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Series 79 > Section 2: 2,3,9-14,16 Underwriting new financial transactions, types of Offerings and Registration Securities > Flashcards

Section 2: 2,3,9-14,16 Underwriting new financial transactions, types of Offerings and Registration Securities Flashcards

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Series 79 Top-Off Exam flashcards
1
Q

approved number of shares

A

authorized or capital stock

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2
Q

shares issued and held by investors

A

outstanding shares

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3
Q

shares repurchased

A

treasury stock

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4
Q

When a shareholder is allowed one vote per share per seat in the BoD

A

Statuatory voting

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5
Q

Form 13F

A

reports institutional ownership stake in public companies

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6
Q

Right that helps investors avoid dilution in their ownership stake

A

Pre emptive right or in the US subscription right

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7
Q

Which date really determines who receives the dividend payment

A

ex dividen date

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8
Q

Stock dividends are attractive because

A

the transaction is not taxable until shares are sold and even so the capital gains tax is less than income tax

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9
Q

Stocks that mirror market and examples

A

cyclical stocks. cars large appliaces etc. anything that refers to discretionary spending

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10
Q

What investor will care for the par value of the stock

A

those who purchase preferred stock because the dividend rate is normally expressed as a percentage of such value

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11
Q

when a preferred stock investor is given the right to demand more dividend distribution if certain conditions are held

A

participating preferred

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12
Q

ARP stands for

A

adjustable rate preferred which bases rate in underlying benchmark normally the US T bill

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13
Q

Entitles holder to purchase stock at a specific and normally higher price and it is long term

A

Warrants

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14
Q

What type of equity instrument would allow a company that is private to provide valuation guidance, borrow money at an aftertax cost and creates employee benefits

A

employee stock ownership programs

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15
Q

Certificate of ownership of foreign companies issued by a bank and supported by foreign company that trades in the US

A

sponsored American Depositary receipts

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16
Q

benefits to issuers of an DR

A

gives company a presence in the market. allows company to raise value perception ( similar to stock split). broader range of investors

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17
Q

The longer the maturity the —- the coupon rate

A

higher

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18
Q

when a bond matures at regular intervals that match cash streams received by projects

A

serial maturity

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19
Q

Term bonds

A

also known as bullet bonds. mature at a specific date

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20
Q

Process of calling bond when interest rates have fallen

A

refunding

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21
Q

period in which the bond cannot be called

A

call protection period

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22
Q

Reinvestment risk

A

risk that cash streams will be reinvested at a lower IR. contrary to IR risk

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23
Q

optional vs sinking fund redemption

A

optional gives the option to issuer to call or not the bond. With Sinking fund provision the issuer sets aside cash at a regular basis to an escrow in order to call the bond prior to maturity

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24
Q

Market out clause

A

extraordinary redemption of bond in case of specific events

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25
Q

Nominal Yield is always equal to

A

coupon

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26
Q

If price falls, current yield

A

increases

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27
Q

How do you calculate YTM

A

( annual interest +- (discount or premium/years to maturity))/ ( average of current price and parket value)

when a bond is trading at a discount you add the discount to IP and if it is trading at a premium it is substrated

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28
Q

what diagram illustrates the relationship between NY, CY, YTM, YTC?

A 
teeter totter 
imagine a triangle with three balancing sticks 
One goes down (premium) 
NY> CY>YTM> YTC 
One is stable 
All equal 
One goes up 
NY
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29
Q

Inverted yield curve is a sign of …

A

economic downturn

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30
Q

the greater the slope of the yield curve…

A

the bigger the upcoming change in IR.

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31
Q

What is a humped yield curve

A

a flat yield curve

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32
Q

How to use duration

A

as a percentage chage per 1% of change in IR. Duration of 7 means the bond will loose 7% of its value if IR increase 1%

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33
Q

Long term bonds have — duration

A

longer duration or higher sensitivity to IR hikes

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34
Q

In economic downturn investors prefer

A

shorter durations. Less sensitivity to IR hikes

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35
Q

higher convexity means

A

bond duration will change less when in economic downturn (prices don’t vary as much) and will change a lot when in economic growth ( prices change a lot )

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36
Q

What does the Trust indenture Act of 1939 require

A

issues greater in size of $5 million to register a trust indenture ( appoint a trustee to act on behalf of investors in case of default)

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37
Q

Debentures are

A

unsecured securities

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38
Q

Convertible bonds yield higher or lower than traditional bonds ?

A

lower. It provides the investor with an option to purchase stock.

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39
Q

Conversion ratio

A

how many stocks you get per bond ( par value/conversion price)

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40
Q

Parity price for convertible bond to match stock price

A

Market value of bond/ conversion ratio…. means that the stock must move equally in order to be at parity. when it is not at parity loss and profit opportunities arise

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41
Q

An adjustment or Income bond is common in the case of

A

bankruptcy. it promises to pay only principal

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42
Q

are zero coupon bond investors taxed each year?

