Unit 7 Flashcards
What is primary market?
is where securities are sold to the investing public in what are known as issuer transactions.
In other words, the issuer of the securities receives the proceeds generated by the sale of the securities.
What does the term primary offer mean?
An issuer (corporation or a government) that is selling a security to raise capital
How does the governments use the capital markets ?
to raise money for infrastructure projects (such as bridges, roads, dam, ports, etc.) as well as funding other programs for the public good
Describe the secondary market
are where securities trade BETWEEN INVESTORS
How can corporations raise capital quickly?
The sale of securities to the public allows for corporations to raise capital relatively quickly to take advantage of changes in the economy. This activity is a key piece of a modern economy, allowing corporations to raise the money needed to build factories, buy equipment, and expand the demand for labor, creating jobs. At the same time, it allows investors to grow their assets alongside the economy as a whole.
Describe the primary offering
is one in which the proceeds raised go to the issuing corporation. Primary offerings are done in the primary (new issues) market.
Public offerings of securities are regulated under the ________________________
Securities Act of 1933
What is the primary purpose of the Securities Act of 1933?
is to require full and fair disclosure in connection with the sale of securities to the public
Describe Securities Act of 1933
The act requires that a new issue, unless specifically exempted from the act, be registered with the SEC before public sale.
What are FOLLOW-ON OFFERINGS?
are POPULAR methods for COMPANIES to RAISE ADDITIONAL EQUITY CAPITAL in the capital markets through a STOCK ISSUE.
Describe an initial public offering
The first time an issuer distributes securities to the public
Who are underwriters of the securities?
In a public offering, securities are offered and sold to the investing public. To facilitate this, companies will use the services of investment bankers and BDs
FOLLOW-ON OFFERINGS are sometimes called:
______________________
additional public offerings (APOs)
In order to SOLICIT the purchase of a mutual fund, a registered representative must provide the investor with
I. the summary prospectus.
II. the Rule 482 prospectus.
III. the statutory prospectus.
IV. the statement of additional information.
A. l and ll
B. I or III
C. II or III
D. II and IV
B. I or III
I. the summary prospectus.
III. the statutory prospectus.
An investor that purchases Big City 3.5% GENERAL OBLIGATION BONDS of 2040 in the PRIMARY MARKET should receive
A. an official statement.
B. a preliminary prospectus.
C. a final prospectus.
D. a statutory circular.
A. an official statement.
Your customer has purchased shares of the Littleton Lumber Company (a non listed stock) in the secondary market.
Littleton Lumbar recently completed an APO.
Your customer will RECEIVE A PROSPECTUS for the APO if the purchase is WITHIN how many days of the APO date?
A. 5 days
B. 25 days
C. 40 days
D. 90 days
C. 40 days
What are IPO rules?
Designed to PROTECT THE INTEGRITY of the public offering process and public investors
Who is a restricted person?
those NOT ALLOWED TO PURCHASE shares at the POP, are defined as follows:
- Member firms
- Employees of member firms
- Finders and fiduciaries acting on behalf of the managing underwriter, including attorneys, accountants, financial consultants, and so on
- Portfolio managers, including any person who has the authority to buy or sell securities for a bank, savings and loan association, insurance company, or investment company
- Any person owning 10% or more of a member firm
All investors must receive a detailed disclosure document known as a _________ before purchase
prospectus
Who is IMMEDIATE FAMILY ?
includes parents, in-laws, spouses, siblings, children, or any other individual to whom the person provides MATERIAL SUPPORT.
If the beneficial interests of restricted persons DO NOT exceed 10% of an account, the account may __________________________
purchase a new equity issue.
In other words, restricted persons will be able to have an interest in an account that purchases new equity issues as long as NO MORE THAN 10% of the account’s beneficial owners are restricted persons.
IPO rules ensure that
■ members make a BONA FIDE public offering of securities at the public offering price (POP);
■ members do NOT withhold securities in a public offering for their OWN benefit or use such securities to REWARD persons who are in a position to direct future business to the member; and
■ industry insiders, such as members and their associated persons, do NOT take advantage of their insider status to gain access to new issues for their OWN BENEFIT at the expense of public customers.
Who is a PERSON IN SECURITY?
refers to a natural person (human being) or a legal entity (such as a corporation or a government).
ANY ENTITY that can legally enter into a contract is a person.
What are municipalities?
governments at the state or lower level, such as counties and cities
Municipal governments issue municipal bonds and other types of debt.
