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Series 79 > Overview > Flashcards

Overview Flashcards

1
Q

According to FINRA, an institutional investor is defined as

A
  • A bank and/or a savings and loan association
  • An insurance company or registered investment company
  • An investment adviser that’s registered with the SEC under Section 203 of the Investment Advisers Act of 1940 or that’s registered with a state securities commission
  • A government agency or a subdivision of one
  • A 403(b) employee benefit plan or a plan that meet the guidelines of Section 457 of the Internal Revenue Code (excluding the individual plan participants)
  • A member firm or an associated person of a member firm, or any person who’s acting on behalf of an institutional investor
  • Any other entity (including a natural person, corporation, partnership, or trust) that has total assets of at least $50 million
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2
Q

Schedules 13D and 13G

A

Any person or group that acquires more than 5% of an issuer’s equity securities, notification must be made to the issuer, the exchange on which the security is traded, and to the SEC within 10 days after the acquisition.
13D - Persons who agree to act together for the purpose of acquiring, holding, voting, or selling the equity securities. Must be made within 10 days after the acquisition.
13G - Filed by institutional investors that have no intention of influencing or controlling the issue (i.e., passive investors). Must be made within 45 days of the end of the year in which the beneficial owner acquired 5%, as well as within 10 days of the end of the month in which an investor’s ownership first exceeds 10%.

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3
Q

Form 13F

A

Required quarterly filings of institutional investment managers if they exercise investment discretional over at least $100M in securities. Must be filed with the SEC within 45 days of the quarter’s end. The form includes information concerning the equity securities that are owned by the filer.

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4
Q

Forms 3, 4, & 5

A

Form 3 - Once a person becomes an insider, they are required to report to the SEC the amount of securities they own within 10 days of becoming an insider
Form 4 - The person is also required to report any changes in their position no later than the second business day following the change in position.
Form 5 - An insider is required to make an annual filing that relates to certain transactions, such as gifts.

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5
Q

Form 14A

A

Used to file preliminary and definitive proxy statements

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6
Q

SEC Rule 14c-2

A

An issuer is generally required to provide a proxy statement or an annual report to its shareholders at least 20 calendar days prior to its annual meeting date.

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7
Q

Form S-1

A

Used for most initial public offerings

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8
Q

Form S-3

A

Often referred to as a short form registration. Can be used by issuers that have at least $75M of public float.

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9
Q

Form S-4

A

For situations in which securities are being offered as a result of business combinations, such as mergers, acquisitions, consolidations, reclassifications or securities, or transfer of corporate assets

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10
Q

Form S-8

A

Filed with the SEC in order to register securities that are made available through employee benefit plans.

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11
Q

Form S-11

A

Filed with the SEC in order to register securities that are being issued by a real estate investment trust (REIT)

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12
Q

Define Quid Pro Quo Allocations / Kickbacks

A

Firms using their allocation of new issues (especially those oversubscribed) as a means of obtaining compensation that’s excessive in relation to the services they provide in return.

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13
Q

Define Spinning

A

A member firm allocating shares of a new issue to certain corporate decision makers

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14
Q

Define Flipping

A

The initial sale of a new issue that occurs within 30 days following its offering date as an IPO. Creates downward pressure on the price of the security in the secondary market.

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15
Q

An underwriter that’s stabilizing an issue, effecting a syndicate short covering transaction, or implementing a penalty bid, must maintain a record of the following information:

A
  • The % participation or commitment of each syndicate member
  • The names & addresses of the syndicate members
  • The dates for when the penalty bid was in effect
  • The names and class of any security stabilized or any security in which a syndicate short covering transaction was executed
  • The price, date, and time at which each stabilizing purchase or syndicate short covering transaction was executed
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16
Q

Rule 101 of Regulation M

A

Purpose is to prevent the interested participants in a distribution from manipulating the secondary market trading of the stock for their own benefit. Interested participants include syndicate members, selling group members, and other broker-dealers that assist in selling the security being offered to the public. These participants are not permitted to bid for the subject security within a critical time frame (restricted period).

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17
Q

Length of restricted periods according to the SEC for Rule 101 of Regulation M

A
  • 5 days prior to pricing: Public float < $25M and ADTV (average daily trading volume) < $100K
  • 1 day prior to pricing: Public float > $25M and < $150M and ADTV > $100K
  • No restriction period:
  • – Municipal securities, government securities, and non-convertible investment-grade debt
  • – Actively traded securities - Public float > $150M and ADTV of $1M
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18
Q

The following securities are not subject to selling restrictions under the New Issue Rule

A
  • Secondary offerings
  • All debt offerings, including convertible and non-investment grade debt
  • Private offerings
  • Preferred stock and rights offerings
  • Investment company offerings
  • Exempt securities that are identified by the Securities Act of 1933
  • Direct participation programs (DPPs) and REITs
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19
Q

Rule 147 and 147A

A

Allows companies to raise capital from their in-state investors and be exempt from registering security with SEC.

