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Paul Series 24 > U5 - Key Points > Flashcards

U5 - Key Points Flashcards

Master Securities Act of 1933 - New issues.

1
Q

What is the Corporate Financing Department (CFD)?

A

Reviews the fairness of compensation to be received by underwriters (from issuers). Subject to review are equity and convertible debt issues.

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2
Q

What is Regulation M?

A

Focused on additional issue offerings. Looks to prevent manipulation by those who have an interest in the outcome of an offering.

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3
Q

What is the restricted period for a market maker of an ACTIVELY traded security (Tier 1)?

A

For securities (known as Tier 1) with an average daily trading volume (ADTV) of at least $1 million in public float value of $150 million or more there are NO RESTRICTIONS placed on market makers or syndicate members prior to the effective date - Reg M Rule 101.

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4
Q

For Tier 2 securities (ADTV of at least $100,000 at a public float value of $25 million or more) are subject to restricted period of how long?

A

1 day. The business day before the effective date.

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5
Q

For Tier 3 securities (not meeting the guidelines for either Tier 1 or Tier 2) how long is restricted period placed on market makers or syndicate members prior to the effective date?

A

5 business days before the effective date.

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6
Q

The CFD will review any items of compensation received by the underwriters for a period immediately preceding the filing of a registration statement for how long of a period?

A

They will assume that any compensation received for a period of 180 days PRECEDING the filing is in connection with the offering..

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7
Q

To determine fairness, FINRA expects the managing underwriter to file information regarding compensation to them when?

A

Within 1 business day of filing a registration statement with the SEC.

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8
Q

If a market maker, who is also a syndicate member, also functions as a passive market maker when must it notify NASDAQ?

A

1 BUSINESS DAY IN ADVANCE of the restricted period.

Note: quotes from a passive market maker carry the PSMM modifier.

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9
Q

Where may a passive market maker set their bid?

A

No higher than the HIGHEST INDEPENDENT bid. Equal to the bid made by a market maker not involved in the underwriting.

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10
Q

What are syndicate members who are NOT market makers allowed to do?

A

They may ONLY execute UNSOLICITED orders. They are PROHIBITED from purchasing, making a bid for or inducing the purchase of the security during the restricted period.

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11
Q

What are the options for market makers who ARE ALSO syndicate members?

A

They can seek an excused withdrawl for the restricted.-Or elect to function as a passive market maker (Rule 103).

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12
Q

What are 3 testable points relative to rule 103 of Regulation M?

A

1) Passive market-making activity can occur ONLY if an independent market exists,2) passive market-making can occur ONLY in firm commitment underwritings, 3) passive market makers ARE subject to the limit order display rule

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13
Q

What is the SEC “limit order display rule”?

A

It requires a market maker immediately publish and display in its quotation price and full size of each customer order if: is priced better than its current quote or as to the size associated to the quote.

Immediately is defined as within 30 seconds of receiving the order.

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14
Q

The Corporate Financing Department considers shares acquired by an underwriter in excess of what amount to be unreasonable compensation?

A

10%

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15
Q

A Regulation D offering involves what?

A

Private placements. Rule 506 where there is NO limit on the amount sold. Rule 504 where there is a $5 million limit on the amount sold.

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16
Q

What are the general requirements of Regulation D-Rule 504?

A

Because it’s so SMALL ($5 Mil.) there is NO limitation on the number of purchases (accredited or nonaccredited) and there is no requirement that purchasers meet suitability or sophistication standards. Bad actors are still prohibited from participating.

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17
Q

What are the general requirements of Regulation D-Rule 506?

A

No limitations on how much they can raise.

Unlimited number of accredited investors

Non-accredited investors limited to 35

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18
Q

An accredited investor is defined as?

A

An institution

Individual annual income of $200,000+ in each of the 2 most recent years with an expectation of it continuing ($300,000 for individual and spouse).

Individual or joint net worth of $1 million+ (exclusive of equity in the primary residence)

Officer or director of the issuer-the company whose shares are being sold privately.

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19
Q

Are small private offerings using a Form D (under $5 million), made only to accredited investors, exempt?

A

Yes. No advertising or solicitation is involved and a Form D needs to be filed.

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20
Q

What is the filing requirement of a Form 8-K?

A

4 business days.

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21
Q

How long is the prospectus delivery requirement period in the aftermarket for an IPO of common stock?

A

25 days.

If the new issue will trade on the OTCBB or OTC Pink Market, the period is 90 days.

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22
Q

How long are state registrations good for?

