Investment Banking and Research Flashcards
What type of underwriting deal requires an escrow account for investor protection?
A. Firm commitment
B. Standby
C. All-or-none
D. IPOs
C
An escrow account is required in underwritings that have a contingency clause.
Dustin is a retail investor who tries to get shares in a hot IPO, but he is not successful. He does the next best thing, which is to buy 900 shares in the secondary market as soon as the IPO stock begins trading. What requirement must his broker-dealer meet for delivering to him either a red herring or a prospectus?
A. None, because he bought in the secondary market.
B. None, because he tried to participate in the IPO.
C. He must be given a red herring.
D. He must be given a prospectus.
D
Following an IPo, dealers must deliver a prospectus to all purchasers, including those who bought in the secondary market, within 25 days of the effective date for NYSE- or Nasdaq-listed securities, or within 90 days of the effective date for OTC securities.
Which of the following statements are true about stabilization efforts?
A. A stabilization bid can be no higher than the public offering price.
B. The maximum duration of a stabilization bid is 5 BDs.
C. Only one stabilization bid can be entered at any one time.
D. The stabilization agent must give prior regulatory notice.
E. Stabilizing bids can be made on an emergency basis to keep the stock price from falling.
A, C, D
Stabilization bids may not be made on an emergency basis, e.g. because the stock price is falling. They must be anticipated and announced in advance.
What type of exempt offering is the following:
Securities obtained through an exempt transaction are resold after a minimum holding period of at least 6 months.
Rule 144 Restricted Stock
What type of exempt offering is the following:
A small company offers $4 million of its stock to friends and family, to help its CEO cash out his stock and retire from the company.
Regulation A
What type of exempt offering is the following:
An offering of unregistered securities is made exclusively to QIBs.
Rule 144A
What type of exempt offering is the following:
Private placements (non-public sales of securities) are made to a relatively small number of investors.
Regulation D
What type of exempt offering is the following:
An Illinois-headquartered issuer, that carries out a significant amount of business in the state, offers securities exclusively to Illinois residents.
Rule 147/147A
Indicate the entity that usually prepares each of the following documents in an M&A process:
A. LOI
B. CIM
C. IOI
D. SOI
A. Potential buyer/their adviser
B. Sellside adviser
C. Potential buyer/their adviser
D. Potential buyer/their adviser
The CIM is a disclosure document prepared by the sell side. The LOI, IOI and SOI are ways in which a potential buyer submits a first-round bid.
What is the minimum length of time a Rule 13e-4 tender offer must remain open?
20 BDs
Among a given class of shareholders to which a tender offer is made, which shareholders can be excluded from tendering shares?
None
Assuming tendered shares have not been accepted for payment, what is the time limit on withdrawing an offer to tender shares?
40 days after expiration of the tender offer
What is the main disclosure document shareholders receive and use in evaluating a tender offer?
Schedule TO
A bond indenture includes a provision, under which the bond is automatically declared in default if the issuer defaults on specified other debt issues in its capital structure. This is known as:
A. A sinking fund trigger
B. An assumption of indebtedness
C. A cross-default clause
D. A waterfall clause
C
A cross-default clause triggers a default if the bond issuer defaults on other debt in its capital structure. It is often found in the Trust Indenture.
Indicate the priority of claims in a bankruptcy proceeding for each of the five types of claims listed below. “1” for the highest priority claim, “2” for the next highest priority, etc.
1. Common stock
2. Unsecured claims
3. Preferred stock
4. Mezzanine debt
5. Secured claims
- 5
- 2
- 4
- 3
- 1
What is the name of the corporate SEC filing described below:
Explains shareholder votes at an upcoming annual meeting, and officers’ and directors’ compensation.
DEF14A
What is the name of the corporate SEC filing described below:
Annual corporate report for each fiscal year, filed at the end of the fiscal fourth quarter.
10-K
What is the name of the corporate SEC filing described below:
Declares that an investor has actively acquired more than 5% of the stock of a public company.
13D
What is the name of the corporate SEC filing described below:
Contains the most detailed quarterly earnings report and analysis, after the end of the quarter.
10-Q
What is the name of the corporate SEC filing described below:
Filed by institutional money managers quarterly to declare holdings.
13F
What is the name of the corporate SEC filing described below:
Filed as needed to report major events such as changes in senior management and legal actions against the company.
8-K
Written procedures on information barriers must be designed to limit access to inside information to:
A. Officers and directors.
B. Research professionals who are directly involved in writing reports.
C. Those with a need-to-know.
D. Those with access to a secure safe room.
C
A [?], also known as a rights offering, applies when additional shares are issued.
Standby commitment
How much financial liability do members of the selling group have for unsold shares in an offering?
None
Are immediate family members of a restricted person prohibited from buying IPOs?
Only if they are living with or receive/provide material support from/to the broker-dealer employee, or they buy the new issue from the firm that employs the broker-dealer employee.
How is “material support” defined when it comes to immediate family members of restricted persons?
Material support is when the registered rep has provided at least 25% of the individual’s income in the prior calendar year.
How is “immediate family” defined when it comes to immediate family members of restricted persons?
Spouse, child, parent, sibling, in-law
The syndicate must be settled within [?] days from the syndicate settlement date.
90
Which of these types of written communication with investors are allowed during the 20-day cooling off period?
A. Road show presentation
B. Tombstone ad
C. Website invitation
D. Red herring
E. Press release
A, B, D
Only three types of written communication with investors are allowed: road show, tombstone and red herring.