This debt is sometimes called ________
“munis”
Who are issuers?
is a corporation, government, or other entity that is selling a security to raise capital for itself. They are issuing the security.
Corporations may issue both:
____________ and __________
equities
and
debt issues (stocks and bonds)
Larger corporations’ stock (after issued) that trade on a national exchange (listed) or the Nasdaq system are called:
_____________ securities
National Market System
Who is the largest issuer of debt in the United States?
The US Treasury Department
Debt issued by the government is sometimes called
_____
“govies”
Who are underwriters?
are groups of BDs or investment bankers that work with an issuer to bring its securities to the market and sell them to the investing public
What is the role of INVESTMENT BANKERS?
help the issuer to STRUCTURE CAPITAL RAISES and, at times, FORM SYNDICATES with other underwriters to FACILITATE this money-raising process.
What are UNDERWRITING COMMITMENTS?
Different types of underwriting agreements require different levels of commitment from the underwriters.
This results in DIFFERENT levels of RISK for the underwriters and the issuer.
An investment banking firm that enters into a contract with a municipality to provide advice and direction on raising capital for the municipality is A. a syndicate member. B. a muni dealer. C. a municipal advisor. D. a bond dealer.
C
A CORPORATION that seeks to sell ITS OWN stock to raise money for building a new factory is an example of
A. a selling group member.
B. an underwriter.
C. a market maker.
D. an issuer.
D. an issuer.
An underwriter that assists a corporation on the sale of a new issue without taking the security into inventory is underwriting on what type of underwriting? A. Best efforts B. Firm commitment C. Partial commitment D. Full or none
A
What is the OMITTING PROSPECTUS?
is the official name for an ADVERTISEMENT for a MUTUAL FUND.
These will often take the form of a TOMBSTONE advertisement for a NEW fund.
Who are MUNICIPAL ADVISORS?
are a type of INVESTMENT BANKER that ADVISES MUNICIPALITIES on the ISSUING of municipal debt and other types of municipal securities.
Explain the purpose of the OMITTING PROSPECTUS
an omitting prospectus omits MOST of the information an investor would NEED to make an investing decision.
Omitting prospectuses are NOT sufficient for soliciting a sale.
What is the PRIMARY DISCLOSURE DOCUMENT for a MUNICIPAL security?
is the OFFICIAL STATEMENT.
It contains much of the same sort of information you would find in a PROSPECTUS.
What will occur if a shareholder wishes to SEE an investment company’s BALANCE SHEET?
An investment company must send a COPY of its balance sheet to any shareholder who requests one in WRITING between SEMIANNUAL reports.
An investor that buys a new security in the secondary market will be entitled to the final prospectus if the purchase occurs within the what TIMELINES?
■ For IPOs of NMS securities-25 days
■ For APOs of NMS securities—zero days (no requirement)
■ For IPOs of non-NMS securities-90 days
■ For APOs of non-NMS securities-40 days
What is the role of municipal advisors?
Municipal advisors work under a contract with the municipality to provide advice on issues such as debt structure, bond features, and other issues involved with raising capital. Municipal advisors may assist in some of the underwriting functions, such as preparing the official notice, but they may not be compensated as part of the underwriting (sale) of any issue they provide advice on.
What is the prospectus DELIVERY REQUIREMENTS after issuance?
any offering of a corporate security in a primary market transaction requires the DELIVERY OF A PROSPECTUS to the investors that purchase the security.
In addition to those investors that buy shares at the IPO (or APO), investors that purchase these shares in the SECONDARY market are also entitled to the FINAL prospectus if the purchase is made within a CERTAIN NUMBER of days of the release
Describe BEST EFFORTS UNDERWRITING
calls for the underwriters (syndicate) to BUY securities from the issuer acting simply as an AGENT, not as the PRINCIPAL.
This means that the underwriters ARE NOT committed to purchase the shares THEMSELVES and are therefore NOT at risk.
What are the TWO types of BEST EFFORTS UNDERWRITING?
■ All-or-none (AON)
■ Mini-max
Describe All-or-none (AON)
the ISSUING CORPORATION has determined that it WANTS AN AGREEMENT outlining that the UNDERWRITER must either SELL all the shares or CANCEL the underwriting.
Because of the UNCERTAINTY over the outcome of an AON offering, any funds collected from investors during the offering period must be held in ESCROW pending FINAL DISPOSITION of the underwriting.