A

might be. on the accrued or phantom interest

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43
Q

Similar to bonds but vary in the way they are sold, the regulation requirements and the time to maturity

A

promissory notes

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44
Q

call premium

A

additional amount that must be paid to investors if the bond is called

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45
Q

How are T bills quoted

A

at discount

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46
Q

In what exchange are US gov securities traded

A

None. They trade in the OTC market

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47
Q

What remains constant in TIPS when inflation changes

A

The coupon rate. The principal is the one that will be adjusted for inflation

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48
Q

STRIPS are issued by

A

Investment banks however the government registers them in their system

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49
Q

Which federal agency is fully backed by the government

A

Ginnie mac

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50
Q

What is a REMIC

A

real estate mortgage investment conduit. Divides the pool in tranches by maturity and risk

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51
Q

What is a CMO

A

Collateralized mortgage obligation. Divides pool into tranches only by maturity

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52
Q

In order to lend securities for short positions or bearish investors, what must an individual do

A

They must have their securities under a street name. This means that the security is under the name of a broker dealer

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53
Q

What does GARP stand for

A

Growth at a reasonable price

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54
Q

What are the principal requirements to be listed on NYSE

A
  • must have 400 round lot holders ( each round lot is 100 shares
  • must have a minimum trade value of $4
  • must have a minimum of 1,100,00 shares outstanding
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55
Q

Which stocks are included in the Nasdaq global select market

A

top third of Nasdaq Global market securities

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56
Q

Which Nasdaq market focuses on Small cap companies

A

Nasdaq Capital Market

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57
Q

What are Nasdaq core requirements

A
  • Bid price higher than $4
  • must have at least 3 market makers
  • variations on revenue, volume trading, total assets, market cap etcc
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58
Q

Where are ADR traded?

A

OTCBB

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59
Q

Can an individual access the OTCBB securities?

A

No. It must contact a broker/ dealer

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60
Q

What is the biggest difference between Pink OTC and OTCBB market

A

Pink sheets are not required to file with the SEC and they are normally thinly traded and very small companies. OTC does have very small companies that may be thinly traded but all companies must file with the SEC to have enough information. Both are very risky investments

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61
Q

What is a Rights Offering

A

Company issues to current investors the right to purchase specific # of shares befoe they hit the market. Each share is entitled to one right and it might require more than one right to purchase one of the new shares

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62
Q

What investment satisfies growth investment objectives?

A

stock

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63
Q

What investment satisfies income investment objectives

A

bonds

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64
Q

What is dividend received deduction and who is eligible

A

c corps may be able to avoid taxation on 70% of the dividends they receive from holding interest in other companies

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65
Q

IRS 1120

A

tax form for C corporations

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66
Q

S corps are different to C corps in that…

A

S corps can avoid double taxation but cannot be listed on an exchange and shares cannot be publicly traded. Shareholders are taxed on all dividends at the ordinary income tax level not qualified dividends

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67
Q

Qualified dividends

A

They are subject to a lower federal income tax bracket

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68
Q

Reasonable compensation is a way of reffering to

A

dividends of S corps

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69
Q

If reasonable compensatin is not recorded in an S corp then the IRS

A

considers it as part of the payroll and this income is subject to payroll taxes

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70
Q

They are not eligible for the dividend received deduction

A

S corps

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71
Q

How are S corps determined

A
  • Less than 100 shareholders ( husband and wife count as one)
  • domestic firm
  • no nonresident alien investors
  • must provided qualified tax year
  • must have only one class of stock
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72
Q

Which companies cannot be considered an S corp corporation?

A
  • Banks and thrifts using the reserve method of bad debt
  • insurance companies under subchapter L
  • corporations that fall under the section 936 of the tax code
  • domestic international sales corporations
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73
Q

What benefit do S corps and C corps share in common regarding capital gains tax?

A

If investors hold the securities for more than a year they are eligible to receive a favorable rate

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74
Q

Eligible to receive dividends received deduction

A

C corps

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75
Q

Can avoid double taxation and can decide how they are taxed

A

Limited Liability companies

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76
Q

What are the 4 conditions of which LLCs must elect 2 in order to retain their status as an LLC?

A
  • Limited liability to investors
  • centralized management
  • Continuity of life
  • Free transfer of owners interest
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77
Q

Operating agreement of an LLC states

A

partnership life, purpose, operational structure etc

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78
Q

What types of companies normally choose an LP?

A

Companies in the oil and gas drilling industry and real estate and leasing industry

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79
Q

General partners vs limited partners

A

General partners manage the company and have unlimited personal liability while LP are passive investors and have limited liability

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80
Q

LP distribute dividends. True or False

A

False. All profits and losses are distributed to investors who then are taxes at their ordinary income level

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81
Q

What is the major drawback of an LP?