A

One year from the effective date and must be reviewed annually.

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23
Q

What are the qualifications of a Well Known Seasoned Issuer (WKSI)?

A

Must have at least $700 million in common equity held by non-affiliates. Or during the preceding 3 years they’ve issued at least $1 billion in non-convertible debt securities.

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24
Q

What are the qualifications of a Seasoned Issuer?

A

$75 million in public float value.

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25
Q

What is a Free Writing Prospectus and who can use it?

A

It’s a type of communication, which must be in writing, which represents a solicitation of an offer to buy securities that are subject to a registration statement. Must be filed on the 1st DAY OF USE with the SEC.

Note: a WKSI can use a free writing prospectus whether or not the registration statement is filed.

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26
Q

What are the 3 components of a SPREAD in a corporate offering?

A

The managers fee, the underwriting fee and the concession. The concession, or commission, is typically the largest.

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27
Q

What type of communication are roadshows (live and recorded) considered to be?

A

An in-person or webinar style roadshow are considered to be oral forms of communication. Recorded roadshows are considered to be written communication.

IPO roadshows that are recorded have to be filed with the SEC.

If one version of the electronic roadshow is readily available electronically to potential investors than the issuer can avoid the filing requirement

28
Q

FINRA rules prohibit analysts and members of their households from investing in the company securities for a period of how long?

A

30 days before and 5 days after the analyst issues a research report on the company.

29
Q

Generally, a member firm, acting as a manager or co-manager of a securities offering, may not publish research nor have an analyst make a public appearance for a period of how long?

A

During the 13 day QUIET PERIOD. A minimum of 10 calendar days following the effective date for an IPO or 3 calendar days on a add-on or secondary offering.

30
Q

A research report can make reference to past recommendations under what criteria?

A

It is permitted as long as ALL ecommendations, of the SAME type, me over the prior 12 months are included.

31
Q

Regulation AC requires firms to prepare and maintain records relating to public appearances by research analyst in what way?

A

Within 30 days after each calendar quarter, firms must make a record that includes a statement by the analysts that the views expressed in all public appearances during the quarter reflected their personal view at the time

32
Q

What restrictions has FINRA placed on “booster shot” types of research reports?

A

Firms may not publish a research report make a public appearance for 15 days before and 15 days after the expiration of the lockup period.

33
Q

A senior officer of a member firm must attest to FINRA that the firm is in compliance with the Research Analyst Conflict of Interest Rules by what date each year?

A

April 1

34
Q

What must be disclosed on a research report?

A

Market price at date of report

Market maker and/or control relationship status-if applicable

Whether the member was manager or co-manager within the last year

Whether the member owns 1% or more of the company’s EQUITY securities

Note: number of shares own does not a required disclosure.

35
Q

Regulation AC considers a research report to be an analysis of individual securities prepared for how many people?

A

15 or more.

36
Q

Once an issue or files a shelf registration statement with the SEC how long is it good for?

A

2 years. Also, 3 years for well known seasoned issuers.

37
Q

Rule 5130 prohibits member firms from selling a new issue to any account in which restricted persons are the beneficial owners. What is the definition of a restricted person?

A

Member firms, employees of members, binders and fiduciaries acting on behalf of the underwriter, portfolio managers, any person owning 10% or more of the member firm.

Any immediate family member of any of these is also restricted.

38
Q

For the purpose of restricted persons who are considered immediate family members?

A

Parents, in-laws, spouse, sibling, children-any other individual whom the person provides material support.

Employees of a limited business broker-dealer (not the firm) are exempt and are not considered restricted.(

39
Q

A holding period on Regulation S unregistered securities is necessary to prevent flow back to the US. How long is the holding period for equities and debt securities?

A

6 months for reporting company (10K, 8K, etc.).

Debt securities have a holding period of 40 days. The bonds or notes are then considered “seasoned”.

40
Q

What is the purpose of Rule 144?

A

Regulates the sale of both control and restricted securities

41
Q

Under Rule 144, all UNREGISTERED stock is placed under what type of restriction?

A

All unregistered stock, such as privately placed stock (stock option plans, etc.) is subject to a 6 month hold.

42
Q

Under Rule 144, all stock held by an AFFILIATE (insider) has what type of restriction?

A

A volume restriction. Over 90 day period the greater of: 1% of the total outstanding shares or the average weekly trading volume the stock for the past 4 weeks on all exchanges.

Note: Volume limits for control stock ALWAYS apply.

