Chapter 6 - New Issue Marketplace for Equities

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 Aaper
• 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

Though some securities are exempt from registration, nothing is exempt from the anti-fraud provisions of the Act.

Question 4

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

Answer 4

The Offering Circular is the disclosure document concerning a Regulation A issue.

Question 5

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

Answer 5

Securities issued uner the intrastate exemption may not be sold outside the state until 9 months have passed

Question 6

The private placement disclosure document is the ___________.

Answer 6

The private placement disclosure document is the Offering Memorandum.

Question 7

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

Answer 7

Indications of interest are non-binding on both the customer and BD.

Question 8

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

Answer 8

True

Question 9

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

Answer 9

Blue-Sky Laws

Question 10

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

Answer 10

True

Question 11

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

Answer 11

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

Question 12

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

Answer 12

In a best-efforts underwriting, unsold securities are retained by the issuer

Question 13

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

Answer 13

All-or-None

Question 14

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

Answer 14

Mini-max

Question 15

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

Answer 15

A Stand-by underwriting is used for shares not purchased through a rights offering.

Question 16

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

Answer 16

Stabilization is the only form of price manipulation allowed by the SEC

Question 17

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

Answer 17

False.

Stabilization is designed to support or keep a new issue’s price from falling

Question 18

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

Answer 18

Yes, one. It is usually placed by the syndicate manager.

Question 19

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

Answer 19

The highest price at which a stabilizing bid may be placed is the public offering price (POP).

Question 20

The New Issue Rule covers what new issues?

Answer 20

All equity IPOs

Question 21

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

Answer 21

False.

They are considered restricted

Question 22

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

Answer 22

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

Question 23

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

Answer 23

An offering of shares of the issuer and selling shareholders (e.g., officers) is a combined primary/secondary offering.

Question 24

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

Answer 24

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

Question 25

The Green Shoe Clause allows the issuer to expand the offering by a maximum of \_\_\_%

Answer 25

The Green Shoe Clause allows the issuer to expand the offering by a maximum of **15**%

Question 26

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

Answer 26

Up to 3 years

Question 27

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

Answer 27

True

Question 28

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

Answer 28

The holding period for unregistered (restricted) securities under Rule 144 is **6 months**

Question 29

What is the maximum sale allowed under Rule 144?

Answer 29

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

Question 30

Once Form 144 is filed, owner have ________ to sell their securities.

Answer 30

Once Form 144 is filed, owners have **90 days** to sell their securities.

Question 31

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

Answer 31

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

Question 32

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

Answer 32

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 33

QIB stands for \_\_\_\_\_\_\_\_\_\_

Answer 33

QIB stands for **Qualified Institutional Buyer (QIB)**

Question 34

QIBs are financial institutions that have at least $\_\_\_\_ invesetd in securities of non-affiliated issuers.

Answer 34

QIBs are financial institutions that have at least $**100 million** invested in securities of non-affiliated issuers

Question 35

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

Answer 35

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

Question 36

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

Answer 36

Rule 145

Question 37

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

Answer 37

Underwriters that have made a firm commitment to an issuer are acting in a **principal/dealer** capacity

Question 38

Underwriters operating under a best-efforts aggrement with an issuer are acting in a _________ capacity

Answer 38

Underwriters operating under a best-efforts agreement with an issuer are acting in a **agency/broker** capacity

Question 39

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

Answer 39

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

Question 40

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

Answer 40

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

Question 41

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

Answer 41

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

Question 42

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

Answer 42

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

Question 43

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

Answer 43

Accredited investors have net worth of at least $**1,000,000** or pre-tax income in each of the last two years of $**200,000**

Question 44

A new company created from an existing division of a publicly traded parent company is known as a \_\_\_\_\_\_\_.

Answer 44

A new company created from an existing division of a publicly traded parent company is known as a **spin-off**

Question 45

True or False: Receiving shares of a new entity created from a publicly traded company is done through stock dividends.

Answer 45

False. Receiving shares of a newly created entity is done through a spin-off

Question 46

What are the requirements to qualify for a Tier 1 exemption under Regulation A+?

Answer 46

A maximum offering $20 million over 12 months, with no more than $6 million being offered by selling shareholders

Question 47

A Regulation A+ Tier 1 exemption is permitted for issuers that raise no more than $\_\_\_\_\_ over 12 months

Answer 47

A Regulation A+ Tier 1 exemption is permitted for issuers that raise no more than $**20 million** over 12 months

Question 48

What are the requirements to qualify for a Tier 2 exemption under Regulation A+?

Answer 48

A maximum offering of $50 million over 12 months, with no more than $15 million being offered by selling shareholders

Question 49

A Regulation A+ Tier 2 exemption is permitted for issuers that raise no more than $\_\_\_\_\_ over 12 months

Answer 49

A Regulation A+ Tier 2 exemption is permitted for issuers that raise no more than $**50 million** over 12 months

Question 50

True or False: Canadian companies are not eligible to use the Regulation A+ exemption

Answer 50

False. Both U.S. and Canadian companies are eligible to use the Regulation A+ exemption

Question 51

True or False: 100% of investors must be state residents to qualify for the Rule 147 intrastate exemption.

Answer 51

True

Question 52

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

Answer 52

Yes. The red herring is used to obtain indications of interest from potential purchasers

Question 53

During the registration cooling-off period, what should an agent do if a client sends a check to purchase securities?

Answer 53

Return the check to the customer

Question 54

The final _______ \_\_\_\_\_\_\_ will not appear in a red herring.

Answer 54

The final **offering price** will not appear in a red herring.

Question 55

Under Reg. D private placement, ____ is the maximum number of non-accredited investors allowed.

Answer 55

Under Reg. D private placement, **35** is the maximum number of non-accredited investors allowed.

Question 56

What must issuers have to qualify for the Rule 147 intrastate exemption?

Answer 56

The issuer must have its principal place of business in that state