A

LPs must make ammendments or disband partnerships everytime that partners change

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82
Q

Are LPs subject to SEC regulation and blue sky securities laws?

A

yes

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83
Q

Form K1 for the IRS

A

LP partnership information return filed annualy to disclose distribution of profts and losses

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84
Q

Who is considered an accredited investor under Regulation D of the SEC?

A
  • director or partner officer of the corporation
  • Net worth of at leas $1mn excluding primary residence
  • Income of $200,00 or $300,000 if spouse is taken into account
  • Trust that is not designed for the sole purpose of holding securities and its worth at least $5mn
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85
Q

MLPs are different from LPs in that…

A

they are offered to the public and traded on exchanges
can freely transfer owners interest
each investor is responsible for tracking tax units

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86
Q

Debt REITS must earn at least 75% of their GROSS INCOME from real estate. True or false

A

True

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87
Q

What is the organization structure of preference for Hedge funds and Private equity firms

A

LLC or LP

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88
Q

To limit investors from transferring funds and redemptions is typical of …

A

Hedge funds

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89
Q

Which is typically the initial step towards financing a company

A

ANgel investors

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90
Q

What is an SBA 7 A loan program?

A

Helps small businesses fun day to day activities such as buying equipment, refinancing, etc

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91
Q

What is the SBA Venture Capital Program?

A

Helps small businesses obtain venture like capital from SB investment companies

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92
Q

To qualify for SBA VC you must be worth less than — and have an income no grater than — for the two most recent years

A

$18 mn

$6 mn

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93
Q

Synonym for public float

A

Oustanding shares

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94
Q

What is a PPM

A

Private pplacement memorandum. Very similar to a prospectus

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95
Q

PIPE means..

A

private investment in public equity. It allows investors to access equity normally at a better price and it allows firms to issue securities at a faster pace.

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96
Q

Drawback from PIPE

A

stock is restricted from sale until it is registered with the SEC

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97
Q

When a subsidiary and a target company merge, leaving the subsidiary behind and letting the target company survive

A

reverse triangular merger

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98
Q

A forward triangular merger

A

Contrary to reverse TM

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99
Q

Conduit investors do….

A

they pool oney from wealthy individuals with the purpose of managing it. Examples include mutual funds, pension funds, ETFs, hedge funds etcc

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100
Q

Who can be considered a qualified institutional buyer and what does being one mean?

A

must hold at least $100 mn in securities and can invest in securities that are filed under the 144A SEC rule

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101
Q

What is another name for Income statement

A

Profit and Loss statement

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102
Q

What is another name for Balance sheet

A

Statement of financial position

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103
Q

What is the FASB

A

Financial Accounting Standard board. They regulate the GAAP standards

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104
Q

COGS is a fixed cost. true or false

A

False

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105
Q

LIFO vs FIFO

A

Last in first out or First in first out

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106
Q

What inventory account method is preferable under an inflationary environment?

A

FIFO. Because first items are likely to be cheaper and hence the gross margin will be larger

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107
Q

NOPAT means

A

net operating profit after taxes.

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108
Q

How to calculate Operating leverage

A

Fixed costs/ (fixed costs + variable costs)

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109
Q

Higher operating leverage allows the company to

A

get more out of their sales

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110
Q

When refinancing debt, a company will likely hiy higher taxes. true or false.

A

True. IE is tax deductible. A smaller IE will result in more taxes

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111
Q

what are PIK interests

A

Payment in kind interests don’t pay interest over the years but they are accrued by investors through an increase in the principal. Investors may be taxes regardless hen interest is accrued

112
Q

What is the effiective tax rate and how is it calculated

A

income taxes/ earnings before tax. This is used in case the marginal tax rate is not provided

113
Q

What is a deferred tax asset?

A

Created when companies depreciate faster on the SEC filings than they do on their tax return. This causes them to pay additional taxes which are recorded as an asset to the company. This asset will depreciate with time

114
Q

how is tangible book value calculated?

A

Shareholders equity - goodwill

115
Q

Common stock is separated into which accounts?

A

Par value and Additional paid in capital

116
Q

Negative income companies will pay dvidends by reducing…

A

retained earnings

117
Q

Which issuers must register with the SEC?

A

those that have more than 2000 shareholders and manage more tha 10 million in assets

118
Q

How many parts does a 10 K contain and what are they?

A

One cover page and 4 parts
Cover page states name of issuer, market value of stock owned by non affiliate and number of total shares outstanding
Part one: business description : talks aout company business, risk and legal proceedings
Part two: financials that contain audited financials, Management discussion and analysis, selected financial data highliing trends and disclosures of market risk
PArt three: directors officers and shareholders >10% disclosure of information on compensation and charges
Part four: exhibits and supplements

119
Q

How many parts does a 10Q contain and what are they

A 
One cover page and two parts 
Part one: financial information 
Balance sheet of year t date and as of the most recent quarter 
IS the same and year to year 
Cash flow the same plus prior fiscal year 
MDA 
Part II : othr info 
Legal proceedes, 
Unregistered securities 
defaults and exhibits
120
Q

What is the main difference in content between a 10k and a 10q?

