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Series 7 > Corporate Underwritings > Flashcards

Corporate Underwritings Flashcards

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Series 7 Top-off Exam flashcards
1
Q

Firm Commitment

A

Acts as a principal, buying the issue and re-selling to the public.

Underwriter assumes full financial liability

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2
Q

Best Efforts

A

acts as agent, uses beset efforts to sell the security but does not have financial laibility

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3
Q

Managing Underwriter

A
  • the member firm that has the relationship with the issuer, the manager decides which firms to let into the syndicate; makes all decisions for the syndicate; manages the syndicate account; and earns a management fee on each security sold.
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4
Q

Syndicate Member

A
  • a firm that signs the syndicate agreement, sharing in selling responsibility and liability for the offering.
  • earns the Underwriter’s Concession (or “Takedown”) on each security sold
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5
Q

Selling Group Member

A
  • a firm that helps the syndicate find customers for the securities. The selling group member acts as agent only, taking no liability.
  • earns the Selling Concession on each security sold.
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6
Q

The preliminary prospectus (red herring) contains

A

he financial statements of the issuer, information on the company’s officers, business plans, plans for the use of the proceeds of the offering, etc.

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7
Q

If the level of interest is very high during cooling off period

A

then the final Public Offering Price might be increased; and/or the size of the offering might be increased. and vice versa

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8
Q

The Public Offering Price

A

is the net price that the public pays - there are no commissions.

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9
Q

Tombstone criteria

A
  • name of issuer,
  • type of security
  • size of security
  • Public Offering Price
  • names of syndicate members
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10
Q

In a negotiated offering the spread is

A

disclosed on front cover of prospectuses

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11
Q

FINRA Rule 5130

A

insure that new issue securities that are “in demand” are not withheld from sale to the public by member firms who intend to “keep” these shares for their own benefit, since the price is likely to rise in the aftermarket.

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12
Q

“spinning” of IPO shares.

A

where a member firm gives officers of public companies IPO allocations in return for receiving underwriting business from that company

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13
Q

Sticky Issue

A
  • If the issue opens for trading at price that is lower than the Public Offering Price
  • it will be stuck on the hands of the underwriters.
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14
Q

stabilizing bid

A

are placed, at, or just below, the Public Offering Price.

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15
Q

penalty bid” clause

A

if too many customers of a single syndicate member “hit” the stabilizing bid; the manager knows that this syndicate member sold to speculators - not to long term investors - and the syndicate manager penalizes the syndicate member on these orders.

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16
Q

Shelf registration 415

A

allows large established employers to keep a blanket letter on file for 3 years

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17
Q

municipal financial advisor

A
  • retained by a municipality when it wishes to sell a new issue of bonds.
  • municipal securities firms that have a good knowledge of the municipality, its finances and its officials
  • helps the issuer in achieving the lowest interest cost on the issue
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18
Q

Bond Counsel

A
  • perform the legal work associated with the offering- - - writes the bond contract (the contract between the bondholder and the issuer)
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19
Q

The opinion covers the

A

Validity of the issue - that the issue is a valid, binding, obligation of the issuer;
Legality of the issue - that the issuer has the legal authority to sell the bonds;
Tax status of the issue - that the interest income from the issue is free from Federal income ta

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20
Q

Official Notice of Sale

A
  • publishes an advertisement in the “Bond Buyer”

- which solicits bids from interested underwriters

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21
Q

Included in the Official Notice of Sale

A 
Sale date, time and place;
Amount of good faith check needed to bid;
Par value of each maturity of the bonds;
Interest payment dates for the bonds;
Dated date of the issue;
Source of income backing the issue;
Method of awarding the bonds to the winning bidder;
Name of the bond counsel
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22
Q

Not included in the Official Notice of Sale

A

are the interest rates on the bonds - the bidders specify the interest rates they wish to bid - with the lowest interest rates (lowest interest cost to the issuer) winning the bid

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23
Q

True Interest Cost

A

takes into account the actual timing of interest payments using present value methods
- places heavier weight on earlier interest payments than later

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24
Q

Good faith check

A
  • typically 2%
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25
Q

To determine the interest rates to bid on a new issue

A
  • The types of bonds being issued
  • The maturities of the bonds being issued
  • The anticipated demand for the new issue of bonds
  • Interest rates in the market for the most similar bonds that are outstanding
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26
Q

write the scale

A
  • underwriters will contact potential customers for the issue, and will determine at what interest rates these customers would buy the bonds
  • most municipal issues are serial bonds (sequential maturities); and yields tend to increase as maturities lengthen (a normal yield curve), the yields “scale-up” with maturity.
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27
Q

‘pre-sale” orders

A

because they are taken prior to the sale of the bonds through competitive bid by the municipality

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28
Q

Bid Form

A

Pre-printed form bid is given on
specifies the interest rates bid for each maturity; and computes either the “Net Interest Cost” or “True Interest Cost” of the bid

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29
Q

The issuer accepts the bid that represents

A

the lowest interest cost to the municipality.

