Primary and Secondary Markets Flashcards
What is a primary market
securities are sold by issuers to raise money
What is a secondary market
securities trade between investors
Whats another name for the secondary market
capital market
What is a primary offer
an offer made in the primary market
What does the Securities Act of 1933 require for a new issue
it be registered with the SEC before public sale
What does the issuer need to provide the investor before they purchase
a prospectus
What are the two main types of primary offerings
IPOs
APOs
Whats does APO standfor
Additional public offering
also follow-on or subsequent public offering
In securities, the term person refers to
a natural person or legal entity
Secs not listed on national exchanges are called
non NMS secs
What are municipal bonds also called
munis
What is another name for debt issues
bonds
An underwriter is a type of what
broker dealer
what another name for an underwriter
investment banker
What do underwriters (IBs) do
work with issuers to set up offerings
What are the top level different types of underwriting agreements
Best Efforts
Firm Commitment
What are the types of best efforts underwriting
All on none
mini max
What is best efforts underwriting
acting only as agent so not require to pruchase the shares if funds cant be raised
How are best efforts deals closed
collecting client funds in escrow
What is an all or nothing underwriting
all shares must be sold or underwriting is canceled
Where are client funds held during AON offerings
escrow
What is a mini max offering
sets a min shares that need to be sold, once hit, the underwriter can expand the offer to a set max
What another phrase for best efforts underwriting
investment banker acting as agent
What is a firm commitment deal
the underWs commit to buying all shares from issuers themselves for a discount then resell the shares to public for normal price
What is a syndicate
a group of BDs/IBs
How are syndicates structured
a group of BDs come together to share risk and reward
someone is the managing underwriter
What is sometimes brought into syndicates
a selling group made of other BDs
Do selling groups share risk or hold the shares in invetory
no
3 types of investors
institutional
retail
accredited
Examples of institutional investors
banks
insurance comps
employee benefit plans
What are the type of employee benefit plans that might be institutional investors
pensions
hedge funds
investment advisers
mutual funds
What is a qualified instit ivestor
owns and invests min 100 mill
What are accredited investors
all institu investors
retail that hit the following creiteria:
made 200k for past 2yrs and will this yr
(if using a joint acc then 300k)
or net worth of 1mil not including home equity
natural person with prof creds given by an accredited educational instit
holders in good standing of series 7, 65, and 82
Where can you find the criteria for accredited investors in the Sec Act of 33
Rule 501
muni advisers can do a little assistance in what when providing advise for creating issues, and what cant happen
underwriting functions like an official notice but they cant be paid
The paper act requires what to protect invs
regis of new issues
full and fair disclosure about self and offering
necessary material info for investors to judge the issues merit are available
regulating the underwriting and dist of primary issues
providing crim penalts for fraud
What are some steps that the SEC reqs before issue is brought to market
File a regis statement (s1)
cooling off period
final filling of prospectus
What does an S1 (regis statement) contain
a prospectus
desscription of the business
name and addy of comp officers directors, their salaries, and 5 yr business hist of each
amount of secs that the officers director own
ID of all investors that own 10% or more
comps capitalization incl equity and debt
how proceed will be used
any legal proceedings
the accuracy and adequacy of the regis statement and prospectus is whos responsibility
the issuers
What cant happen during cooling off period
solicitation of the sec
What can happen during cooling off
tombstone ad
What are tombstone ads limited to
name of issuer
type of sec being offered
numb of shares to be sold
POP
Name of underwriters if used
What does a tombstone ad need to unclude
advisory statement:
This announcement is neither an offer to sell nor a solicitation of an offer for any of these secs. This offer is made only by prospectus.
What is a prelim pros or red herring
used for guaging investor interest and indications of interest
Prelim pros has to be what
made available to any customer who expresses interest during the cool off
What an indic of interest
declaration of an investors potential interest
What are state regis requirements or blue sky filings
the process of coordinating the fed and sstate regis
What is delivered at the end of the cool off period
final prospectus to all who pruchase at IPO
What does a prospectus need to have
descrip of offering
price
selling discounts
Effective date
use of proceeds
descip of underwriting
hist of business
risks
descrip of management
material financial info
legal opinion about the corp formation
SEC disclaimer
What is a hybrid/combo/split offering
an IPO in which the issuer allows the sale of shares of existing shareholders along with newly issued shares
What is a shelf offering
registering new shares to be sold, but can wait to sell them at a later date
How long do shelf offerings last
2 years unless a well known seasoned issuer they can extend to 3 years
Any sec listed on major exchange will meet what criteria regarding shelf offerings
well known seasoned issuer
Investors that buy new secs (that recently IPO’d) on the secondary market are entitled to the final prospectus if bought within what range from the IPO
IPOs of NMS 25days
APOs of NMS 0days
IPOs of non NMS 90 days
APOs of non NMS 40
What are some examples of exempt issuers
US gov
munis
national and state banks
Building and loans and savings and loans
charitable religious educational and nonprofit assoc.