A

Quarter versus yearly information and 10q does not need to disclose information on directors `

121
Q

How are the financial statements of a 10q called?

A

Interim FS

122
Q

Who classifies as a large accelerated filer?

A

issuer with market cap greater than 700milliion as of the last day of the second fiscal quarter

123
Q

Who classifies as an accelerated filer?

A

issuer with market cap greater than 75m and less than 700 m as of the last day of the second fiscal quarter

124
Q

What scaled requirements must smaller companies fulfil when it comes to filing with SEC

A

do not hhave to report risk factors

10Q must have audited financial statements

125
Q

What are the deadlines for filing?

A

10k –> LAF 60, AC 75, SC 90
10Q–> LAF and AF 40, SC 45
*K —> 4 business days

126
Q

what is the name of the form that must be file for a proxy statement?

A

Pre14A or Def14A

127
Q

How long in advance must a proxy statement be filed?

A

20 days prior to the meeting

128
Q

What is the typical content of a proxy statement?

A

date and time of event,
shareholder proposals,
List of directors and officers and shareholders 5%>
compensation
board of directors names ages and charges
List of who has assisted to less than 85% of meetings in preceeding year

129
Q

How Is the sabarnes Oxley act fo 2002 normally called?

A

sarbox or SOX

130
Q

What is the purpose of SOX

A

regulate accounting reports after Enron WorldCom and tyco scandal .

131
Q

What changes where enacted with sabarnes Oxley

A

-Issuer may not lend money to directors or officers unless it is its primary business and the conditions of the deal are market based
- Changes in ownership as wll as who becomes cororate insider,
Institution of form 3,4 and 5 of sEC

132
Q

What does rule 404 of the SEC state?

A

that SEC can mandate CEOs to state the responsibility of management for establishing internal controls and the effectiveness of such

133
Q

Can company consult analyst regarding projections model or forecasting without violating regulation FD?

A

yes

134
Q

What are the two applications of the FD ?

A
  • intentional selective disclosures: filed simultaneously

- non intentional selective disclosures: filed promptly (24hours)

135
Q

Can conference calls violate FD?

A

no if they are widely available and easily accessible through company’s website

136
Q

Speeches to shareholders are in compliance with FD. true or false

A

false

137
Q

FD does not apply to which parties?

A

employees of the firm and companies that must keep financial information

138
Q

Who is a corporate insider?

A

if you are a director or officer or if you hold 10% of stock

139
Q

What is form 3 for?

A

form required when investor becomes corporate insider

140
Q

what is form 4 for?

A

to report any change in ownership due to purchase of sale of securities in market

141
Q

What is form 5 for?

A

annual statement that explains changes incontrol not covered by form 4 such as holding securities in discretionary account, selling options, transerring securities to trust or fund

142
Q

as a corporate insider, what are you prohibited from doing under section 16b of the 34 Act?

A

you are prohibited from profiting from short swing movements. hence you must disgorge or forcefully give up any profits made on purchase or sale of securities within any 6 month period

143
Q

Who is exempt from section 16b ?

A

any purchases made under previously contracted arrangements such as 401k and any reorganization or reclassification of stock provided that it happened a minimum of 6 months from sale

144
Q

Trades made due to hardship or personal illiquidity are exempt from section 16b of 34 act?

A

no

145
Q

When must an investor file under the sec?

A

after owning more than 5%

146
Q

What form must activist investors file

A

form 13D

147
Q

What does form 13d require investors to do?

A

must amend if ownership changes by more than 1%, must state what plansor proposals he or she has

148
Q

When must a form 13d be filed?

A

within 10 days of owning more than 5% and deciding its status as an activist investor

149
Q

When must form 13G be filed?

A

within 45 days of the end of the calendar year when this ownership status was achieved ( more than 5%) or within 10 days if it wons more than 10%

150
Q

what is form 13F?

A

similar to 13d and g but for institutional holders. they must file on a quarterly basis in order to follow how much of the public float is held by money managers

151
Q

Can an individual file form 13F?

A

No

152
Q

Can an institution file form 13g or d?

A

they MUST after deciding what sort of investor they want to be

153
Q

what section of 33act states as illegal the sale of unregisterd securities?

A

section 5

154
Q

general solicitation or simple inquiry of interest violate the 33 act?

A

yes

155
Q

What does section 7 of 33 act state?

A

establishes what must be included in the registration statement. such as:

  • identity of issuer
  • names and addresses of officers underwriters and advisors
  • approximate amount of proceeds
  • capitalization of each type of stock an issuer has
  • debt and options profile
  • recent financial statements
  • written consent fro auditor
156
Q

Is insurance of significant concern when filing a registration statement?