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20
Q

Regulation A

A

Contains rules which provide exemptions from the registration requirements and allows some companies to use equity crowdfunding in order to offer and sell their securities without having to register the securities with the SEC.

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21
Q

Under the original Regulation A, the maximum amount of securities that are able to be sold within a 12-month period are:

A

$5M. Of that amount, no more than $1.5M were able to be offered on behalf of selling shareholders.

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22
Q

The two tiers which comprise Regulation A and their i) Maximum offering size, ii) timer period, iii) maximum amount that may be offered by existing shareholders, iv) and required audited financial statements / ongoing reporting

A

Tier 1 / Tier 2

i) $20M / $75M
ii) 12 months / 12 months
iii) $6M (30% of max offering) / $22.5M (30% of max offering)
iv) No / Yes

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23
Q

Regulation D

A

Requires the filing of a uniform notice of sale (Form D) with the SEC by no later than 15 days after the first sale of the securities in a private placement.

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24
Q

Rule 144A

A

Provision which permits the sales of restricted securities (except for sales executed by the issuer) to qualified institutional buyer (QIBs) without the limitations which relate to the amount being sold and the frequency of sales that are imposed by Rule 144.

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25
Q

Regulation S

A

A company can quickly issue an unlimited amount of securities outside of the country without filing any documentation with the SEC.

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26
Q

FINRA Rule 5122

A

Relates to the private placement of securities in which a member firm is issuing the securities on its own behalf

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27
Q

FINRA Rule 5123

A

Relates to member firms that sell an issuer’s securities in a private placement offering. Requires a member firm to file with FINRA a copy of any private placement memorandum (PPM), term sheet, or other offering documents that are used in connection with the sale within 15 calendar days of the date of the first sale.

28
Q

Rule 144

A

Permits the resale of restricted (unregistered) stock and control stock.

29
Q

Order that investors are paid in a Chapter 7 bankruptcy

A
  1. Secured creditors
  2. Unsecured creditors
  3. Subordinated creditors
  4. Preferred stockholders
  5. Common stockholders
  6. Warrant holders
30
Q

Rights that permit an investor to register and sell securities when the issuer conducts a public offering.

A

Piggyback registration rights

31
Q

Define antidilution provision

A

Allows the restricted person to maintain his equity ownership percentage if certain conditions are met.

  • The restricted person’s interest must have been held for a period of one year prior to the effective date of the offering.
  • The amount being purchased must not increase his equity ownership percentage
  • The new issue purchased may not be sold, pledged, or transferred for a period of three months from the effective date.
32
Q

What is the formula for unlevered beta?

A

Unlevered beta = levered beta / (1 + [(1 - tax rate) x (debt/equity)])

33
Q

What does it mean when a syndicate has set up an institutional pot in which shares will be available on a jump ball basis?

A

It is setting aside shares for institutional clients and allowing all members to compete for orders. the profit is allocated based on each member’s sales.

34
Q

Economic value added

A

EVA = [(EBIT x (1 - tax rate)) - (WACC x Invested Capital)]

35
Q

Regulation D

A

May be offered to an unlimited number of accredited investors.

36
Q

Standstill agreement

A

A contract that contains provisions that govern how a bidder of a company can purchase, dispose of, or vote stock of the target company.

37
Q

Rule 105 of Regulation M

A

It is a violation for any person to sell short a security that is the subject of a public offering, and purchase the same security from an underwriter, if the short sale was executed 5 business days (or less) prior to the pricing of the offering.

38
Q

What are the roles of the syndicate desk of a broker-dealer?

A
  • Help market (distribute) the issue
  • Assist in the pricing of the offering
  • If necessary, will place a stabilizing bid
39
Q

Green Shoe Option

A

Provision in an underwriting agreement that grants the underwriter the right to sell investors 15% more shares than initially planned by the issuer if the demand for a security issues proves higher than expected.

40
Q

What is the length of the quite period for IPOs and secondary offerings?

A

IPOs - 10 days

Secondary - 3 days

41
Q

What does the underwriting spread consist of?

A
  • Management fee
  • Underwriting or syndicate fee
  • Selling concession
42
Q

Accredited investors include:

A
  • Certain financial institutions regardless of their assets, such as banks, registered investment companies, and private business development companies
  • Pension plans and ERISA accounts, which have total assets in excess of $5M
  • Any 501(c)(3) organization (non-profits) or trusts which have total assets of $5M AND not formed for the specific purpose of acquiring the securities being offered
  • Any executive officers, directors, or general partners of the issuer of the securities being offered
  • Any natural persons whos net worth or joint net worth exceeds $1M or have annual income of $200K ($300K joint income)
  • Any entities in which all of the equity owners are accredited investors
43
Q

Under SEC rules, a tender offer generally must be held open for at least:

A

20 business days

44
Q

Hold period under Rule 144

A

1 year

45
Q

Quick Asset Ratio (Acid Test)

A

(Current Assets - Inventories) / Current Liabilities

46
Q

Component %s of the underwriting spread

A

20% managers fee
20% underwriting fee
60% selling concession

47
Q

Gun-jumping

A

Prohibited oral or written communications were used by an issuer of securities.