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30
Q

Winning Bid

A

lowest interest rate

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31
Q

if a premium over par is specified in the bid

A

then this reduces the interest cost to the issue

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32
Q

If a discount below par is specified in the bid

A

then this increases the interest cost to the issuer

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33
Q

Who sets the spread

A

syndicate

34
Q

minimum spread

A

3/4 point or 7.50 out of 1,000

35
Q

Totale takedown/ management fee

A

5/8

36
Q

Selling Concession

A

A concession of 1/4 point will be given to the selling group on each bond sold

37
Q

Additional takedown

A

3/8 syndicate member

38
Q

bidding process

A
  1. Pre-Sale- accumulated prior to winning of bid
  2. Writing the Scale- yields scale up as maturity increases
  3. Bids
  4. Spread- set by syndicate
39
Q

Final Bid

A

Total Interest Paid by Maturity = rate x years

40
Q

The spread is….

A

the difference between bid and production

41
Q

The cover is

A

the difference between lost interest cost and next lowest interest cost

42
Q

After bid is won

A
  • announcement sent over munifacts

- firms not in syndicate can buy

43
Q

Pre- sale Orders

A
  • Existing pre-sales are confirmed and filled at net price

- filled first

44
Q

Group Net Orders

A
  • are placed for the benefit of the syndicate group after pre-sale orders have been filled
45
Q

Net Designated Order

A
  • after order period is finished, if bonds remain unsold, the order designates a specific syndicate member to allocate the profit
  • the names are disclosed
46
Q

Member TakeDown

A
  • if bonds remain unsold, manager accepts orders from member of the syndicate for their own accounts or related accounts
  • confirmed at net price
47
Q

Order Priority

A

Pre Sale
Group Net
Net Designated
Member Takedown

Please give damn about munis

48
Q

Final Official Statement

A
  • ## any purchasers of bond must get it no later than settlement
49
Q

Competitive Bid and Spread

A

Not disclosed

50
Q

Negotiated Bid Spread

A

Spread is disclosed

51
Q

Bond Buyer

A

A new issue newspaper that gives information about new municipal issues, publishes Official Notices of Sale; and which compiles statistics about the municipal marketplace.

52
Q

Munifacts

A

essentially, an electronic version of the Bond Buyer with additional secondary market information.

53
Q

EMMA

A

Electronic Municipal Market Access website run by the MSRB, which publishes municipal bond trades as they occur through “RTRS” - the Real Time Reporting System.

54
Q

Bloomberg

A

Dealer listings of municipal bonds and corporate bonds that are being offered for sale.

55
Q

30 Day Visible Supply

A

dollar amount of all long term municipal issues scheduled to come to market over the next 30 days.
- ompetitive bid and negotiated bond offerings; it excludes any short term municipal notes.

56
Q

a large Visible Supply

A

indicates that rates are likely to rise (to attract investors to buy the larger than normal supply of bonds

57
Q

a very small Visible Supply

A

indicates that rates are likely to fall.

58
Q

Placement Ratio

A

how well the municipal market is absorbing new issues.

59
Q

High Placement Ratio

A

easily absorbing new issues

60
Q

low placement ratio

A

sign of a weak market

61
Q

Placement Rato Formula

A

bonds sold by underwriters to the public/ bonds purchased by underwriters from issuers

62
Q

20 Bond Index

A

20 GO Bonds with 20 years until Maturity

63
Q

11 Bond Index

A

11/ of the 20 GO bonds included in the bond index, higher quality bonds rated AAA or higher
- yield is always lower than 20 Bond Index

64
Q

Revdex

A

-yield of 25 selected revenue bonds rated A or better all with 30 years until maturity

65
Q

The U.S. Government sells its debt through

A

yield auctions conducted by the Federal Reserve

66
Q

4 week, 8 week, 13 week, and 26 week Treasury Bills are auctioned

A

weekly

67
Q

52 week treasury bills are auctioned

A

monthly, on tuesday

68
Q

Treasury Notes, Treasury Bonds, TIPS and STRIPS are auctioned

A

monthly

69
Q

Federal Reserve acts as a ___ for the US Government

A

Fiscal agent

70
Q

Competitive Bids/ Auction

A
  • specify a yield, lowest yield wins. Highest bids not filled
71
Q

Non competitive Bid/ Auction

A
  • does not specify a yield, are always filled at the average yield of the winning competitive bids
72
Q

Competitive Bids in the auction are usually

A

the primary U.S Government dealers

73
Q

Dutch Auction

A

Competitive bids are filled from lowest yield on up, until the government sells the desired amount of securities. All of these winning bidders are given the same interest rate on their securities - the highest rate that completed the auction

74
Q

Non- competitive Bids are usually placed by

A

small, non-institutional investors,

secondary investors

75
Q

The minimum non-competitive bid is

A

one $100 face amount Treasury Bill

76
Q

The maximum non-competitive bid is

A

for $5,000,000 face amount of Treasury Bills

77
Q

The minimum competitive bid is

A

$5,000,000 face amount of Treasury Bills

78
Q

The maximum competitive bid amount

A

There is no maximum competitive bid amount

79
Q

Settlement for government

A

Thursday of auction week

80
Q

agencies sell their debt through

A

selling groups on a negotiated basis, typically are the primary U.S. Government dealers.

81
Q

Agency securities are typically sold at

A

par via the selling group.

82
Q

the agency receives par________

A

less the selling concession on each bond sold.

Series 7 (16 decks)

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