Supervision Of Investment Banking & Research

Question 1

Within _____ days each calendar quarter, firms must make a record that includes a statement by the analyst that the views expressed in public appearances reflect the analysts personal views at the time

Answer 1

30 days

Question 2

SEC Rule 144

Answer 2

Rule 144 regulates the sale of both control and restricted securities

When you encounter a rule 144 question, look for the following two things

1) what kind of stock is being sold
2) Who is selling it?

Question 3

Control Securities

Answer 3

Control securities are those owned by people who are affiliated with the issuer, such as directors, officers, the spouse of an officer, or persons who own more than 10% of a company’s outstanding shares.

Such persons are subject to volume limitations on the sale of these securities for if they are affiliated with the company

Unless unregistered, such as privately placed stock, control stock is not subject to the holding period requirements imposed on restricted stock but is subject to volume limits throughout the time the owner holds the control position

Question 4

Control & Restricted Stock - Volume Limits

Answer 4

Rule 144 limits the total sales of stock over any 90-day period to the greater of:

• 1% of total outstanding shares of the same class at the time of sale; or
• the average weekly trading volume in the stock over the past four weeks

Note —> Unregistered restricted stock held by a non-affiliate (a non-insider) can sell freely thereafter

Question 5

Restricted Securties

Answer 5

Restricted securities are those acquired that a regulation D private placement or any means other than a registered public offered.

Question 6

Restricted Stock - Holding Period

Answer 6

If the issuers is subject to the reporting requirements of the exchange act, its restricted securities may not be sold until they have been held fully paid for a minimum of six months; otherwise the hold is one year.

ONLY restricted stock has a holding period. Control stock, unless it is restricted due to it being acquired in a private placement, can be sold immediately (volume limited apply)

Question 7

Private Placement Filing Requirements

Answer 7

FINRA rule 5123 requires each member firm that sells a security in a non-public offering to submit to FINFA a copy of any private placement memorandum, term sheet, or other offering document within 15 calendar days of the date of the first sale.

An affiliate, in any 90 day period, may sell up to 5,000 shares or less or may sell stock value of $50,000 or less without having to file form 144 with the SEC

Question 8

Regulation S

Answer 8

Provides safe hard for US based issuers that sell securities outside of the US.

As long as the provisions of regulation S are met, the securities are exempt from registration with the SEC.

To be exempt, the securities must be sold in an offshore transaction to NON US RESIDENTS

Shares sold in a regulation S offering are generally restricted for resale to U.S. residents for a 12 month seasoning period. If the company is subject to reporting requirements and is current, the holding period is six months. The holding period for debt is 40 days.

Question 9

Sarbanes Oxley requires that within _____ days of becoming an officer or director of a publicly traded issuers, such person must file _____ with the SEC as to his/her ownership of the common stock of the issuer.

Subsequent changes are made using ______ within _____ business days.

Answer 9

Within 10 days of becoming an officer

Form 3 is used to establish initial holdings

Form 4 is used to establish changes in holdings

Form 4 must be within 2 days of a change

Question 10

Insiders & Short Selling

Answer 10

Insiders cannot short the issuer’s stock nor can they take short swing profits

Short swing profits is a profit earned by buy and selling the issuer’s stock in a 6 month period or less. Short swing profits must be returned to the issuers.

Insiders are permitted to short the issuer’s stock against the box provided the position is closed out within 20 days

Writing calls against a long stock position is an acceptable income strategy.

Question 11

Restricted Person Defintion

Answer 11

Restricted persons include

• FINRA members
• Employees of member firms
• Finder and fiduciaries on behalf of the managing underwrite
• Portfolio managers
• Any person owning 10% or more of the member firm
• Immediate family members

Question 12

Prospectus Delivery Requirements

Answer 12

For new issues that quality for listing on an exchange or NASDAQ, the prospectus delivery requirement is 25 days.

If the new issue with trans on the OTCBB or OTC pink market, the period is 90 days

Question 13

All or none underwriting

Answer 13

In an all or non underwriting, either the entire amount of securities being offered are sold or the whole underwriting is cancelled.

Until it is verified that the winter issue has been sold, funds received from customers wishing to purchase the securities are hold in escrow at a QFI

Attorneys, saving and loan associations, and non-carrying B/Ds cannot act as escrow agents in all or none underwritings.

Question 14

Analyst Restrictions - Investing in Companies Covered

Answer 14

FINRA prohibits analysts and members of their households from investing in a company’s securities for 30 days before and 5 days after the analyst issues a research report.

Question 15

FINRA Rule 3110(d) - Investment Banking Activity

Answer 15

Firms must submit a quarterly report to FINRA detailing its investment banking activities

This report must be delivered to FINRA within 10 days of the close of the quarter.

Question 16

WSKI

Answer 16

As of a date within 60 days of its eligibility determination date, the issuer must have had the following:

• $700 million in market value of voting and non-voting equity held by affilliates
• Have issued at least 1 billion of non convertible securities other than common equity in primary offerings for cash.