A

yes, it provides protection against interruption of activities

157
Q

What is a deficiency letter?

A

letter filed by the SEC due to lack of information or due to misstatements

158
Q

What does regulation sk of 33 act imply?

A

establishes parameters on how to file projections and ratings.
Projections can be filed as good faith assesments with an independent certification. if this certification exists, the auditor or adviser must disclose the relationship it has with the issuer and give its consent
Ratings from the Nationally Recognized Statistic Rating Organization must be included especially if there is a material difference between two diferent rating agencies

159
Q

What does form sx or 33 act establish?

A

standards on how to file financial statements.All must be audited
BS: 2 years
IS and CF: 3 years

160
Q

What is an EGC?

A

emerging growing company. in order to be considered one the company must not have more tha 5 years of being public, must not have sold more than 1 bn of non convertible securities in the past 3 years, must have less than 1 bn in gross revenues, cannot be a large accelerated filer ( have a market cap > than 700mn )

161
Q

What benefits do EGCs have?

A

they can have only two years of financials for IS and CF registration statement
they can “test the waters” with investors before registration is effective
they can submit a prospectus draft to SEC for opinion and review

162
Q

What is form s1

A

form required for all newly issued securities

163
Q

What is form s3

A

shortened version of s1 and in order to be eligible for this form you must:

  • have stock on national exchanges
  • be a seasoned issuer
  • have filed all required documents with SEC in past year and
  • may not have more tha 1/3 of public float sols in the past year.
164
Q

Form f 3 is filed by…

A

foreign issuers

165
Q

What is form s4

A

related to M&A issued securities

166
Q

What is form s11

A

related to issuance of real estate investment companies

167
Q

What is form s8

A

related to the issuance of securities for employee stock ownership programs

168
Q

Who cualifies as a Well known seasoned issuer?

A

-ublic float is 700 mn or more and has issued more tha 1 bn in non convertible securities in the past 3 years

169
Q

Who is not eligible for the WKSI status?

A

asset backed securities, investment companies and business development companies

170
Q

Who cualifies as a seasoned issuer?

A

public float is between 700 mn and 75 mn

171
Q

Who cualifies as an unseasoned issuer?

A

one that does not have a public float greater than 75 mn

172
Q

Who is an ineligible issuer?

A

one that is not current with SEC filings or that has filed for bankruptcy

173
Q

What is a blank check company

A

one without specific business plan such as special purpose acquisition companies and business development companies

174
Q

What are the three periods involving SEC registration statement?

A

prefiling
cooling off
post effective

175
Q

what are EGCs allowed to do during pre filing?

A

test the waters and file draft of prospectus

176
Q

What documents do IB normally rely on during the cooling off period?

A
  • roadshow
  • preliminary prospectus or red herring
  • tombstone ad
177
Q

What rule establishes the us of a free written prospectus?

A

rule 405 of 33 act

178
Q

How long does a shelf registration last?

A
  • if automatic (for WKSI ) within 3 years

- for non automatic can be renewed up until 180 days since the third anniversary of the filing

179
Q

What section of 34 act requires financial statements to be audited?

A

section 10A

180
Q

What communications are exempted from being considered a prospectus?

A

implicit: oral communications
Explicit:
- if it is sent after or simultaneously to prospectus
- if it states where the prospectus may be found and only identifies the issuer, the price and the way the orders are being executed

181
Q

What can be considered a graphic communication?

A

any modern electronic media

182
Q

is a presentation to potential investors considered a graphic communication?

A

no unless it is recorded and then given provided to several shareholders.

183
Q

do live overcast of presentations due to investor demand considered written communications?

A

yes

184
Q

what does rule 433 say regarding Electronic road shows?

A

it establishes their name as bona fide electronic roadshows and it considers them as written communications. They must be available for all potential investors to see at the same time

185
Q

What benefits does an electronic roadshow ppt have??

A

it is easier to edit,
it is customizable
it can be accessed remotely

186
Q

What rule governs the registration of the prospectus?

A

rule 424

187
Q

how many copies of preliminary and definite prospectus must be filed?

A

5 preliminary and 10 prospectus

188
Q

rule that establishes that a preliminary prospectus may be used prior to its registration if it does not state price ,member of syndicate or amount of proceeds

A

rule 430

189
Q

What is rule 430b

A

issuer must provide information only when it is know and reasonably available to them

190
Q

What is considered a safe harbor for registration purposes?

A

a tombstone ad that contains only factuarial info on the issuer its business and the security being offered as well as intended use of proceeds

191
Q

What does rule 163A exempt issuers from?

A

do not need to file specific communications more than 30 days before registration is filed. In order to be eligible, issuer must not mention security in such conversation and must avoid talking about this conversation within this 30 day period

192
Q

What rule provides exemption for factual or forward looking information?