48
Q

Waiting or cooling-off period

A

Period between the filing date and the effective date

49
Q

Requirements of Subchapter S Corporations

A
  • It may have no more than 100 shareholders
  • All shareholders must be US citizens
  • The shareholders must all be individuals, estates, or certain types of trusts
  • It must be a domestic corporation
  • The corporation may not be part of an affiliated group of corporations
  • The corporation may have only one class of stock outstanding
50
Q

14D-9

A

Recommendations or solicitations by the subject company and other parties

51
Q

Schedule 13E-3 to take a corporation private requires the following:

A
  1. The purpose of the proposed transaction and any alternatives considered
  2. An opinion that the decision to go private is fair to shareholders
  3. A statement regarding why directors voted in dissent or abstained from voting on the proposed transaction
52
Q

SEC Rule 14e-5

A

Buyers that are engaged in a tender may not purchase additional shares in the open market once the tender has commenced.

53
Q

What must a company file in a going private transaction?

A
  • 14A proxy statement with the SEC since shareholders will need to receive information on the transaction
  • 13E-3 with the SEC and make certain disclosures to shareholders
  • Certain information with the SEC, such as reports and fairness opinions by financial advisors
  • Will usually attach a summary term sheet along with other required disclosures to the proxy statement that’s provided to shareholders
54
Q

SEC Rule 145

A

Applies to situations in which securities are being offered as a result of business combinations, such as mergers, acquisitions, consolidations, reclassifications of securities, or transfers of corporate assets. Since Rule 145 considers these types of securities reclassifications as sales, they’re subject to both the prospectus and registration requirements (using form S-4) of the Act of 1933.

55
Q

SEC Rule 165

A

Require any written communication (press releases) after the public announcement of a combination and until the filing of a registration statement, must be filed with the SEC. Referred to as Form 425 filings.

56
Q

Regulation M-A

A

Purpose is to facilitate communications and disclosures made by companies that are engaged in cash and stock tender offers or mergers and acquisitions. Requires that a summary term sheet be provided to investors as part of the disclosures that are made in a tender offer or merger.

57
Q

Voting rights of target / acquirer shareholders in a stock / cash transaction

A

Target / acquirer
stock - yes / yes (unless issuance is minimal)
cash - yes / no

58
Q

HSR Tests

A
  • Size of companies involved

- Size of transaction ($50M or more may require filing)

59
Q

Final settlement of a syndicate account must be made no later than how many days following the syndicate settlement date?

A

90 days

60
Q

Any fairness opinion being provided to the shareholders must include (as applicable) any of the following disclosures:

A
  • Whether a financial advisor to any party in the transaction will receive compensation that is contingent on the
61
Q

PEG Ratio

A

PEG = (stock price / EPS) / growth rate

62
Q

In an IPO, a conflict of interest exists and must be disclosed if:

A
  • The securities are being issued by the underwriting firm (broker-dealer)
  • The securities are being distributed by a firm that controls or is controlled by the issuer. Control is defined as:
  • – The securities being issued by a company in which the underwriting firm owns, or has the right to own, 10% or more of the common stock or preferred stock of that company
  • – The securities being issued by a company which owns, or has the right to own, 10% or more of the common stock or preferred stock of the underwriting firm
  • At least 5% of the net proceeds of the offering, not including the underwriting compensation, are intended to reduce or retire the balance of a loan that was extended by the underwriting firm
63
Q

A Regulation M notice is required to be filed with:

A

FINRA by no later than one business day prior to the start of the restricted period

64
Q

What is the permitted use of a FWP by the different types of issuers?

A
  • WKSI - may us an FWP at any time
  • Seasoned Issuer - may use a FWP after its registration statement has been filed, but there is no need for the FWP to be accompanied by, or preceded by, a statutory prospectus
  • Unseasoned and Non-reporting Issuer - may use a FWP after its registration statement has been filed provided the FWP is accompanied by, or preceded by, a statutory prospectus
  • Ineligible Issuer - may not use a FWP
65
Q

Indemnification Clause

A

Indemnification is one of the provisions that may be included in the definitive purchase agreement established for an M&A transaction. Indemnification clauses are often requested by buyers as protection against a seller’s material breach of contract after the deal has closed. These clauses are used mostly in the purchase of private companies and quantify the amount of compensation that is payable to the buyer if the officers and directors of the selling firm fail to meet their legal obligations.

66
Q

Under IRS rules (IRC Section 280G), an executive who receives excess golden parachute payments would pay an excise tax of:

A

20%

67
Q

Interest Coverage Ratio

A

EBITDA / Interest

Series 79 (1 decks)

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