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Unit Questions > Unit 7: Issuing Securities > Flashcards

Unit 7: Issuing Securities Flashcards

1
Q

New securities are sold in the_______ market (new issue market regulated by the __________)

A

primary;

Securities Act of 1933

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2
Q

Three Phases of an Underwriting

A

1) Registration of Securities – no sales or prospectus
2) The Cooling Off Period (min. 20 days) – indications of interesting with red herring.
3) Offering Period to begin – firm must use final prospectus

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3
Q

Participants in a Corporate New Issue are the _____ and ______

A

the issuer and the underwriter

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4
Q

_______placement occurs when the issuing company, usually with the assistance of its investment bank, sells securities to private investors as opposed to the general investing public.

A

private

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5
Q

Private placements are generally exempt from the registrations requirements of the __________.

A

Securities Act of 1933

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6
Q

In a _______ bidding, a syndicate is assembled first

A

Competitive

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7
Q

In a ________ underwriting, the syndicate may be formed after the terms are negotiated by issuer and underwriter.

A

negotiated

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8
Q

In a Firm Commitment, the________ is committed to buy securities from the issuer

A

underwriter

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9
Q

In a firm commitment, this clause specifies conditions under which the offer may be cancelled.

A

Market-Out Clause

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10
Q

In this type of underwriting commitment, a firm commitment; underwriter purchases whatever shares remain unsold

A

Standby

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11
Q

In this type of underwriting commitment, the underwriter is not committed; not at risk

A

Best Efforts

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12
Q

In this underwriting commitment, an agreement outlining that the underwriter must either sell all of the shares or cancel the underwriting. Funds from investors are held in escrow pending final disposition

A

All-or-None (AON) underwriting

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13
Q

In this type of underwriting commitment, best efforts underwriting setting a floor minimum and a ceiling on the dollar amount of securities the issuer is willing to sell.

A

Mini-Max Offering

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14
Q

Underwriting Compensation:

_______ proceeds – the price the issuer receives

A

Underwriting

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15
Q

Underwriting Compensation:

_______– the price investors pay

A

Public Offering Price (POP)

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16
Q

Underwriting Compensation:

________ spread is the difference between underwriting compensation and POP

A

Underwriting spread

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17
Q

Underwriting compensation consists of

1) _______ fee
2) _______ fee
3) ________ concession

A

Managers fee,
Underwriting fee,
Selling concession

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18
Q

The ______ fee is the fee for negotiating the deal and managing the underwriting and distribution process

A

manager’s fee

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19
Q

The ______ fee is the fee for assuming the risk of buying securities from the issuer without assurance that the securities can be resold

A

underwriting fee

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20
Q

During the cooling-off period, underwriters may not:
• Make______ to sell the securities
•Take_______
•Distribute ________ or advertising material

A

Makes offers to sell the securities;
Take orders;
Distribute sales literature or advertising material

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21
Q

During the cooling-off period, underwriters may:
•Take _______ of interest
•Distribute_______ prospectus
•Publish _______ advertisements to provide information about the potential availability of the securities.

A

Take indications of interest;
Distribute preliminary prospectus;
Publish tombstone advertisements to provide information about the potential availability of the securites

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22
Q

Underwriters of nonexempt corporate securities are required to be _______ member firms.

A

FINRA

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23
Q

The U.S. ________ firms, like banks, cannot participate as investment bankers in corporate issues.

A

U.S. nonmember firms

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24
Q

Banks may participate in________ underwritings.

A

municipal

25
Q

_________bids must not be made at a price higher than the public offering price (POP).

A

Stabilizing bids

26
Q

Stabilization is not illegal; however, if the stabilization bid is made at a price higher than the public offering price, it is called_______, or fixing, and is strictly prohibited.

A

pegging

27
Q

If public buying interest does not increase, the managing underwriter may have no choice but to abandon the POP, pull the _______ bid, and let the stock find its own price level.

A

stabilizing

28
Q

Syndicate members take on financial liability and act in a_______ capacity.

A

principal

29
Q

_____ _______ members have no financial liability and act as agents because they have no commitment to buy securities from the issuer.

A

Selling group

30
Q

In a _____ _______underwriting, the underwriter takes on the financial risk because the securities are purchased from the issuer. Because of this risk, the underwriter is acting in a principal capacity.

A

firm commitment

31
Q

In a _____ ______underwriting, the underwriter sells as much as possible, without liability for what cannot be sold. The underwriter is acting in an agent capacity with no financial risk.

A

best efforts

For example, if a corporation plans to sell 100,000 shares of common stock but after exerting its best efforts, the underwriter can only sell 80,000 shares, the underwriter has no liability for the remaining 20,000 shares.

32
Q

Type of underwriting commitment:

______ ______ = principal capacity, underwriter has risk

A

Firm Commitment

33
Q

Type of underwriting commitment: ______ ______ = agency capacity, underwriter has no risk

A

Best Efforts

34
Q

Remember that a_______ offering is a firm commitment offering involving unexercised preemptive rights.

A

standby

35
Q

Two items missing from the preliminary prospectus (red herring) are the ______ and the __________.