A

rule 168

193
Q

what rules govern research reports?

A

139 establishes concept
137 covers publication ad distribution of reports. if report does not come from broker dealer or underwriter the report is not considered a proposal
138 creates firewall between research that is related to security offering and the ones that don’t

194
Q

What do section 11 and 12 of 33 act refer to?

A

claims on mistatements and lack of information on securities.
Section 11 stateswhoever fulfils these reqyuirements may not be held liable :
- was fired
- submited ammendment and provided disclosure with suficient time
- acted on prudent amn account and truly believed information was correct at time of sale

195
Q

how much damage is covered under a complaint for misstatement or lack of info?

A

either purchase price or the diference between purchase price and current price

196
Q

What does rule 159 state?

A

it states that untrue or omitted info is determined at the time of sale. communication made after time of sale is not subject to claim

197
Q

What does rule 412 state?

A

states that any amendment will supersede previous version and investor must base claims on most current version.

198
Q

What are the best sources of information of new issues?

A

For IPO: hoovers

For bonds, the bond buyer

199
Q

When does a standby commitment apply?

A

when current shareholders have preemptive rights and the bank must standby to buy all the shates that are not picked up by current shareholders

200
Q

Type of commitment that requires the underwriter to sell all securities or the deal is off the table

A

an all or none deal

201
Q

what is a mini max level of commitment?

A

similar to an all or none but this time there is a minimum level of securities that must be sold

202
Q

What rules govern contingent commitments such as all or none and mini max?

A

Rule 10b-9: underwriter and issuer must specify what type of commitment they are agreeing to in order for investors to have full disclosure and understand that the deal might not go through and that they may have their money reimbursed

Rule 15c2-4: funds from contingent commitments must be held at an independent bank or at a trust while the deal is being settled. If it is settled, then the issuer will receive the funds at the promptly day ( noon of the next business day)

203
Q

What types of underwritings can an issuer agree to?

A

Negotiated: issuer and underwriter work together to set terms
Competitive bids: the issuer receives sealed bids from underwriters and chooses the ones with the best terms and pricing structure

204
Q

Is the size of the syndicate directly or indirectly related to a hot market?

A

directly

205
Q

What agreement binds together a syndicate?

A

agreement among underwriters

206
Q

What agreement binds together the selling group and the syndicate?

A

the select dealer agreement

207
Q

What is the composition of the spread?

A

management fee, underwriting fee and selling concession.

208
Q

What is the total takedown spread?

A

combination of underwriting fee and selling concesion

209
Q

what is spinning?

A

sellinh shares of an ipo to a ceo of another public company in order to get business from them. Players are monitored to see if they have not received payment in the last 12 months and that they do not expect to receive payment in the next 3 months

210
Q

how can one identify prospective investors?

A

the best option is the companys largest shareholders. Services like the Dow jones corp ownership watch, dun and bradstreet as well as form 3, 4,5 of the sec can provide further information

211
Q

What is normally done between syndicate and selling group to avoid offering securities to the samel large shareholder?

A

A pot is created

  • Fixed: predetermined in agreement among players and it is not based on who is able to place the sale
  • Jump ball pot : the credit is given to however places the order
212
Q

What is an overallotment?

A

when an underwiter over sells (goes u to 15% short on the stock) . This can help stabilize the market more than anything. If demand is high the underwriter will purchase stock from company to cover short. If price is down the company will purchase shares in market to stabilize price and cover short

213
Q

How long does an underwriter have to exercise the overallotment option?

A

up to 30 days after IPO

214
Q

How long is a normal lock up period?

A

180 days

215
Q

How many days in advance must an underwriter notify issuer that lock yp period will end according to FINRA?

A

2 days

216
Q

What are the suitability requirements for Individual investors?

A

before filing an Indication of interest, individuals must have done a considerable due diligence examination of the issuer. and have

  • a reasonable base ( due diligence) to make decision
  • a quantitative suitability: have understanding of correlation of such trade with the rest of the transactions regardless of whether every transaction is suitable separately
217
Q

What suitability requirements does an institutional investor have for filing an indication of interest?

A

t- the representative must be in agreement with their capability and
- the investor indicates exercising their own judgement

218
Q

What does rule 460 of he SEC establish?

A

that a red herring must be given to all underwriters and issuer parties as well as potential investors

219
Q

What does rle 153A of the SEC say regarding delivery requirements of the prospectus?

A

that it must be done prior to shareholder vote and if voting is by consent it must be done before corporate action takes place

220
Q

What does the underwriting agreement cover?

A

the spread. the allotment options, rights of first refusal, any warrants received etc

221
Q

What does the Agreement among underwriters cover?

A

the lead manager and syndicate desk, the use off a selling group, allocation of stocks, any retention of stock

For an IPO it also specifies that any returned shares by a shareholder trading a a premium must be : used to cover short, given to charity anonymously or offered to unfilled orders at the public offering price

222
Q

What institution also regulates underwriting terms and requires underwriter and issuer to file all documentation under the corporate finance rule?

