Underwriting Securities Flashcards
For an entity to become a corporations, they must file a _________.
Corporate Charter
If a company wants to go public, they must file what two things with the SEC?
Registration Statement
Prospectus
Three methods of state security registration are?
- Notification
- Coordination
- Qualification
These entities help the issuer decide what securities to issue, the selling price, how much to issue, etc.
Investment Bank
These entities purchase the securities from the issuer and sell them to the public.
Underwriter
According to this, an issuer of corporate securities must provide full and fair disclosure about itself and the offering.
Securities Act of 1933
This was enacted to protect investors by regulating over the counter market and exchanges.
Securities Act of 1934
This act prohibits bond issues valued at over $5M from being offered to investors without an indenture.
Trust Indenture Act of 1939
Brokerage firms that are not part of a syndicate but help distribute shares to the public without a financial commitment.
Selling Group
Spread Equation
Public Offering Price-Price paid to the issuer
AND
Syndicate Managers Fee + Takedown
Takedown Equation
Additional Takedown + Concession
The profit that the selling group makes when selling shares or bonds to the public.
Concession
The fee that the underwriting group pays to a securities firm that is not part of the syndicate, but that still sells shares in the offering.
Reallowance
Western (divided) account
Each syndicate member is responsible only for the shares/bonds originally allocated to it.
Eastern (divided) account
Each syndicate member is responsible not only for the shares/bonds originally allocated to it, but also a portion of shares/bonds left unsold by other members.
After the issuer files a registration statement with the SEC, this is a 20 day period during which the SEC reviews the registration statement.
Cooling Off Period
Final Prospectus will include:
- Final Offering Price
- Underwriters Spread
- Delivery Date
Independent entity that maintains a record of stock and bond owners.
Registrar
Maintains a record of stock and bond owners and also mails and cancels stock certificates as necessary.
Transfer Agent
This is the first time an issuer sells stock to the public.
Initial Public Offering
An offering of new securities from an issuer that has previously issued securities. Profits go to issuer.
Primary Offering
A sale of a large block of outstanding securities or treasury stock. Profits do not go to issuer.
Secondary Offering
A combination of a primary and secondary offering, with both new and outstanding securities.
Split or combined offering.
Issuing more stock will cause earnings per share to increase or decrease?
Decrease.
What are the two reasons a security might be exempt from the registration requirements of the Securities Act of 1933?
- The issuer has a high level of creditworthiness
2. Another government agency has jurisdiction over the issuer.
Name the 6 types of securities that are exempt from the registration requirements.
- Issued by US gov’t or federal agencies.
- Municipal Bonds
- Issues by banks and credit unions
- Public Utility stocks or bonds
- Issued by religious, educational, or non-profit organizations.
- Notes, bills of exchange, bankers acceptances, and commercial paper with an initial maturity of 270 days or less.
Name the 4 types of transactions that are exempt from the full registration requirements.
- Intrastate offerings.
- Regulation A offerings
- Regulation D offerings
- Rule 144
Covers the sale of restricted, unregistered, or control securities.
Rule 144
According to Rule 144, sellers of these securities must wait from ______to_____ to sell. Additionally, the most an investor can sell at one time is _______, whichever is greater.
6 months to 1 year.
1 percent of the outstanding shares or the average weekly trading volume for the previous 4 weeks
Intrastate offerings are exempt from registering with the SEC under this rule.
Rule 147
This regulation exempts offering of securities worth $5M or less from being registered with SEC.
Regulation A
This regulation exempts offerings to no more than 35 unaccredited investors per year from registering with SEC.
Regulation D - Private Placements
A process in which both the purchase price and the offering price for a new issue are negotiated between the issuer and a single underwriter
Negotiated Underwriting
A step in the initial public offering process whereby an underwriter submits a sealed bid to a company that is making its first issue of stock.
Competitive bid
The issuing corporation has determined that it wants an agreement outlining that the underwriter must either sell all of the shares or cancel the underwriting.
All or None Underwriting
SEC provision that allows an issuer to register a new issue security without selling the entire issue at once.
Shelf Offering
Issued by SEC and will indicate a significant omission or problem with a registered statement or prospectus.
