Unit 7 - Issuing Securities

Question 1

Define the Securities Act of 1933

Answer 1

regulates NEW ISSUES of CORP securities sold to the public.

Question 2

Information regarding new securities under Securities Act of 1933 must be filed with who? (eg. OCC, FINRA, SEC)

Answer 2

SEC and published in a prospectus

Question 3

Define the Securities Act of 1934

Answer 3

Secondary trading of securities. created the SEC to oversee the industry

Question 4

Define the Maloney Act

Answer 4

established the self-regulatory bodies to regulate it’s own members (FINRA, MSRB, CBOE)

Question 5

What are the three phases of underwriting?

Answer 5

1. registration of securities 2. Cooling-off period 3. Effective date - offering period may begin

Question 6

how long is the cooling-off period?

Answer 6

20 days

Question 7

Are Rule 144 stocks liquid or illiquid?

Answer 7

illiquid

Question 8

Can rule 144 stock be sold unrestricted by an affiliate?

Answer 8

no. Therefore, cannot be sold as call options because cannot be redeemed if shares were called

Question 9

A due diligence meeting is held between which parties?

Answer 9

issuer and the underwriter

Question 10

When is the due diligence meeting held?

Answer 10

Before the effective date and is one of the final meetings held before the sale of the security so that each party may review all aspects of the issue.

Question 11

Before the filing of a registration statement for a new issue, an investment representative may NOT do which: sell, solicit, or get indications of interest?

Answer 11

may not do any of those before the registration statement is filed

Question 12

Define Regulation D

Answer 12

Reg D provides a private placement exemption for securities that are sold to no more than 35 nonaccredited investors. There is no limit to the number of shares that can be issued nor the number of accredited investors who may purchase the shares.

Question 13

after what amount of time can corporate insiders sell their stock at a profit?

Answer 13

after being held for a min of 6 months. if held less than 6 months, profits go to the company

Question 14

What type of security is NOT exempt under Sec Act 1933?

Answer 14

commercial bank holding company securities because they have to register with the SEC

Question 15

What does Rule 144A regulate?

Answer 15

the sale of restricted stock to institutional investors (aka QIBs - qualified institutional buyers)

Question 16

Under Rule 144, what is the maximum shares that can be sold?

Answer 16

the greater of 1% of the total shares outstanding or the weekly average of the prior 4 weeks’ trading volume

Question 17

Can member firm sell a new equity issue to one of its nonregistered employees?

Answer 17

No - Member firms and employees of members (registered and nonregistered) are prohibited from buying a new equity issue at the public offering price

Question 18

Describe best efforts offering

Answer 18

the underwriter serves as an agent with no financial obligation for unsold securities

Question 19

describe all-or-none offering

Answer 19

the underwriter agrees to devote its best efforts to sell the issue, but the entire offering is canceled if all shares cannot be sold

Question 20

describe standby offering/underwriting

Answer 20

the underwriter agrees to purchase any unsold shares remaining after the expiration of a rights offering (firm commitment)

Question 21

What is the underwriting spread made up of?

Answer 21

difference between the public offering price and the price an underwriter pays an issuer

Question 22

What is usually the largest and smallest component of the underwriting spread?

Answer 22

concession tends to be the largest component of a corporate underwriting spread; the manager’s fee is generally the smallest component

Question 23

Define Regulation S

Answer 23

A type of exempt transaction allowed by the SEC, permits US issuers to offer securities offshore to non-US residents only, without being registered with the SEC.

Question 24

Name all exempt transactions rules or regulations

Answer 24

Reg A+ (small/med corp offering), Reg D (Private placement), Reg S (offers& sales made outside US by US issuer to non US), Reg 47 (intrastate securities), Reg 144, 144a, 145