A

FINRA

223
Q

What documents must be submitted under the corporate finance rule?

A

the UA, AAU, registration statement, prospectus, list of members of syndicate. A statement of association of anyone holding more than 5% of the stock, any arrangement made between issuer and underwriter 180 days after deal is done

224
Q

What does finra consider appropriate compensation for underwriting?

A

the spread, the reimbursement of the underwriting counsel, finder’s fees, securities credited to firm’s investment account

225
Q

What type of payment does finra consider inappropriate from an issuer to an underwriter?

A

issuer expenses ( blue sky fees, printing fees etc), daily business expenses, right of first refusal for longer than 3 years, options or convertible securities longer than 5 years tail fee agreements longer than two years ( issuer must pay feee in it decides to cancel issuance with one underwriter and them issues a security with another bank

226
Q

can research analyst assits to road show ppts?

A

no

227
Q

What type of communication can the issuer make with public and what must be avoided?

A

issuer may not imply any sort of future offering and must also avoid giving valuations or prospectuses at any point
must maintain regular forms of communications that may not indicate something will happen in the future

228
Q

What does rule 15C1-8 of the SEC state regarding offerings at the market?

A

issuer or underwriter may not offer securities at the market unless there is a clear market for it and it is not made solely by the broker dealer

229
Q

Wat does section 18 of 33 act say about state registration of securities?

A

securities registered federally do not have to be registered in every state. However, the issuer must be registered and wont be exempt from antrifraud provision act regardless of being federally registered

230
Q

What does FINRA rule 5141 state regarding offering fixed price securities to related persons?

A

must not be offered at a discount. This does not apply to syndicate or selling groups

231
Q

What are the three possible marketing approaches for a security?

A

Ful marketed: one or two weeks of road show–> used for securities with uncertainty and all newcomers
One day –> can file 24 hours before it is settled and it is normally used for follow ons
Overnight-> can file the evening before and this is used when there is a clear demand for the specific security

232
Q

What conflict of interest worries regulators in particular when it comes to registering and selling securities

A
  • If borker dealer is the issuer
  • if broker dealer holds more than 5% of issuer
  • If associate of broker dealer owns issuer
  • If issuer uses more than 5% of prceeds to pay balance on a loan
233
Q

What precautions does FINRA rule 5121 require so that broker dealer CoI is resolved?

A
  • CoI must be disclosed and
  • member compies with net capital and discretionary account requirements
  • Must have a qualified independent underwiter in the case ( not necessary if borker is not lead manager and securities are already trading publicly)
234
Q

What is a qualified independent underwriter?

A
  • does not have a CoI with issuer,
  • does not have any associated person with issuer
  • have done similar deals in the past 3 years
  • does not need to participate in sale of security juts in the preparation of documentation
235
Q

Who qualifies as a restricted person to sell securities of an IPO?

A

any officer or director of issuer and underwriter as well as their family members
this rule does not apply to employees of the firm without capacity to influence terms of offering

236
Q

How does FINRA require Issuer to protect from selling to restricted persons?

A
  • issuer must have an initial list of distributing participants and commitments
  • must make a final list at the end
237
Q

What rules require broker dealers to disclose level of control and interest on primary and secondary trading of securities being offered?

A

FINRA rule 2262 and 2269

238
Q

What limits have been set to protect equity research and IBkers interation?

A

IB cannot attend teach ins with equity analyst

  • equity analyst may not attend roadshows or speak to client in front of IB
  • all conversations among them must be chaperoned by legal and compliance
239
Q

What is a blackout period?

A

when research analyst cannot make any reports on companies who are in the process of issuing securities

240
Q

What is the blackout period for each player?

A 
if it is an ipo: 
- lead: 40 days after effective date 
- Underwriter and selling group: 25 days after effective date 
If its a follow on 
- lead: 10 days after effective date 
- syndicate and SG don't have a BP
241
Q

What does regulation M refer to

A

control of manipulative practices among players. it has 5 rules:

  • 101: underwriter activity
  • 102: issuer activity
  • 103: passive trading
  • 104: stabilization
  • 105: selling short
242
Q

regarding price stabilization, at what price can the underwriter submit the bid?

A

always below or at public offering price.

if the ask price is than last transaction price the bid must be settled at last transaction price

243
Q

restrictions on trading for underwriter and issuer will be determined by which 2 factors?

A
  • daily trading volume and public float
  • actively trading sec ( 1 mn in volume and 150 mn in public float) no restriction
  • securities with volume of at least 100000 and public float of at least 25 mn must wait one day before determination of offering price until offer is distributed
  • others must wait five days before offering price is settled
244
Q

when must a syndicate amount be cleared?

