New Issues - Corporate Underwritings Flashcards
The basic specs of a new issues are set out in the _____ and signed by both _____
letter of intent signed by both parties
Letter of Intent includes:
- type of security
- size of issue
- par value
- estimated public offering price
- estimated interest rate
- underwriter’s spread
- underwriting commitment type
Firm commitment:
- will act as the principal, buying issue outright from ford
- resell the issue with the spread earned
- underwriter assumes full financial responsibility
Best efforts:
- only acts as agent
- no financial liability
- any part unsold remains with issuer
All or none
- all the deal must get sold
- typically used for start-up companies
Mini-max
- min amount must be sold before deal is effective
- the maxi part of the deal is handled “best efforts”
Stand by underwriting
- used when trying to sell additional shares through a rights offering
- any shares not bought are bought by the underwriter who then sells them to the public
Negotiated underwriting
- final terms of the letter of intent are negotiated between the issuer and the underwriter
Formal agreement among the syndicate is called the ______
Agreement Among Underwriters
Managing underwriter has ______
full control over syndicate decisions - who is allowed in and how much they get, as well as due diligence
The managing underwriter also earns a ______
management fee
A “western” syndicate means:
- each member takes a specified amount and is responsible ONLY for that amount
- used for underwriters that are sufficiently risky where they want to limit potential liability
An “eastern” syndicate means:
- the members share the responsibility and liability as a whole
The “selling group” act as _____ and take _____ financial responsibility
act as agents (to sell the issue) and take no financial responsibility
Selling group members are given a “____” as compensation
a “selling concession”
The selling group is set up under the ________
Selling Group Agreement
New issues are regulated under the ______
Securities Act of 1933
Once the prospectus is filed with the SEC, the issue enters a _____ period
a 20 day cooling off period
Aside from registering the issue with the SEC, the issuer must register with ______
each state the issue is being sold in - called “blue skying”
During the cooling off period, what kind of prospectus can be delivered to customers? And can selling occur?
Selling cannot occur, a preliminary prospectus is delivered to clients
A prelim prospectus is also called a ______
red herring
Using a red herring, a syndicate member can solicit __________
indications of interest
If the market goes sideways, the underwriters can be released under a _________
market out clause in the underwriting agreement
Once final price of the issue is determined, they submit it to the SEC and the issue is ______
effective
The “tombstone” ad cannot be considered _______
an advertisement or offer of securities - that can ONLY be through the final prospectus
The selling group is included in the “tombstone”. T/F
FALSE
The final prospectus is sent _______ confirmation of sale
at or prior to final confirmation
If it is a first registered offering of a company that will be quoted on the Pink sheets or OTCBB, then final prospectuses must be delivered _____
within 90 days following the effective date
If a company has shares outstanding, but is not listed on an exchange, then prospectus delivery period is reduced to ________; if on an exchange, delivery is ______
40 days; 25 days
FINRA does not allow _____ to buy common equity IPOs fro underwriters
insiders - Rule 5130
“Restricted persons” under Rule 5130 are considered:
- member firms for own accounts, officers of member firms, associated persons, employees of member firms, agents of BDs, and immediate family members of officers and employees of BDs
- fiduciaries to member firms (lawyers, accountants, consultants)
- portfolio managers for their own accounts
- passive owners of BDs not covered in first group
A “green shoe clause” is when an offering is ____ and the underwriters can request up to ______
when an issue is hot and they can request up to 15% more shares
The syndicate manager is allowed to enter a ______ in the market to keep the price stable
stabilizing bid
Stabilizing bids can be placed _______
at or just below the P.O.P.
Penalty bid clause:
- if the manager has to buy back too many shares at the stabilizing bid, then those syndicate members who sold them will lose their concession
If using a shelf registration, is the cooling off period needed?
NO
New issues can be bought on margin. T/F
FALSE - not for 30 days under Fed Reserve rules