Question 17

Form 8-K - Use and Tim Limit

Answer 17

Form 8-K is used to report newsworthy events to the SEC.

The reporting time limit is 4 business days

Question 18

QIB

Answer 18

A QIB is generally defined as a pension fund, bank, insurance company, investment company with at least $100 million in assets.

Broker dealers are considered a QIB if they have a securities portfolio valued at $10 million or more.

An individual is not considered an institution despite the size of his/her portfolio

Question 19

Regulation M

Answer 19

Governs the activities of syndicate makers and market makers who have an interest in the outcome of an offering of securities that are offered through IPO or secondary offering.

Question 20

Regulation M - Rule 105

Answer 20

Anyone who has shorted an equity security that is subject to a public offering made on a firm commitment basis cannot buy those securities from a syndicated or selling group member if the short sale was affected during a restricted period beginning either five days before the pricing of the offering or the initial filing of the registration statement.

Fixed income securities are not subject to rule 105

Question 21

No more than _____ % of the shares of a new issue may be attributed to the accounts of restricted partners

Answer 21

10%

Question 22

Concession

Answer 22

The concession is the portion of the spread that a selling group member received for selling securities in the offering

Question 23

Stabilization

Answer 23

Stabilization is a practice designed to support the public offering price of a new issues, and it is conducted by one member of the underwriting syndicate.

If a customer of a selling group member sells into the stabilization bid, the selling group member must refund to the syndicate the concession it had received on this securities.

Question 24

Fairness of Compensation - Corporate Financing Department

In determining the fairness of compensation received, the CFD will presume any item of compensation received was in connection with the offering if received within how many days preceding the filing?

Answer 24

180 days

Question 25

Regulation A

Answer 25

Offers exemption that allows issuers to sell up to %50 million of securities without going through a full blown registration

The $50 million ceiling is measured over a 12-month period

General public solicitation is permitted

Tier to are available to ‘qualified investors’ - accredited or maximum of 10% of net worth or income

Question 26

Accredited Investor

Answer 26

To qualify as an accredited investor under regulation d (private placements), an investor must either be an institutional investor or

• an individual with net worth of at least $1 million (excluding the value of personal residence)
• have an income of at least $200,000 in the last 2 years

Question 27

Anti-trust law waiting period

Answer 27

After filing, a 30-day waiting period begins during which time the FTC will make a determination as to whether the proposed business combination violates anti-trust laws

Question 28

PIPE

Answer 28

In a PIPE, investors purchase securities directly from a publicly traded issuer in a private placement.

The securities are restricted and cannot be immediately resold.

After closing the transaction, the issuer immediately prepares and files a registration statement with the SEC.

Once effective, public resale of the PIPE securities may begin.

Question 29

Safe Harbor - Stock Repurchases

Answer 29

SEC Rule 10b-18 safe harbor is available to issuers involved in a stock repurchase programs provided there are no repurchases in the

First transaction of the day

During the last 30 minutes of trading

For stocks that are actively traded, a safe harbor is available until 10 minutes before close.

Question 30

What happens when a mutual funds exceeds 5% interest in the voting stock of a public issuer of securities

Answer 30

Submit schedule 13-G to the issuer, the exchanges where the security principally trades, and the SEC within 45 days after the end of the calendar year during which the position is held.

Question 31

Rule 147 - Intrastate offerings

Answer 31

Under rule 147 safe harbor, a written statement as to state of residence must be obtained and the securities will be restricted for a 6-month period

The transfer agent must be notified, and the fact that the securities are unregistered must be noted on the certificate.

Rule 147 securities must be held for 6 months before being sold out of state, but they can be immediately sold to another resident.

Question 32

Seasoned Issuer

Answer 32

Under SEC rules, a seasoned issues must have public float value of at least $75 million

Question 33

Mini max offering

Answer 33

An form of underwriting that resembles an all or nothing offering. In mini-max, a floor and ceiling on the number of shares is set by the issuer.

If the the underwriters are unable to sell the floor amount within the prescribed timeframe, the offering is cancelled.

Customer checks are deposited in escrow at a QIB

Question 34

Unaffiliated Investor owning more than 5%

Answer 34

When an unaffiliated investor accumulates more than 5% interest in an issuer a 13-f filing is required.

The submission is made to the issuer, the SEC, and the market where the security primarily trades.

It is not made to the shareholders of the issuer

Question 35

SEC Form S-11

Answer 35

Used for registration under the securities act of 1933 of securities issues by a REIT or securities issued by other issuers whose primary business is acquiring and holding real estate for investment.

Question 36

The Corporate Financing Department considers shares acquired by an underwriter in excess of ____% of the total offering to be unreasonable compensation

Answer 36

10%

Question 37

Under SEC rules, when can the selling group form?

Answer 37

Until after the registration statement is filed with the SEC.

Question 38

Investment Analysis Tools - Filing Requirement

Answer 38

In light of investor protection afforded by content standards, FINRA eliminated the filing requirements for investment analysis tools and instead requires firms to provide FINRA staff with access to investment analysis tools upon request.