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Securities Industries Essentials > Unit 1.1 > Flashcards

Unit 1.1 Flashcards

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1
Q

What are Qualified institutional buyers?

A

A institutional investor that owns and invests a minimum of $100 million in securities on a discretionary basis

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2
Q

What is the next step after filing the registration statement?

A

Cooling-off period

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3
Q

How are Best Efforts deals closed and what risk does this avoid?

A

Best Efforts deals are closed by collecting client funds into an escrow account, so no underwriter capital is at risk

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4
Q

What is the difference between the preliminary prospectus and the final prospectus?

A

Final prospectus contains two additional pieces of information: release date + POP

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5
Q

What is an indication of interest?

A

A non-binding declaration by an investor of potential interest in purchasing some of the issue from the underwriter after the security is released for sale

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6
Q

Are variable annuities exempt from the registration statement and prospectus requirements of the Securities act of 1933?

A

No

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7
Q

What is it called when underwriters contract with the issuers to buy the securities and then sell the securities to the public at a higher price?

A

Firm commitment underwriting

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8
Q

In what time frame will an investor buying a APO non-NMS security in the secondary market be entitled to a final prospectus?

A

40 days

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9
Q

What type of Broker-dealer/investment banker works with an issuer to bring its securities to the market and sell them to the investing public?

A

Underwriter

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10
Q

What is an announcement and description of securities to be offered while in the Cooling-off period that provides minimum information

A

Tombstone Advertisement

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11
Q

What terms are synonymous with private placement stock?

A

Restricted, unregistered, letter stock, legend stock

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12
Q

In what time frame will an investor buying a APO NMS security in the secondary market be entitled to a final prospectus?

A

No requirement (0 days)

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13
Q

What information can be in a Tombstone Advertisement?

A
  1. Name of the Issuer
  2. Type of Security to be offered
  3. Number of Shares to be sold
  4. POP
  5. Names of Underwriting members (when placed by the underwriters instead of the issuer)
  6. Advisory statement
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14
Q

What are NMS securities?

A

Stocks that are listed on an exchange or the NASDAQ

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15
Q

When is the effective/release date reached?

A

Sometime on or after 20 days of cooling off (cooling period)

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16
Q

When can securities under 147 be resold to non-state residents?

A

6 months after the initial purchase

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17
Q

Are the securities issued by a company that owns a national/state bank exempt?

A

No

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18
Q

What entities are excluded from Regulation of the JOBS act?

A

Investment companies (private equity funds, venture capital funds, and hedge funds)

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19
Q

How does the cooling-off period end?

A

Delivery of a final prospectus

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20
Q

What are stocks that are listed on an exchange or the NASDAQ

A

NMS securities

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21
Q

Under Rule 506(b) of Regulation D how can an entity be exempt of registration?

A

If it is a private/nonpublic offering and there are no more than 35 non-accredited investors

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22
Q

The securities act of 1933 is also known as what?

A

Paper Act

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23
Q

What is the date that securities can be sold called?

A

The effective date

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24
Q

What are the two types of “best efforts underwriting?”

A

All-or-none, mini-max

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25
Q

What must all companies raising capital in a nonpublic offering that qualify under the Regulation D exemption file and how?

A

Form D, online

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26
Q

What is Blue-sky/Blue-sky filings?

A

The process of coordinating the federal and state registrations to sell a security

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27
Q

In what tier of regulation A of the JOBS act can Securities be offered up to $20M in a 12 Month period, of the $20M no more than $6M can be sold on behalf of existing selling shareholders

A

Tier 2

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28
Q

What type of underwriting sets a minimum amount of securities that the issuer needs to raise, and a maximum amount of securities that they are willing to sell?

A

mini-max underwriting

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29
Q

What are requirements for a company to be exempt from registration under Rule 147/ the intrastate offering rule

A
  1. Offerings take place entirely in one state
  2. Issuer has its principal office in said state
  3. All purchasers are residents of said state
  4. Company receives at least 80% of its income in the state OR
  5. At least 80% of the issuer’s assets are located within the state OR
  6. At least 80% of the offering proceeds are used within the sate OR
  7. The majority of the company’s emplohyees work in the state
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30
Q

What is best efforts underwriting?

A

Investment Banker acting as Agent, underwriters sell securities to the investor acting simply as an agent

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31
Q

What is it called when the issuer of a security receives the funds from an offering?

A

Primary market transaction

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32
Q

When securities are offered via a self registration, what must be filed with the SEC before each sale

A

Supplemental prospectus

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33
Q

What is a preliminary prospectus/red herring?

A

A document that must be made available to any customer who expresses interest in the securities that includes most of the company’s important details but excludes particular specifics such as the IPO price and the number of shares offered for sale

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34
Q

What is a retail investor?

