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Series 7 > Unit 20: New Issues > Flashcards

Unit 20: New Issues Flashcards

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Series 7 Top-off Exam flashcards
1
Q

What is the cooling off period?

A

When a company submits a registration statement, the SEC has 20 days to review for sufficiency (not accuracy) of information

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2
Q

What is a feasibility study?

A

When underwriters review a municipal project and focus on projected revenue and costs associated

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3
Q

As part of a due diligence session, what do bankers review?

A
  1. Examine use of proceeds
  2. Perform financial analysis and feasibility studies
  3. Determine company’s stability
  4. Determine if risk is reasonable
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4
Q

What does a bank advise on?

A
  1. Best ways to do long-term capital
  2. Raising capital for issuers in new securities
  3. Buying securities from issuers and reselling them to the public
  4. Distributing large blocks of stock to the public and to institutions
  5. Helping issuers comply with securities laws
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5
Q

What does a syndicate or underwriting manager do?

A

Directs the entire underwriting process

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6
Q

All underwriters of offers must be members of?

A 
IB = FINRA
Municipal = MSRB
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7
Q

What does a syndicate letter or agreement do?

A

Establishes participant responsibilities and allocation of syndicate profits

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8
Q

What happens in a negotiated underwriting?

A

Issuer and investment bank negotiate the offering terms, amount of securities, offer price or yield, and fees

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9
Q

What is a competitive bid underwriting? How is it awarded?

A

When GO bonds are offered, they invite investment banks to bid for a new issue of bonds

Issuer awards the securities that provide the lowest net interest cost

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10
Q

What is net interest cost? What is true interest cost?

A

Combines the proceeds received with the coupon paid

Adjusted for time value of money

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11
Q

What is the selling group? What is a selling group agreement?

A

Act as agents to sell the securities (no commitment to purchase any securities)

Selling group agreement

  1. Manager acts for all underwriters
  2. amount of securities each member sells and the public offering price (firmed right before offering)
  3. Portion of undewriting spread (concession)
  4. How and when payment are going to be made to managing underwriter
  5. Legal provisions
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12
Q

What is a firm commitment?

A

IBs commit to buy all of the issuers from the issuer and sell to the public

Underwriters assume the financial risk of incurring losses in the event they are unable to distribute all of the shares

Firm commitments can go both negotiated or competitive

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13
Q

What is a standby commitment?

A

Its a form of firm commitment where you hire agents to sell any leftover shares

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14
Q

What is a best efforts arrangement?

A

Underwriter acts as an agent and the undewriter tries to sell as much as they can

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15
Q

What is an all or none undewriting?

A

Where the underwriters have to sell all or none

They cannot deceive and tell other buyers that all have been sold

Funds are held in escrow until it is finalized

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16
Q

What is a mini-max offering?

A

Form of best efforts undewriting that sets the floor or minimum (least amount the issuer needs to raise to move forward) and a ceiling on the max dollar amount of securities the issuer is willing to sell

found in limited partnerships

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17
Q

What does a firm consider when they make their decision to join a syndicate?

A
  1. Potential demand
  2. Existence of presale orders
  3. Determination and extent of liability
  4. Scale and spread
  5. Ability to sell the issue
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18
Q

What is a syndicate letter or syndicate agreement used for?

A

Competitive bids

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19
Q

What is a syndicate contract or agreement among underwriters used for?

A

Negotiated bids

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20
Q

What does the syndicate letter or contract say?

A
  1. Level of participation
  2. Priority of order allocation
  3. Duration of the syndicate account
  4. Appointment of the manager as agents for the account
  5. Fee
  6. Other obligations
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21
Q

What is a Western Account vs Eastern Account?

A

Western is a divided account and the undewriter is responsible for its portion
Eastern is an undivided account, each undewriter is allocated a portion

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22
Q

What is writing the scale?

A

If coupon rate set, yield is then assigned

If rate not set, coupon assigned

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23
Q

What is the good faith deposit? What is it typically?

A

Sits in an account so a syndicate carries out its commitment

1-2% of the total par value of the offering

24
Q

What is the syndicate account? What does the syndicate manager do? When is settlement of syndicate?

A

Syndicate account is created when the issue is awarded

Syndicate manager is responsible for keeping the books and managing the account

30 calendar days after issuer delivers securities

25
Q

What is production?

A

The amount of proceeds earned from a municipal issue

26
Q

What is the syndicate management fee?

A

In 8ths… 1/8th from the total spread

27
Q

What is the total takedown?

A

The portion of spread that remains after subtracting the management fee

28
Q

What is the selling concession?

A

Amount attributable to the selling group

29
Q

Total Spread =

A

Management fee + Additional Takedown + Concession

30
Q

What is re-allowance?