A securities issuer prepares a notice that will be made available to the public, with the intent to have it excluded from the definition of a prospectus. May this notice include a brief descripiton of how the offering proceeds will be used?
A. No, in no case.
B. Only if no part of the proceeds will be used to buy stock from an insider.
C. Only if the same information is included in the prospectus.
D. Yes, in any case.
C
A public note (not considered a prospectus) may include a brief description of how offering proceeds will be used, but only if the same information is also disclosed in the prospectus, as part of the filed registration statement.
A prospectus that is older than [?] must have financial information that is not older than [?].
9 months
16 months
Sales and offers of securities that take place during the pre-registration period are known as [?].
Gun-jumping
Written communication during the 20-day cooling off period is limited to what three things?
Preliminary prospectus, tombstone ad, road show presentation
When must a free writing prospectus be filed with the SEC?
On the day of first use
Is there an exception on the prohibition on pre-filing communication for Emerging Growth Companies?
Yes
What kind of issuer can use a FWP prior to the filing of a registration statement?
WKSI
A broker-dealer that does not participate in an offering of securities may publish research regarding the offering, provided several conditions are met. Which one of the following is not among the conditions?
A. The research does not include a rating.
B. No compensation is paid related to the offering.
C. The issuer is not a blank-check company.
D. The research is part of the broker-dealer’s normal course of business.
A
In accordance with Rule 137, no compensation, not a blank check company, normal course of business.
ABC Securities is publishing research on Matrix Analytics, a public company. ABC has received non-investment banking compensation from Matrix in the past 12 months. In which situations is ABC not required to disclose this compensation in the research report?
A. The research report does not include a rating.
B. The compensation is not related to securities-related services.
C. Researchers were not aware of the compensation.
D. Researchers did not benefit directly from the compensation.
E. The firm separates research analysts from all information regarding compensation.
C, E
The key is that research analysts’ opinions and analysis were not influenced by the compensation.
Courtney is a research analyst who covers the tech industry. She invites out to dinner the editor of an influential technology publication, along with the editor’s spouse and her spouse. They mostly discuss their kids’ schools, social events, and local real estate trends. However, Courtney takes the editor aside at the end of dinner and gets a few good tech industry tips for her research. Courtney then picks up the check for all four diners, $452 in total. Has Courtney committed a violation of FINRA Rule 5230 covering payments to the media?
A. No, because the payment was non-cash.
B. No, because the payment did not exceed the dollar limit.
C. Yes, if Courtney uses tips gained from the editor.
D. Yes, if the editor’s media influences the market price of securities.
D
Associated persons may not give anything of value (cash or non-cash) to influence or reward actions of a person involved with the media, when 1) the payment is an attempt to influence or rewards actions of the media; and 2) that media impacts the market price of any security (actual or intended impact). Whether or not Courtney uses the tips gained, the dinner might impact the market price of a security. For example, the editor could be more inclined to read Courtney’s research and then tout her recommended stocks.
FINRA Rule 5280, regarding buying or selling securities ahead of research reports, is designed to limit information flows between research analysts and which other employees of a broker-dealer?
A. Compliance staffers
B. Investment bankers
C. Traders
D. Officers and directors
C
ABC Securities is downsizing its research department and terminating its coverage of Midwest Power, a publicly listed electric utility. Which requirements must ABC meet in a final research report on Midwest Power?
A. Include a final rating.
B. Explain the key reason(s) for terminating coverage.
C. Include a referral to other analysts covering the same company.
D. Use the same dissemination methods as in prior reports about the company.
E. Be as comprehensive as prior research by the same analyst.
F. Indicate if the company has objected to the termination of coverage.
A, D, E
In a presentation to the public, a research analyst is permitted to offer an opinion about a company that is a current investment banking client of the firm, provided two important conditions are met. Identify those two items from the list below.
A. The opinion must be reflected in the analyst’s most recent research report.
B. The opinion must be fair and balanced.
C. The opinion must include a rating.
D. The opinion must include a broad overview of the company’s industry.
E. The opinion must reflect the personal views of the analyst.
B, E
Joe is a research analyst. Joe’s son Albert and his significant other, Anita, live in a cottage Joe has built behind his residence. Although the cottage is a separate structure from the house, it shares the same principal address with the residence. Albert and Anita both work and support themselves financially. Are they subject to the research analyst trading restrictions?
A. No, neither is subject to the rules.
B. Only Albert is subject to the rules.
C. Only Anita is subject to the rules.
D. Both Albert and Anita are subject to the rules.
B
As a relative, Albert is subject to the rules, even though he is financially independent. As a non-relative, Anita is not.
Regarding the annual attestation required under NYSE Rule 351, which action is not required to be performed by the broker-dealer?
A. Originate and distribute research.
B. Verify the establishment and implementation of procedures regarding Communications with the Public standards.
C. Attestation must be signed by a principal executive of the broker-dealer.
D. Must submit the letter if its research analysts make public appearances.
The standards for the annual attestation of broker-dealers regarding compliance with NYSE Rule 472 must be met not only by firms who originate or distribute research but also by those firms who distribute research prepared by others such as third-party researchers.
What is the definition of a research report?
A client communication distributed to at least 15 people that analyzes individual securities and provides information on which to base an investment decision.
When is a research report not required to disclose compensation expected in the next three months?
If it compromises nonpublic information
Firms are required to disclose services provided during the preceding [?] to a company that is the subject of a research report.
12 months
A broker-dealer must disclose beneficial ownership of [?] or more of a company’s equity securities if that company is the subject of a research report.
1%
What is the alternative to printing disclosures on the front page of a research report?
A reference to the page on which disclosures are provided.