A

An investor who is investing their own assets, also any investor that does not qualify as an institution

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35
Q

In what time frame will an investor buying a IPO NMS security in the secondary market be entitled to a final prospectus?

A

25 days

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36
Q

What is the function of the Primary market?

A

Where securities are sold by the issuer to the investing public in issuer transactions

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37
Q

What is an entity that pools money to purchase securities and other investment assets?

A

Institutional investor

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38
Q

What is the purpose of the securities act of 1933?

A

To ensure the investing public is fully informed about a security and its issuing company when the security is first sold in the primary market

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39
Q

What is period of time after filing a registration statement (S-1) where the submission is under review by the SEC?

A

Cooling-off period

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40
Q

What is an IPO in which a corporation allows some of the existing shareholders to sell their shares along with the newly issued shares?

A

Split/combination offering

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41
Q

What is called when a corporation wants an agreement where the underwriter must either sell all the shares or cancel the underwriting?

A

All-or-none, (AON)

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42
Q

Are investors that purchase shares in the secondary market entitled to its final prospectus?

A

Yes, if they purchase it within the specified timeframe

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43
Q

What is the purpose of the Primary market for governments?

A

To raise money for projects and programs

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44
Q

Are securities that have maturities of 270 days or less exempt from the registration statement and prospectus requirements of the Securities act of 1933?

A

Yes

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45
Q

What qualifications must a retail investor meet to be an accredited investor?

A

Either
1. Insiders of the security’s issuer (officers, board members, major stockholders)
2. Have an income of at least $200K or more the past two years and are expected to meet same criteria in the current year (if the purchase is in a joint account it is $300K), OR, have a net worth of $1M or more (not including equity in the primary residence)
3. Qualified based on certain professional certifications, designations, or credentials issued by an accredited educational institution,
4. Holders of Series 7, 65, and 82 licenses

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46
Q

Is Commercial paper exempt from the registration statement and prospectus requirements of the Securities act of 1933?

A

Yes

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47
Q

What requirements are there to be a Tier 2 Investor?

A

Be an accredited investor as defined in 501 of regulation D, OR Limit the investment to a maximum of the greater of 10% if the investor’s net worth or 10% of the investor’s net income per offering

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48
Q

What are municipal advisors?

A

A type of investment banker that advises municipalities on the issuing of municipal debt and other types of municipal securities

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49
Q

Under what rule can businesses solicit or advertise exempt securities offerings (private placements)?

A

Rule 506(c) Regulation D

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50
Q

In what tier of regulation A of the JOBS act can securities be offered up to $75M in a 12 Month period, of the $75M no more than $22.5M can be sold on behalf of existing selling shareholders

A

Tier 2

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51
Q

What is the purpose of the Primary market for corporations?

A

To raise capital quickly to expand

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52
Q

What is the primary disclosure document for municipal securities?

A

Official Statement

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53
Q

What happens to the funds in an AON (All-or-none) underwriting?

A

Funds collected from investors during the offering period must be held in escrow pending final disposition of the underwriting due to the uncertainty of the outcome of an AON offering

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54
Q

What are some examples of institutional investors?

A

Banks, insurance companies, employee benefit plans like pensions, hedge funds, investment advisers, and mutual funds

55
Q

What are the three steps the Securities act of 1933 requires before a new issue is brought to market?

A
  1. Distribution of a registration statement
  2. Cooling-off period
  3. Filing of Final prospectus
56
Q

What is a joint venture where Broker-Dealers share both the risk and the profits from offerings in large firm commitment underwritings?

A

Syndicate

57
Q

What is the name for the first time an issuer distributes securities to the public?

A

IPO, initial public offering

58
Q

Who are investment bankers that advise municipalities on the issuing of municipal debt and other types of municipal securities?

A

Municipal advisors

59
Q

How long is a Shelf offering registration good for?

A

2 years, 3 if the issuer is a WKSI

60
Q

What is the other name for Preliminary prospectus?

A

Red herring

61
Q

What is the official name of the Paper Act

A

Securities act of 1933

62
Q

What must a registration statement (S-1) contain?

A
  1. A description of the Issuer’s business
  2. Names, addresses, salaries, and five-year business history of company officers and directors
  3. Amount of corporate securities company officers and directors own and identification of investors who own 10% or more of the company
  4. Company’s capitalization, including its equity and debt
  5. Description of how the proceeds will be used
  6. Whether the company is involved in any legal proceedings
63
Q

What is a institutional investor that owns and invests a minimum of $100 million in securities on a discretionary basis?

A

Qualified institutional buyer (QIB)

64
Q

What is an institutional investor?

A

An entity that pools money to purchase securities and other investment assets

65
Q

What is an APO/Follow-On Offering?

A

Additional Public/Primary offering/subsequent public offering, any time an issuer distributes securities to the public after the IPO

66
Q

In what type of underwriting is the Investment banker acting as principal?

