Unit 7 Quiz Deck Flashcards
For nonexempt securities being offered to the public for the first time by a corporate issuer, which of the following would be applicable?
A) Securities Act of 1934 regulating securities that must be offered by prospectus
B) Securities Act of 1934 regulating issues that must be offered by prospectus
C) Securities Act of 1933 regulating issues that must be offered by prospectus
D) Securities Act of 1933 regulating securities traded in the secondary market
C) Securities Act of 1933 regulating issues that must be offered by prospectus
Nonexempt securities are those that must be registered with the Securities and Exchange Commission (SEC) under the Securities Act of 1933. The Securities Act of 1933 mandates that offerings of these securities must be made by prospectus.
Rules regarding restricted persons state that each of the following is considered immediate family except
A) parents.
B) an aunt or an uncle.
C) a brother or a sister.
D) a mother-in-law or a father-in-law.
B) an aunt or an uncle.
Rules regarding restricted persons define immediate family as spouses, parents, siblings, in-laws, and children. Aunts and uncles and grandparents are excluded (not considered immediate family).
Capital markets can be characterized by all of the following except
A) they are utilized by the public sector only.
B) securities traded in them can be bought and sold by both individuals and institutions.
C) entities can utilize them to finance both long- and short-term capital needs.
D) they would include stock and bond markets.
B) securities traded in them can be bought and sold by both individuals and institutions.
In capital markets, both public and private sectors sell securities (stocks and bonds) to raise funds to finance both long-and short-term initiatives. Both individuals and institutions can trade securities in these markets.
Private placements are primarily sold to
A) general public investors.
B) individuals who do not meet the definition of accredited investor.
C) investment bankers.
D) institutional investors.
D) institutional investors.
Institutional investors are the overwhelming majority of buyers in private placements, although private placement securities may be sold to small numbers of wealthy individuals who meet certain criteria (accredited investors).
A preliminary prospectus is used to solicit
A) sales after the effective date.
B) sales before the effective date.
C) indications of interest before the registration filing date.
D) indications of interest before the effective date.
D) indications of interest before the effective date.
A preliminary prospectus cannot be distributed before the registration date. Between the registration and effective dates, it is used to solicit or gauge indications of interest. After the effective date, sales can be solicited and a final prospectus would be available and must be used to do so.
Which of the following would most closely match the meaning of a red herring?
A) A preliminary prospectus
B )Prospectus
C) A tombstone advertisement
D) A registration statement
A) A preliminary prospectus
A preliminary prospectus is also known as a red herring. The red herring does not include key information about the issue such as price and the number of shares offered. The term is derived from the disclaimer printed in red on the cover page.
A company is considering raising capital without going through the registration process requirements mandated by the Securities Act of 1933. To be exempt from the act, which of the following offerings might they employ?
A) Shelf offering
B) Additional public offering (APO)
C) Private (nonpublic) securities offering
D) Initial public offering
C) Private (nonpublic) securities offering
Issuers wanting relief (exemption) from the registration provisions of the Securities Act of 1933 can offer securities privately. These securities offerings are often called private placements.
Regarding primary offerings, which of the following is true?
A)After its initial public offering (IPO), a corporation can have only one more primary offering—its subsequent primary offering (SPO).
B)A corporation can have two primary offerings—the initial public offering (IPO) and an additional public offering (APO).
C)There is no limit to the number of primary offerings a corporation can issue.
D)A corporation can have only one primary offering—the initial public offering (IPO).
C) There is no limit to the number of primary offerings a corporation can issue.
While a corporation can have only one IPO, there is no limit to the number of SPOs or APOs it can issue. IPOs, SPOs, and APOs are all primary offerings—those where the offering proceeds go to the issuer.
Which of the following securities is exempt from the Securities Act of 1933?
A) Preferred stock
B) Municipal note
C) Debenture
D) Common stock
B) Municipal note
Municipal debt securities, including short-term notes, are exempt from the Securities Act of 1933.