common carriers
examples of exempt issues (secs)
commercial paper, bankers acceptances, and others that have maturities of 270 dayss of less
insurance policys
fixed annuities
The word variable or phrase “separate account product” mean wha t
the product must be regis with SEC
exampels of exempt offerings (transactions)
Reg A
Intrastate offerings
Reg D
What are the rules for advertising and solicitations for private placement offerings
all investors must be accredited
the issuer must take steps to verify the investors are accredited
What investors can purchase private placement stock
unlimited accredited
up to 35 non accredited
What letter must be signed for private placements
a letter stating only for investment
What are other names for private placements
lettered stock
legend stock
restricted
unregistered
What are the rules of intrastate offerings
can only issue in to persons that are residents of state
HQ in state
80% of assets, income, offering proceeds, and employees must be used/in state
Whats the waiting period for intrastate offerings to resell to nonresidents
6mo
describe two tiers of Reg A
Tier 1 : up to 20mil in 12 mo, no more than 6 mil from existing shareholders
Tiers 2: up to 75mil in 12 mo, no more than 22.5mil from existing shareholders, held to normal high disclosure standards
What are the qualifications to be an investor in Reg A tier2
be accredited
or max investment of 10% of net worth or income
Who is Reg A for
small and medium businesses, not hedge funds VCs or PE
What are the different members of exchanges
Designated market maker
floor broker
two dollar broker
floor trader
What is a designated market maker
responsible for maintaining a fair and orderly market
maintains inventory and liquidity
What is a floor broker
handles trades that execute on exchanges for their clients
What is a floor trader
execute trades on the floor for their firm not outside customers
What is a two dollar broker
floor broker overflow that can be hired for a fee
While exchanges might only have one MM for a sec, the OTC markets might
have multi competing for the trades from BDs
How does OTC markets work
client places order for a sec with BD, BD picks a MM to make it happen
What is the NASDAQ
the third market in which exchange listed secs are traded OTC
Most exchange listed secs are eligible to be traded OTC as long as
the trades are reported to the consolidated tape within 10 seconds after execution
What are the two criteria of exchanges and OTC markets
physical location for trades to happen
pricing system
What is the fourth market
Electronic comm networks (ECNs) where institu investors trading large volumes between eachother without BDs
What another name for ECNs
dark pools
What is a custodian
person who manages a minor’s acc under the Uniform Transfers to Minors Act such as a firm that hold assets in a retirement acc
What is a trustee
a fiduciary for a trust
Investment advisors are always a
fiduciary
3 prong test for IAs
gives advice
regularly
for compensation
What acts govern IAs
IA act of 1940 and Uniform Sec Act
Examples of facilitators in the secondary market
BD firms like carrying firms,fully disclosed firms prime brokers
When a BD firm is a member of FINRA or other SROs they cant say what
they are endorsed approved or recommended by them
What is a carrying firms (clearing firms)
holds customer assets
must maintain asset levels above the customer accounts
How do carrying firms need to hold the assets
separately from their own
what is a fully disclosed (introducing)firm
essentially a middle man between a customer and a clearing firm
doesn’t need to maintain assets above cust acc’s
What is a prime broker
basically a carrying firm but more customized
the customer can use mult brokerage houses
A BD cannot act as a broker and a dealer on the same transaction T or F?
T
What is the quote for a sec
the bid and ask with the amount of stock availble at that quote
If you place a sell order for 40$/share but the buy limit is at 38, what will the transaction settle at
38$/share
What is the spread
diff between the bid and ask price
What type of trade takes priority
limit orders
market orders
time restrictions
fill restrictions
What are the time restrictions that can be placed on trades
day orders
good til canceled
market on open/closed
what is a day order
order canceled at end of day if not filled
what is a good til canceled order
stays open for 6mo periods
what is a fill or kill order
fills completely or cancels
What is an immediate or kill order
like a FOK but partial ex is okay
the remaining is canceled
What is an All or none order
Same as FOK but doesnt have to fill immediately
can be GTC or day restricted
What is regular day settlement
the standard 1-2 days post trade it takes to settle
Whats the only things that settle within a day
Tresury secs
options but not equity options
everything if cash settlement
What are the good delivery rules
endorsed by all whos name is on front of the cert
signed exactly as they appear
What are some deviations from the good delevery rules
& for and
Co for company
Inc for incorporated
When secs are held electro inst of paper certs, whats it called and what doesnt apply
held in street name
good delivery