Deficiency Letter
Practice used by underwriters to even out the secondary market price of a new security after an IPO.
Stabilizing Bid
This will be levied if syndicate members turn in shares on a stabilizing bid after the issue is sold out.
Penalty Bid
Practice in which investors avoid purchasing shares underlying a put option
Pegging.
This rule regulates private placement of unregistered securities to qualified institutional buyers.
Rule 144A
This rule prohibits member firms from selling a new issue to any account where restricted persons are beneficial owners.
Rule 5130
Provision contained in an underwriting agreement that gives the underwriter the right to sell investors more shares than actually planned by the issuer by up to 15%.
Green-shoe option
Corporate entity that falls within the accredited investor category.
Qualified institutional buyer
Term for an ethical barrier between different divisions of a financial institution to avoid conflicts of interest.
Chinese Wall
Issue of additional securities from an established company whose securities already trade on the secondary market.
Seasoned Issue
What is another term for the preliminary prospectus?
Red Herring
If the registration statement needs review or expansion, the SEC may suspend the review and issue a _____________.
Deficiency Letter
This may be issued by the SEC if the requirements of the Securities Act of 1933 have not been met or if fraud is suspected in the underwriting process.
Stop Order
What are the two items that must not be included in the preliminary prospectus?
Offering Price
Effective Date
What are the three things underwriters may not do during the cooling off period?
- Offer to sell the securities
- Take Orders
- Distribute ads
What are the three things that an underwriter may do during the cooling off period?
- Take indications of interest
- Distribute the red herring
- Publish tombstone advertisement
Near the end of the cooling off period, the underwriter must conduct _________.
A formal due diligence meeting.
The Maloney Act of 1938 amended the 1934 act to provide for __________________.
Establishment of self-regulatory bodies.
This act covers new issues sold to the public.
Securities Act of 1933
This act covers the secondary securities market.
Securities Act of 1934
This is a best efforts underwriting with a floor and a ceiling on the $ amount of securities the issuer is willing to sell.
Mini-Max Offering
This is when the underwriter takes on financial risk by actually purchasing the shares and is acting in a principal capacity.
Firm Commitment
In this type of underwriting, the underwriter sells as much as possible but is not liable for unsold shares and is acting in an agency capacity.
Best Efforts
When a company’s current stockholders do not exercise their preemptive rights in an additional offering, the corporation will engage an underwriter to purchase whatever shares remain unsold when the rights expire.
Stand-by Offering
These are owned by directors, officers, or persons with a 10% or greater interest in voting stock.
Control securities
These securities are acquired in some way other than a registered public offering.
Restricted securities
In any 90 day period, an investor may sell the greater of ________ or __________ regarding restricted stock.
1% of total outstanding shares
Average weekly trading volume in the past four weeks
Requires shareholder approval for mergers, acquisitions, and re-organizations. They must also be sent a full disclosure statement.
Rule 145
Rule 145, which protects stockholders of any major restructuring, applies to which three situations?
- Reclassification
- Merger or consolidation
- Transfer of assets
This regulation excludes offers and sales made outside the US from having to register with the SEC.
Regulation S
This rule regulates the sale of control and restricted securities.
Rule 144
Accredited investor
Net worth of $1M or more excluding primary residence, and $200,000 or more in the last two years or $300,000 jointly with a spouse.
Priority or orders for syndicate to fill.
Presale
Group Net
Designated
Member
Takedown
Profit made by syndicate members
Is a prospectus required for Regulation A offerings?
No.
Prospectus delivery requirement for IPO quoted on OTC Pink or OTCBB (non-NASDAQ).
90 days
Prospectus delivery requirement for IPO listed on exchange or quoted on NASDAQ.
25 days
Shelf offering registration lasts ____ years and the securities can be sold up to ___ years
2, 3
Stabilizing price bids may be placed (at or below/at or above) the public offering price.
At or below
Three items in spread allocation.
Managers fee
Syndicate fee
Selling concession
Under Intrastate Offering Rule 147, resident purchasers may resell securities to a nonresident after ____ months from the end of distribution.
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