A

public offering price and the effective date

36
Q

A tombstone advertisement will show the anticipated gross proceeds of the issue.
A _______ prospectus will show both the gross and net proceeds to the issuer.

A

final prospectus

37
Q

If a prospectus delivery requirement period exists in the________ market, a prospectus must be delivered by all dealers, including those that did not participate in the distribution

A

secondary

38
Q

The _________ Act
•regulates new issues of corporate securities sold to the public
•requires securities issuers to provide enough information for investors to make a fully informed buying decision.

A

The Securities Act of 1933

39
Q

The ________ Act
•Addresses secondary trading of securities, personnel involved in secondary trading, and fraudulent trading practices.
•Created the Securities and Exchange Commission (SEC)

A

The Securities Exchange Act of 1934

40
Q

the ______ Act In 1938: the Securities and Exchange Act of 1934 was amended to provide for the establishment of self-regulatory bodies to help police the industry. Each SRO (FINRA, MSRB, CBOE) regulates its own members.

A

Maloney Act

41
Q

Used as a prospecting tool, allowing underwriter and selling group members to gauge investor interest and gather indications of interest.

A

Preliminary Prospectus (red herring)

42
Q

Includes any notice, circular, advertisement, letter or other communication published or transmitted to any person.

A

Advertising and Sales Literature

43
Q

The only advertisement allowed during the cooling-off period. A simple statement of facts regarding the issue.

A

Tombstone Advertisement

44
Q

Includes the final offering price and the underwriting spread

A

Final Prospectus

45
Q

A broker-dealer that specializes in investment banking and the distribution of new issues. Advises the issuer of the best financing mechanism (equity or debt).

A

Underwriter

46
Q

A group of other broker-dealers that assist in the distribution of the new issue.

A

Underwriting syndicate

47
Q

A securities broker-dealer that underwrites new issues

A

Investment Bank

48
Q

Fling a registration statement with the sates in which the company intends to sell securities.

A

Blue sky

49
Q

Is the contract that establishes the relationship between the issuer and the underwriters. It is signed by all the underwriters.

A

Underwriting agreement (UA)

50
Q

The investment banker who negotiates with the issuer. A syndicate may have more than one manager.

A

Underwriting manager

51
Q

Signed by the syndicate members, describing the participant’s responsibilities and allocation of syndicate profits.

A

Syndicate agreement (or syndicate letter)

52
Q

Details each underwriter’s commitment and liability particularly for any shares that remain unsold (Western/divided, Eastern/undivided).

A

Agreement among underwriters

53
Q

Other firm enlisted to help sell. Acts as agents with no commitment to buy securities.

A

Selling Group

54
Q

The Securities Act of 1934 deals with all of the following EXCEPT:
A) filing an updated prospectus.
B) monitoring accounts for insider trading violations.
C) filing of financial statements by broker/dealers.
D) marking sales long or short on an order ticket.

A

A) filing an updated prospectus.

Prospectus filing is a requirement of the Securities Act of 1933.
Reference: 7.1.1.2 in the License Exam Manual

55
Q

Underwriters that reserve the right to stabilize the price of securities distributed to the public under an SEC registration statement may do so: _________________.

A

only if notice is given in the prospectus

Stabilizing transactions are permitted if the SEC is notified in the registration statement and the investing public is notified in the prospectus.
Reference: 7.3.5.3 in the License Exam Manual

56
Q

To which of the following firms could a member grant concessions or other allowances?
I. Another member firm.
II. A suspended member firm.
III. A foreign nonmember broker/dealer ineligible for FINRA membership.
IV. A U.S. nonmember broker/dealer.

A

I. Another member firm.
III. A foreign nonmember broker/dealer ineligible for FINRA membership.

A member can grant discounts and other concessions only to other member firms. A suspended member must be treated like a member of the general public (no discounts or concessions). The only exception is that a member firm can grant concessions to a foreign nonmember firm that is ineligible for FINRA membership.
Reference: 7.5.4 in the License Exam Manual

57
Q

SEC Rule 145 requires a corporation to receive approval of its stockholders for certain events. This rule does NOT require shareholder approval for:
I. new shares issued because of a stock split.
II. the offer of securities in one company for the surrender of securities in another.
III. the exchange of one company’s assets for another company’s securities.
IV. shares issued for a stock dividend.

A

I. new shares issued because of a stock split.
IV. shares issued for a stock dividend.

SEC Rule 145 protects shareholders by requiring their approval for a merger, consolidation, acquisition, reclassification of securities, or the transfer of corporate assets. The rule does not pertain to a stock split or stock dividends.
Reference: 7.6.2.6 in the License Exam Manual

58
Q

Which of the following statements regarding a shelf offering are TRUE?
I. It can be used to distribute an initial public offering only.
II. It can be used to distribute an additional offering only.
III. Its maximum duration is 90 days.
IV. Its maximum duration is 3 years.

A

II. It can be used to distribute an additional offering only.
IV. Its maximum duration is 3 years.

Shelf offerings are used by publicly traded companies to issue additional equity or debt securities. The issuer must sell the securities within 3 years after the registration is declared effective.
Reference: 7.3.3.6 in the License Exam Manual

Unit Questions (18 decks)

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