A

Firm commitment underwriting

67
Q

What is the limit of accredited investors that may invest in a private placement?

A

None

68
Q

What are the other names for Private Placement stock and why?

A

Lettered stock, because a private placement investor sign a letter stating they intend to hold the stock for investment purposes only

Legend stock, as the stock certificate may bear a legend indicating it cannot be transferred without registration or exemption

69
Q

What is it called when a publicly traded company registers new securities without selling any or of the shares until later?

A

Shelf offering [registration]

70
Q

What is a split/combination offering?

A

An IPO in which a corporation allows some of the existing shareholders to sell their shares along with the newly issued shares.

71
Q

What is the Cooling-off period?

A

The period of time after filing a registration statement (S-1) where the submission is under review by the SEC

72
Q

What is a primary market transaction?

A

When the issuer of the security is receiving the funds from an offering

73
Q

Under what rule can an an entity be exempt of registration if it is a private/nonpublic offering and there are no more than 35 non-accredited investors?

A

Rule 506(b) of Regulation D

74
Q

What is the name(s) of the disclosure document for non-private placement exempt securities?

A

Offering circular, notice of sale

75
Q

Is variable universal life insurance exempt from the registration statement and prospectus requirements of the Securities act of 1933?

A

No

76
Q

What is a shelf offering registration?

A

A registration option for issuers who are already a publicly traded company to register new securities without selling any or of the shares until later. They can sell some of the shares initially and wait to sell the remaining shares later. Once filed, registration is good for two years

77
Q

What are the exempt transactions under tier 1 of Regulation A of the JOBS act?

A

Securities offerings up to $20M in a 12 Month period, of the $20M no more than $6M can be sold on behalf of existing selling shareholders

78
Q

Are separate account products exempt from the registration statement and prospectus requirements of the Securities act of 1933?

A

No

79
Q

Under what rule can a company be exempt from registration if their principal office and all purchasers are in the state of registration and residents of said state respectively?

A

Rule 147: Intrastate offering rule

80
Q

What is a mini-max underwriting ?

A

A best efforts underwriting that sets a minimum amount of securities that the issuer needs to raise, and a maximum amount of securities that they are willing to sell

81
Q

What is the difference between a shelf offering registration filed by a WKSI vs a Regular issuer

A

Shelf offering registration good for 2 years for regular issuers, 3 for WKSI’s

82
Q

What are non-NMS securities?

A

Stocks that are not listed on an exchange or the NASDAQ

83
Q

What is the Official Statement?

A

Primary disclosure document for municipal securities?

84
Q

What are non-exempt securities?

A

Securities that are required to be registered in order to be sold to the public

85
Q

In what instances is Form D filed?

A

Must be filed by all companies raising capital in a nonpublic offering that qualify under the Regulation D exemption?

86
Q

Broadly, what are accredited investors?

A

A subset of investors made up of all institutional investors and certain retail investors

87
Q

What is an Underwriter?

A

A type of Broker-dealer/investment banker that work with an issuer to bring its securities to the market and sell them to the investing public

88
Q

What is an IPO?

A

Initial public offering, the first time an issuer distributes securities to the public

89
Q

what is the subset of investors made up of all institutional investors and certain retail investors?

A

Accredited investors

90
Q

What issuers are exempt from the registration and prospectus requirements of the Securities act of 1933?

A
  1. U.S Government
  2. Municipalities
  3. National, State banks (but not bank holding companies)
  4. Building and loans, saving and loans (S&Ls)
    5.Charitable, religious, educational, and nonprofit associations
  5. Common Carriers
91
Q

What is a non-binding declaration by an investor of potential interest in purchasing some of the issue from an underwriter after a security is released for sale?

A

Indication of interest

92
Q

What has the following characteristics? Is a primary offering, and comes after the IPO

A

APO, additional public/primary offering

93
Q

What are underwriters not committed to in Best Efforts Underwriting

A

In Best Efforts Underwriting underwriters are not committed to purchasing the shares themselves and therefore are not at risk

94
Q

Are bankers’ acceptances exempt from the registration statement and prospectus requirements of the Securities act of 1933?

A

Yes

95
Q

What legislation is responsible for ensuring the investing public is fully informed about a security and its issuing company when the security is first sold in the primary market

A

Securities act of 1933?

96
Q

What is the Offering circular?

A

Disclosure document for non-private placement exempt securities

97
Q

What is Lettered stock?

A

Private Placement stock

98
Q

What are stocks that are not listed on an exchange or the NASDAQ

A

non-NMS securities

99
Q

Can securities be sold during the cooling-off period?

A

No

100
Q

Under Rule 506(c) Regulation D what requirements must a company meet to advertise securities offerings (private placements)?