Primary market transactions would include which of the following?
A)Sale of $10 million of corporate stock by a broker-dealer acting as a market maker
B)Sale of $10 million of corporate bond by a broker-dealer acting as an underwriter
C)Sale of $10 million of municipal bonds by a broker-dealer acting as a market maker
D)Sale of $10 million of U.S. Treasury bonds by a broker-dealer acting as a market maker
B) Sale of $10 million of corporate bond by a broker-dealer acting as an underwriter
Market makers are broker-dealers who sell out of their own account in the secondary market. Underwriters are broker-dealers who help issuers bring their securities to market in the primary market.
The access equals delivery rule applies to
A) the final prospectus and aftermarket delivery obligations.
B) all prospectuses delivered before the registration date.
C) the final prospectus delivery requirements during the cooling-off period.
D) the preliminary prospectus delivery requirements during the cooling-off period.
A) the final prospectus and aftermarket delivery obligations.
The access equals delivery rule applies to the final prospectus and aftermarket prospectus delivery obligations. It does not apply to preliminary prospectuses. No prospectus can be delivered before the registration date.
Which of the following would be applicable to nonexempt securities (those that must be registered) being offered to the public by a corporate issuer?
I. Securities Act of 1933
II. Prospectus
III. Securities Act of 1934
IV. Secondary market
A) II and IV
B) I and II
C) II and III
D) III and IV
B) I and II
Offering nonexempt securities [those that must be registered with the Securities and Exchange Commission (SEC)] such as common stock to the public requires the registration of the securities under the Securities Act of 1933. The offering must be made by prospectus.
State registration is not required if the transaction is exempt. An example of an exempt transaction would be
A) one that is solicited.
B) one that is unsolicited.
C) one involving U.S. government bonds.
D) one involving municipal bonds.
B) one that is unsolicited.
Purchases and sales that are unsolicited (unsolicited transactions) are exempt under the blue-sky (state securities) laws. Municipal bonds and U.S. government bonds are examples of exempt securities, not transactions.
When an issuing company sells securities to primarily institutional investors and a small number of wealthy individuals, as opposed to the general investing public in an exempt offering, this is known as
A) a private placement.
B) a primary placement.
C) a secondary placement.
D) a secondary offering.
A) a private placement.
A private placement occurs when the issuing company sells securities that are exempt from registration to private investors, as opposed to the general investing public. These investors tend to be institutional investors and small groups of wealthy individuals who meet certain net worth and income criteria.
The aftermarket prospectus requirement for the IPO of nonlisted securities is
A) 90 days.
B) 25 days.
C) 40 days.
D) not specified in the Securities Act of 1933.
A) 90 days.
For the first 90 days following the IPO, a prospectus must be provided to purchasers in the secondary market
Regarding the issuance of new securities to the public, which of the following is true?
A) The Securities Act of 1933 provides criminal penalties for fraud.
B) The Securities and Exchange Commission (SEC) review of a new issues filing must always be longer than 20 days.
C) Underwriters are permitted to accept orders for securities during the Securities and Exchange Commission (SEC) review period.
D) Registrations become effective within 10 business days of Securities and Exchange Commission (SEC) filing.
A) The Securities Act of 1933 provides criminal penalties for fraud.
The Securities Act of 1933, which provides for criminal penalties for fraud in the issuance of new securities, ensures that investors are fully informed about a security and its issuer when the security is offered to the public. The SEC review or cooling-off period must last a minimum of 20 days before the SEC releases the securities for sale to the public (effective date). Solicitations and the acceptance of orders may never occur before the effective date.
A person who looks to provide advice to a city government concerning the issuance of municipal debt securities would best be described as
A) a municipal securities representative.
B) a market maker.
C) a municipal advisor.
D) an investment adviser.
C) a municipal advisor.