A

When syndicates go to The Bond Buyer and ask if people want to sell (less commission)

31
Q

What is priority allocation provisions?

A

MSRB requires syndicate managers to submit to the rest of the syndicate in writing the sequence in which orders will be accepted (cannot be left to discretion)

Syndicate members must signify their acceptance

32
Q

What is an order period?

A

Period after the issue has been awarded where the syndicate solicits customers for orders (1 hr, day following)

33
Q

What is the normal priority of issuances?

A

Presale - Entered before syndicate wins bid
Group - Entered after the bid is awarded
Designated - allocate to certain members
Member - specifc members

34
Q

Within how many business days must the syndicate manager tell everyone how they were allocated?

A

Two

35
Q

What was the Securities Act of 1933 set to do?

A

Establish registration statements with SEC to provide complete and accurate information (PAPER ACT)

36
Q

What are exempt bodies from registration? What securities?

A 
US Government
US Municipalities
Religion or non profit
Banks and savings and loans
Public utilities

Commercial paper and bankers’ acceptances (less than 270 maturity)
Securities acquired in private placements (Reg D)

37
Q

What are blue sky laws? What are the methods?

A

State securities laws

  1. Qualification - registration just with state, no federal. its intrastate
  2. Coordination - File with state and SEC (effective the same date)
  3. Notice filing - Securities listed on a major stock exchange or NASDAQ (there might be a filing fee)
38
Q

What is a split offering?

A

Where primary and secondary shares are issued together

39
Q

What is the typical registration process?

A

Issuer files a registration statement, SEC has 20 days to review for sufficiency of information, and then issuer can start selling as of the effective date (final prospectus needed)

40
Q

What is a red herring? What does it not include?

A

Red herring is a preliminary prospectus that can be used during the cooling off period

Must declare that a registration statement has been filed

Offering price and spread are not included

41
Q

When must price or yield be determined?

A

By the effective date of the registration

42
Q

What must the prospectus include?

A

Clearly printed SEC disclaimer

43
Q

What is a summary prospectus? If they request a statutory prospectus, how long must they receive it?

A

Open End investment companies can provide a summary prospectus (may include an application investors can use to buy fund shares)

Investors can request the statutory prospectus (full)

3 business days

44
Q

What is an SAI?

A

Statement of additional information to provide helpful information to an investor

Must be received within 3 days

Open end, close end, and ETFs

45
Q

What is the trust indenture act?

A

Issuesize of more than 50mm within 12 months

Mautiryt

46
Q

What is the trust indenture act of 1939?

A

Applies to corporat bonds with following characteristics:
50mm+
Maturity of 9 months+
Offered interstate

47
Q

What is an official statement? What is a preliminary official statement?

A

Include purposes of the issue, how the securities will be repaid, financial and economic characteristics of the issuer

It is basically the prospectus for a municipal bond

Similar to a red herring, municipal bonds haave prelim official statements

48
Q

What is an official notice of sale?

A

Submitted in The Bond Buyer where corporations / municipals reach out to get underwriters to bid

49
Q

What is Regulation A+? What do they issue? When must they receive it?

A

Enables small and medium-sized corporations to raise capital

Tier 1:

50
Q

What is Regulation D? What is SEC Rule 506? Who can they sell to?

A

Related to private placements

Also exempt from state registration

Rule 506 = private placement where there is no dollar limit on amount sold

Unlimited accredited investors and up to 35 nonaccredited

Unless they can verify everyone as accredited?

51
Q

What is a private placement stock or lettered stock or legend stock?

A

Private placement investor must sign a letter stating that she intends to hold the stock for investment purposes only

52
Q

What is rule 147: intrastate offerings?

A 
80% of income
80% of assets
80% of offering proceeds
or majority of employees are in state
or purchasers are residents of the state

Can not sell to out of state until 6 months post

53
Q

What is regulation S?

A

When you sell securities to a foreign investor

There must be a 6 month - 1 year holding period to avoid flow back in the US

54
Q

What qualifies a foreign issuer?

A

50% of voting securities and 20% of debt are outside of the US

55
Q

What is Rule 415? Shelf Registration

A

Shelf registration is good for 2 years, could be extended to 3 years

56
Q

After how long must you be provided a prospectus? non-listed IPO, non-listed followon, IPO on exchange, exchange listed followon

A
  1. Non list IPO: 90 days
  2. Nonlisted follow-on: 40 days
  3. IPO: 25 days
  4. Public followon: no requirement

The more public the information, the shorter the time frame

57
Q

What is the New Issue Rule?

A

Cannot sell IPOs to restricted persons

Series 7 (9 decks)

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