A
  1. Are being offered under the Regulation D registration Exemption
  2. All purchasers of the advertised securities must be accredited investors or the business must reasonably believe they are at the time of sale
  3. The business must take reasonable steps to verify all purchasers are accredited
101
Q

What is a document that must be made available to any customer who expresses interest in the securities that includes most of the company’s important details but excludes particular specifics such as the IPO price and the number of shares offered for sale?

A

Preliminary prospectus/red herring

102
Q

Who can issue securities?

A

Corporations, municipalities, and the federal government and its agencies

103
Q

What issues (securities) are exempt from the registration statement and prospectus requirements of the Securities act of 1933?

A

Commercial paper, bankers’ acceptances, securities that have maturities of 270 days or less, insurance policies, fixed annuity contracts

104
Q

What is it called when underwriters sell securities to the investor acting simply as an agent?

A

Best Efforts underwriting

105
Q

What is an investor who invests their own assets, and does not qualify as an institution?

A

Retail investor

106
Q

What is the effective date?

A

The day after registration becomes effective. The day securities can be sold

107
Q

What information is in the final prospectus?

A
  1. Description of offering, 2. Offering price, 3. Selling discounts, 4. effective date, 5. use of the proceeds, 6. description of the underwriting (but not actual contract), 7. history of the business, 8. risks to the purchasers, 9. description of management, 10. material financial information, 11. legal opinion concerning formation of the corporation, SEC disclaimer
108
Q

Who can issue municipal bonds and other types of debt?

A

Municipal governments (cities, counties, states)

109
Q

What is a Tombstone Advertisement

A

An announcement and description of the securities to be offered while in the Cooling-off period that provide minimum information.

110
Q

What is a syndicate?

A

A joint venture where Broker-Dealers share both the risk and the profits from offerings in large firm commitment underwritings

111
Q

In what time frame will an investor buying a IPO non-NMS security in the secondary market be entitled to a final prospectus?

A

90 days

112
Q

Restricted, unregistered, letter stock, and legend stock are all terms synonymous with ____?

A

Private placement stock

113
Q

Who benefits from Regulation A of the JOBS act and how?

A

Small-Medium sized companies, the rule eases requirements to raise capital

114
Q

What are securities that are required to be registered in order to be sold to the public?

A

non-exempt securities

115
Q

What is Firm Commitment underwriting?

A

Invest Banker acting as Principal, A type of underwriting contract where the underwriters contract with the issuers to buy the securities and then sell the securities to the public at a higher price

116
Q

What is the name of the registration statement issuers must file with the SEC to sell securities?

A

S-1

117
Q

How does the Securities act of 1933 protect investors who buy new issues?

A
  1. Requires registration of new issues
  2. Requires a issuer to provide full and fair disclosure about itself and the offering
  3. Requires an issuer to make available all material information necessary for an investor to judge the issue’s merit
  4. Regulates the underwriting and distribution of primary issues
  5. Provides criminal penalties for fraud in the issuance of new securities
118
Q

What is a WKSI

A

Well-known seasoned issuer

119
Q

Besides placing a tombstone advertisement, what else can an issuer do during the cooling off period?

A
  1. Deliver a preliminary prospectus,
  2. Gather Indications of Interest
  3. Due diligence
  4. Address State Registration Requirements
    5.
120
Q

What is AON underwriting?

A

All-or-none, When a corporation wants an agreement where the underwriter must either sell all the shares or cancel the underwriting.

121
Q

How long is the cooling-off period

A

Minimum of 20 days or more

122
Q

Are fixed annuity contracts exempt from the registration statement and prospectus requirements of the Securities act of 1933?

A

Yes

123
Q

What are the exempt transactions under tier 2 of Regulation A of the JOBS act?

A

Securities offerings up to $75M in a 12 Month period, of the $75M no more than $22.5M can be sold on behalf of existing selling shareholders

124
Q

Where are securities are sold by the issuer to the investing public in issuer transactions?

A

Primary Market

125
Q

What is the S-1?

A

Registration statement issuers must file with the SEC to sell securities

126
Q

What is the process of coordinating the federal and state registrations to sell a security called?

A

Blue-Sky/ Blue-sky filings

127
Q

What is legend stock?

A

Private Placement stock

128
Q

Why might the SEC suspend the review/cooling off period?

A

If they determine the registration statement needs revision or expansion

129
Q

Are insurance policies exempt from the registration statement and prospectus requirements of the Securities act of 1933?

A

Yes

130
Q

Can securities under 147 be resold to non-state residents?

A

Yes but only after six months after the initial purchase

131
Q

What are the three types of investors

A

retail, institutional, accredited

132
Q

What are the two defining characteristics of an APO?

A

Is a primary offering, and comes after the IPO

133
Q

What is the notice of sale?

A

Disclosure document for non-private placement exempt securities

Securities Industries Essentials (2 decks)

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