A municipal advisor is a person that provides advice to or on behalf of a municipal entity with respect to municipal products or the issuance of municipal securities.
For primary and secondary markets, which of the following is true?
A) In the secondary market, securities transactions cannot take place on an exchange.
B) In the primary market, securities are sold to the public and the issuer receives the sale proceeds.
C) In the secondary market, all sales proceeds go to the issuer.
D) In the primary market, securities are purchased from and sold to individual investors.
B) In the primary market, securities are sold to the public and the issuer receives the sale proceeds.
In the primary market, the issuer of the securities receives the proceeds generated by the sale of the securities. In the secondary markets, such as an exchange or over-the-counter (OTC) securities trade between investors, one sells securities to another, and the issuer is not involved in the transaction
Mrs. Jones is an employee of a member firm and as such is a restricted person regarding the purchase of new issues. She belongs to an investment club and has a 1% interest in the club’s brokerage account. The investment club
A) is not a restricted account but will not be allowed to purchase equity shares of an IPO.
B) is a restricted account but will be allowed to purchase equity shares of an IPO.
C) is a restricted account and will not be allowed to purchase equity shares of an IPO.
D) is not a restricted account and will be allowed to purchase equity shares of an initial public offering (IPO).
D) is not a restricted account and will be allowed to purchase equity shares of an initial public offering (IPO).
Because the restricted person’s interest in the club’s brokerage account does not exceed 10%, the investment club account is not considered a restricted account. If not restricted, the club can purchase shares of an equity issue at the public offering price if it chooses to.
An offering is defined as the sale of a security. Regarding offerings, all of the following are true except
A) offerings of bonds can be made to the investing public.
B) offerings can be identified by who is selling the securities issuer or investor.
C) corporate securities can only be offered in public securities offerings.
D) offerings of stocks can be made to the investing public.
C) corporate securities can only be offered in public securities offerings.
Both stocks and bonds can be made available to the investing public through an offering. Different types of offerings are identified by who is selling the securities—an issuer or another investor. Securities offered by corporations for sale to the investing public are sold to investors through either public or private securities offerings.
During the cooling-off period, underwriters of new securities may
I. accept orders to purchase shares.
II. not accept orders to purchase shares.
III. not accept indications of interest regarding potential purchases of shares.
IV. accept indications of interest regarding potential purchases of shares
A) II and III
B) II and IV
C) I and IV
D) I and III
B) II and IV
Orders for shares may never be taken before the effective date; therefore, no orders to purchase shares may be taken during the cooling-off period. Indications of interest, however, are allowed to be taken but are not binding on either party.
Which of the following choices would best describe a follow-on offering?
A) An initial public offering (IPO) that has additional shares added by the issuer on the effective date
B) An issue of shares by a public company that is already listed on an exchange
C) An offering to the employees of the issuing company
D) The common stock that is issued attached to a rights offering
B) An issue of shares by a public company that is already listed on an exchange
A follow-on public offer (FPO) is an issue of shares by a public company [registered and reporting to the Securities and Exchange Commission (SEC)] that is currently listed on an exchange and has previously gone through the IPO process. FPOs are popular methods for companies to raise additional equity capital in the capital markets through a stock issue.
Private placements are primarily sold to
A) institutional investors.
B) general public investors.
C) individuals who do not meet the definition of accredited investor.
D) investment bankers.
A) institutional investors.
Institutional investors are the overwhelming majority of buyers in private placements, although private placement securities may be sold to small numbers of wealthy individuals who meet certain criteria (accredited investors).
An offering in which one or more stockholders in the corporation are selling all or a portion of their own shares to the investing public for the first time is known as
A) an initial public offering.
B) a secondary offering.
C) a subsequent offering.
D) a primary offering.
B) a secondary offering
A secondary offering is one in which one or more stockholders in the corporation are selling all or some of their shares to the public. The sale proceeds for these shares are paid to the selling stockholders rather than to the corporation.
