Answer 2

Government/municipal bonds, commercial paper, bankers’ acceptances, bank issues, non-profit and small business issues

Question 3

Though some securities are exempt from registration, nothing is exempt from the ____________ provisions of the Act.

Answer 3

anti-fraud

Question 4

Regulation A exemption is allowed if issuers raise no more than $____________ over 12 months.

Answer 4

$5 million (capital, not share limit)

Question 5

The ____________________ is the disclosure document concerning a Regulation A issue.

Answer 5

Offering Circular

Question 6

True or False: 100% of investors must be state residents to qualify for an intrastate exemption.

Answer 6

True

Question 7

Securities issued under the intrastate exemption may not be sold outside the state until ____________ have passed.

Answer 7

9 months

Question 8

What is the rule that issuers must follow to qualify for an intrastate exemption?

Answer 8

80% of assets located in-state, 80% of revenue produced in-state, and 80% of proceeds raised are used in-state.

Question 9

____ is the maximum number of non-accredited investors allowed in a Private Placement.

Answer 9

35

Question 10

The private placement disclosure document is the _____________________.

Answer 10

Offering Memorandum

Question 11

May a preliminary prospectus (red herring) be sent during the cooling-off period?

Answer 11

yes

Question 12

Indications of interest are _______________ on both the customer and BD.

Answer 12

non-binding

Question 13

What should an RR do if a client sends a check to purchase securities going through the cooling-off period?

Answer 13

return the check to the customer

Question 14

True or False: If a registration statement has not been filed with the SEC, BDs may not discuss new issue information.

Answer 14

True

Question 15

The ____________________ will not appear in a red herring.

Answer 15

Final Offering Price

Question 16

What rules govern the registration of an issue in any state in which it will be offered?

Answer 16

Blue-Sky

Question 17

True or False: Blue-Sky Laws apply to broker-dealers and agents operating within a state.

Answer 17

True

Question 18

In a firm commitment underwriting, unsold securities are retained by ________________.

Answer 18

the syndicate

Question 19

In a best-efforts underwriting, unsold securities are retained by ______________.

Answer 19

the issuer

Question 20

What type of underwriting is cancelled if the entire issue is not sold?

Answer 20

All-or-None

Question 21

What type of underwriting is cancelled if a specified portion is not sold?

Answer 21

Mini-Max

Question 22

A ___________ underwriting is used for shares not purchased through a rights offering.

Answer 22

Stand-By

Question 23

____________ is the only form of price manipulation allowed by the SEC.

Answer 23

Stabilization

Question 24

True or False: Stabilization is designed to artificially raise the price of a new issue.

Answer 24

False. Keep the price from falling

Question 25

Is there a maximum number of stabilizing bids that may be placed?

Answer 25

yes. one, usually placed by syndicate manager

Question 26

The highest price at which a stabilizing bid may be placed is the ________________________.

Answer 26

public offering price

Question 27

The New Issue Rule covers what new issues?

Answer 27

all equity IPO's

Question 28

True or False: BDs and their employees may buy shares of equity IPOs from the syndicate.

Answer 28

False

Question 29

Besides BDs and their employees, who else is restricted from purchasing equity IPOs?

Answer 29

An employee's immediate family if materially supported by, or sharing household with, the employee

Question 30

An offering of shares of the issuer and selling shareholders (e.g., officers) is a _____________________ offering.

Answer 30

combined primary/secondary offer

Question 31

The ___________ clause gives underwriters the ability to buy additional shares from the issuer to cover over-allotments.

Answer 31

Green Shoe

Question 32

The Green Shoe Clause allows the issuer to expand the offering by a maximum of ____%.

Answer 32

15%

Question 33

For how long may a new issue be sold under a shelf registration?

Answer 33

up to 3 years

Question 34

True or False: Shelf Registration gives flexibility to the issuer by allowing delayed or continuous sales.

Answer 34

True

Question 35

The holding period for unregistered (restricted) securities under Rule 144 is __________.

Answer 35

6 months

Question 36

What is the maximum sale allowed under Rule 144?

Answer 36

1% of the outstanding shares or average trading volume over the last 4 weeks - whichever is greater

Question 37

Once Form 144 is filed, owners have __________ to sell their securities.

Answer 37

90 days

Question 38

Does Rule 144 require a specific holding period for control stock?

Answer 38

No, but the SEC must be notified when a sell order is placed and volume limitations apply.

Question 39

True or False: Form 144 must be filed for any sale of restricted or control stock, regardless of the size.

Answer 39

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.

Question 40

QIB stands for ___________________________.

Answer 40

Qualified Institutional Buyer

Question 41

QIBs are financial institutions that have at least $_________________ invested in securities of non-affiliated issuers.

Answer 41

$100 million

Question 42

Rule 144A exempts sellers from the holding period and volume limitations of Rule 144 if trading is done with a _____.

Answer 42

QIB

Question 43

Reclassifications, merger or consolidation activities, and transfers of assets are regulated under what provision?

Answer 43

Rule 145

Question 44

Underwriters that have made a firm commitment to an issuer are acting in a ________________ capacity.

Answer 44

principal/dealer

Question 45

Underwriters operating under a best-efforts agreement with an issuer are acting in a ________________ capacity.

Answer 45

agency/broker

Question 46

What is the difference between a syndicate member and a firm in the selling group?

Answer 46

Syndicate members assume liability, while firms in the selling group do not.

Question 47

According to the Equity IPO Rule, firms must update the eligibility of purchasers ___________ .

Answer 47

annually

Question 48

Are immediate family members of member firm employees always restricted from purchasing equity IPOs?

Answer 48

Not if the individual receives no material support and is not purchasing from the firm employing their family member

Question 49

What does Rule 145 of the Securities Act of 1933 cover?

Answer 49

Registration/prospectus requirements of any reclassification of securities (primarily from mergers or acquisitions).

Question 50

Accredited investors have net worth of at least $_________ or pre-tax income in each of the last two years of $________.

Answer 50

$1,000,000 $200,000