43
Q

Unless the holder is the estate of a deceased person, the holding period on Rule 144 restricted stock is how long?

A

6 months.

Note: restricted stock held by the state is exempt from both the holding period requirements and the volume limitations of Rule 144

44
Q

Rule 144A is designed to provide a safe harbor for whom?

A

Institutional Buyers (QIB).

Defined as: institutions with the securities portfolio valued at $100 million or more.
Member firms at $10 million or more.

Note: QIB’s cannot be individuals-no matter how wealthy they may be.

45
Q

The OTC Reporting Facility (ORF)is a service provided by FINRA for what purpose?

A

Reporting of trades that are not executed on exchange and for trades in restricted equity securities-Rule 144A. (qualified institutional buyer trades)

46
Q

Are Rule 144 transactions handled under a principal or agency trade?

A

Rule 144 transactions should be AGENCY-only unless the firm is a registered market maker or a block positioner in the stock.

47
Q

Under what circumstances may member firm call back their customers to let them know that shares under Rule 144 are available?

A

For customers who indicated interest within the past 10 business days.

To firms who indicated interest within the past 60 calendar days

48
Q

Under Hart-Scott-Rodino, the waiting period, after filing premerger notification information with the FTC, is how long?

A

30 days.

49
Q

Regulation SK deals with what type of issues?

A

Financial reporting.

50
Q

Sarbanes-Oxley Act of 2002 deals with what type of issues?

A

It established enhanced standards for company boards, management and public accounting firms in the following areas:

Auditor independence

Corporate conflicts of interest

Internal control assessment

Enhance financial disclosure

Cor

51
Q

Under Hart-Scott Rodino, report must be filed with the FTC if the value of the proposed acquisition or merger exceeds how much?

A

As of 2019 this amount is $90 million!

52
Q

A fairness opinion must disclose any material relationships that existed for how long a period of time?

A

The 2 years prior to the firm rendering the opinion with any party involved in the transaction.

53
Q

What must be disclosed in a fairness opinion?

A

Whether the firm has acted as a financial advisor,

Whether the firm will receive compensation contingent on the successful completion of a transaction,

Whether the firm has had during the past 2 years in the material relationship with the party involved in the transaction

Whether any compensation will be received as a result, if any information that form the basis for the opinion was applied to the firm by the party requesting the opinion,

Whether the information was verified,

Whether the opinion was approved or issued by a fairness committee.

54
Q

Under Sarbanes-Oxley, the officer signing the financial statements of a reporting company must certify that they have evaluated their internal controls within what time frame?

A

The previous 90 days.

55
Q

Under what circumstances may a company make personal loans to an officer of that company?

A

None. Sarbanes-Oxley PROHIBITS personal loans made to officers by the company.

56
Q

If an issuer sells unregistered securities under the exemption of Regulation D and the entire issue was sold immediately when would the reports need to be made to the SEC?

A

Within 15 days of the 1st sale.

57
Q

Under what conditions are advertisements for private placements allowed?

A

Only if the advertisement is limited to potential qualified investors-such as accredited investors.

58
Q

What are the characteristics of a PIPE transaction?

A

In a PIPE, investors purchase RESTRICTED securities from a PUBLICLY traded issuer.

After the transaction closes, the issuer immediately prepares a registration statement for the securities. Once the registration is effective, public resale of the PIPE securities may begin.

59
Q

Under Rule 147 (intra state offerings) how long are the securities restricted for resale outside of the state?

A

6 months.

60
Q

The amount of securities that may be offered to qualified purchasers under Regulation A+ cannot exceed how much?

A

$50 million.

Reg A+ facilitates the raising of capital by small and medium-size companies for up to $50 million.

They file a Form 8-A.

61
Q

Rule 145 exempts (from registration) what type of securities?

A

It exempts additional shares from registration resulting from stock splits or stock dividends.

62
Q

Under Rule 147, if a company sells any portion of security offering to a person out of state what is the impact of that infraction?

A

It would cause the company to lose its exempt status under the 1933 Securities Act.

63
Q

Regulation A - Tier 1 securities offering under are limited to what amount?

A

$20 million in a 12 month period including no more than 30% or $6 million from selling shareholders.

64
Q

In order to qualify for exemption under Rule 147, what percentage of an issuer’s gross assets must be physically located or held within its home state?

A

80%.

65
Q

Regulation A - Tier 2 securities offering under are limited to what amount?

A

$50 million in a 12 month period including no more than 30% or $15 million from selling shareholders..

Paul Series 24 (5 decks)

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