A

90 days after the syndicate settlement date

245
Q

What type of expenses are more looked at by FINRA relating direct participation programs and unlisted REITS?

A
  • issuer expenses ( marketing, accounting, fees paid etc in relation to issuance)
  • underwriting compensation
  • due diligence expenses
246
Q

What are Private placements also called?

A

exempt transactions

247
Q

What is the biggest risk of a private placement?

A

loss of value and inability to sell because there is no secondary market

248
Q

What document details the Private placement?

A

PPmemorandum

249
Q

What document binds together the company and the investment bank under a PP?

A

the placement agent agreement

250
Q

What sort of termination policy is normally put in place for a PP?

A

all or none or best efforts

251
Q

What document must be signed by investors of a PP so that issuer may accept their investment?

A

the subscription agreement. it makes investors acknowledge that the security is not reviewed by SEC and that its investment is for investement purposes and cannot be sold during a specified period

252
Q

What is the typical restriction period imposed on PP?

A

2 years

253
Q

Which conflict of interest does FINRA refer to under rule 5122 relating to PP?

A

if a broker has controlling interest ( more than 50% of voting or profit rights) over issuer . If this is the case, the I must specify what the net proceeds of the offering will be for ( of which 85% must be related to business) and it must notify FINRA

254
Q

What type of securities ar exempt from registration with SEC ALWAYS

A

govt securities
munis
commercial paper
commercial bank securities

255
Q

What exemptions does rule A give?

A

exempt securities that don’t exceed the 5mn amount (of which 1.5 mn of existing shareholders)
in order to be eligible you must file with SEC an offering statement that must be approved. General solicitation is available.
Benefits include: no audited FS and much simpler
no registration on exchange act unless you have more than 2000 investors and 10 mn in total assets
cheaper

256
Q

What does rule 147 state?

A

exemption from intrastate deals
Only can be sold to investors within state and company must have significant protion of business within state and be headquartered as well.
Securities may be sold after 9 months toout of state investors

257
Q

What does regulation D exempt?

A

from SEC registration. However issuer cannot do general solicitation and cannot be resold. It has 3 rules

504: 1mn
505: 5 mn
506: any amount but only to accredited investors

258
Q

What is an accredited investor?

A

a person with a net worth of more than 1 mn
earning more than 200 000 mn or 300000 if it has a spouse
officer or director of issuer
non profit
employee benefit plan
trust company with purpose of holding securities

259
Q

What is a qualified institutional buyer?

A

holds a portfolio of 100mn or more or 10mn or more if its a broker dealer

260
Q

what form must be file under regulation D under any sale ?

A

Form D

261
Q

What does rule 144A permit?

A

sale of unregistered securities between qualified institutional buyers

262
Q

what is a piggyback registration ight?

A

right given to private security holders that may give them the right to register securities so that they an be sold in secondary market in the future

263
Q

To what companies does regulation S apply?

A

to us companies seeking funds outside of US

264
Q

what does rule 144 say about restricted securities?

A

may not be sold unless the legend is removed by a transfer agent and must need to be held for at least 6 mnths or 1 year depending on SEC approval

265
Q

What is the difference between restricted stock and control stock?

A

control is owned by an affiliate of company and is subject to some resale restrictions
Restricted is simply unregistered securities

266
Q

what is a fairness opinion?

A

objective third party opinion on deal

267
Q

Give some examples of moments when necessity of fairness opinions would come handy

A

To explain to board of directors a specific valuation level ( if it seems too high for acquirer or if there is additional amounts being paid to officers and directors

268
Q

When would a company not want a fairness opinion?

A

in a hostile takeover

269
Q

Who has to approve the fairness opinion before sending it to shareholders?

A

the fairness committee

270
Q

What does FINRA rule 5150 require for fairness opinions?

A

All material communications must be disclosed such as fees paid to officers, relationship between broker dealer , whether the material used can be independently verified
How these communications are disclosed
( all details of transactions, how is fairness opinion evaluated and what procedure determines whether the opinion is acceptable or not

271
Q

What does finra rule 5150 require each company to include in fairness committee?

A

2 independent persons

272
Q

how are business combinations considered under rule 145?

A

offers to sell securities especially if there is a reclassification ( one security for another such as a bond for stock), merger securities or transfer securities

273
Q

Where is proxy statement information explained?

A

in rule 14A

274
Q

What are some of the things that must be included in the proxy statement?

A

who is filing it, to whom it applies, value of the transaction discussed. Rights and limits of shareholders, time and place of meeting, compensations involved etc

275
Q

What is a preliminary proxy?

A

a draft proxy that must be filed to SEC 10 days prior to meeting for review purposes. 5 copies must be filed

276
Q

What is a confidential proxy?

A

same as preliminary but t remains confidential until definite proxy is filed

277
Q

how many copies must be filed to SEC of the definite proxy?

A

8 and one of them should be signed by an accountant

Series 79 (4 decks)

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