Corporate Underwritings

Question 1

Firm commitment

Answer 1

Underwriter buys issue from issuer. Underwriter assumes full financial liability

Question 2

Best Efforts

Answer 2

Underwriter uses “best efforts” to sell issue for issuer, but does not take any liability. If any portion of issue remains unsold, it stays with issuer

Question 3

All or none

Answer 3

Variation of best efforts; Deal contingent on entire issue being sold; if only partially sold, deal is cancelled and purchasers are refunded

Question 4

Mini-maxi

Answer 4

Variation of best effort; specifies a minimum amount that must be sold before deal is “effective”; if this amount isn’t sold, deal is cancelled

Question 5

Stand by

Answer 5

Used when selling additional shares to existing shareholders; Underwriter “stands by” with a firm commitment to buy any unpurchased shares

Question 6

What is an Agreement Among Underwriters

Answer 6

Agreement that establishes a syndicate of underwriting firms in order to spread the risk of an issue around

Question 7

Western account syndicate

Answer 7

Each syndicate member agrees to take a specific amount of the issue. That is the only amount they are responsible for selling; used when dealing with riskier issues such as corporate underwritings

Question 8

Easter account syndicate

Answer 8

All members share responsibility and liability for entire issue equally

Question 9

Underwriter’s concession

Answer 9

amount of spread that is given to syndicate members to sell the issue

Question 10

Selling concession

Answer 10

amount of underwriter’s concession that is giving to selling groups to sell the issue

Question 11

Management fee

Answer 11

amount of spread that goes to underwriter

Question 12

Reallowance

Answer 12

amount of spread given to non-syndicate members who wish to sell the bond

Question 13

How long after submitting registration statement to SEC must a firm wait to sell the issue?

Answer 13

20 days

Question 14

Preliminary prospectus

Answer 14

Sent out after registration statement is filed; essentially used to take indications of interest, not for sales

Question 15

Market out clause

Answer 15

Allows underwriters to cancel an issue if the market falls drastically

Question 16

When is the final price of an issue set?

Answer 16

After the 20 day cooling off period, syndicate members discuss investor interest and set final price

Question 17

How long must the prospectus be offered to customers?

Answer 17

90 days

Question 18

If a company already has shares outstanding that are not traded on a stock exchange, how long must the prospectus be offered

Answer 18

40 days

Question 19

If a company already has shares outstanding that are traded on a stock exchange, how long must the prospectus be offered

Answer 19

25 days

Question 20

4 groups restricted from buying IPOs per Rule 5130

Answer 20

FINRA member firms, officers employees, and family

Fiduciaries to FINRA member firms

Portfolio Managers

Passive owners of broker-dealers

Question 21

green shoe clause

Answer 21

Allows underwriters to request up to 15% more shares to cover overselling of hot issues

Question 22

Stabilizing bid

Answer 22

bid placed by manager at or just below POP that should serve to stabilize a sticky issue

Question 23

What does Shelf Registration Rule 415 allow companies to do?

Answer 23

Keep a blanket registration on file with SEC. registration covers 3 year period, allows companies to quickly issue debt and shares

Question 24

horizontal merger

Answer 24

merger between 2 companies in the same business

Question 25

vertical merger

Answer 25

merger between 2 companies in different businesses