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SIE > Unit 7 - The Securities Act of 1933 and the Primary Markets > Flashcards

Unit 7 - The Securities Act of 1933 and the Primary Markets Flashcards

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1
Q

This is where securities are sold to the investing public in what are known as issuer transactions.

A

Primary market

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2
Q

In a primary market, the ____ of the securities received the proceeds generated by the sale of the securities.

A

Issuer

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3
Q

This is where securities trade between investors.

A

Secondary market

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4
Q

What is another term for primary market and secondary marker?

A

Capital markets

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5
Q

These two terms are when an issuer (corporation or a government) is selling a security to raise capital.

A

Primary offer or primary market

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6
Q

The sale of securities to the public allows for corporations to __ __ relatively quickly to take advantage of changes in the economy.

A

Raise capital

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7
Q

Governments also use capital markets to ___ ____ for infrastructure projects

A

Raise money

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8
Q

This is when the proceeds raised go to the issuing corporation. They are done in the primary (new issues) market. The corporation increases its capitalization by selling stock (either a new issue or previously authorized but unissued stock). It can be done at any time and in any amount, provided the total stock outstanding never exceeds the amount authorized in the corporations bylaws.

A

Primary offering

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9
Q

____ ____ of securities are regulated under the Securities Act of 1933.

A

Public offerings

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10
Q

In a public offering, securities are ___ and ____ to the ___ ____.

A
  1. Offered and sold

2. Investing public

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11
Q

Investment banks and BD in a public offering are known as

A

Underwriters

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12
Q

The primary purpose of this act requires full and fair disclosure in connection with the sale of securities to the public. It requires that a new issue, unless specifically exempted from the act, be registered with the SEC before public sale.

A

Securities Act of 1933

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13
Q

All investors must receive a detailed disclosure document known as a

A

Prospectus before purchase

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14
Q

This is when a first time issuer distributes securities to the public.

A

Initial public offering (IPO)

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15
Q

What are follow-on offerings?

A

Any subsequent money raises from IPOs

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16
Q

What is another name for follow-on offerings?

A

Additional public offerings (APO)

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17
Q

This is when a company raises additional equity capital in the capital markets through a stock issue.

A

Follow-on offerings

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18
Q

An offering is ____ when only the issuer is receiving proceeds, and both the IPO and the follow-on shares must go through a registration process with the SEC.

A

Primary

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19
Q

What are these rules for?

  1. Members make a bona fide public offering of securities at the public offering price (POP)
  2. 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
  3. 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
A

IPO

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20
Q

The rules of IPO prohibit

A

Member firms from selling a new issue to any account where restricted persons are beneficial owners

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21
Q

Before selling an IPO, representatives are required to obtain a

A

Written representation from the account owner that the account is eligible to purchase a new common stock issue at the POP.

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22
Q

These are considered to be persons who are not allowed to purchase shares at the POP in IPOs also known as…..

  1. Member firms
  2. Employees of member firms
  3. Finders and fiduciaries acting on behalf of the managing underwriter
  4. Portfolio managers
  5. Any person owning 10% or more of a member firm
A

Restricted persons

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23
Q

Any ____ ____ ___ of any person in the restricted persons rules for IPOs are also restricted. These include, parents, in laws, spouses, siblings, children or any other individual to whom the person provides material support.

A

Immediate family members

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24
Q

___ and ____, ____ and ____ as well as _____ are not considered immediate family. However, if they live in the same household, they would be considered a restricted person.

A

Aunt and uncles, nieces and nephews and grandparents

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25
Q

This is when the beneficial interests of restricted persons do not exceed 10% of an account, which allows the account to purchase a new equity issue.

A

De minimis exception

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26
Q

This is when a corporation may offer additional shares of stock to the public as a primary market transaction.

A

APO

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27
Q

There can be ____ APOs at a time.

A

Numerous APOs over time.

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28
Q

What are the two defining characteristics of APOs?

A

Primary offerings (the proceeds go to the issuer) and they come after the IPO.

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29
Q

What does the term ‘person’ refer to when talking about securities?

A

A natural person or legal entity

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30
Q

An ____ can legally enter a contract as a person

A

Entity

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31
Q

This is a corporation, government or other entity that is selling a security to raise capital for itself. They may be both equities and debt issues.

A

An issuer

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32
Q

A government entity may issue

A

Debt

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33
Q

Larger corporations’ stock (after issued) that trade on a national exchange (listed) or the Nasdaq system are called

A

National Market System securities

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34
Q

Stocks that will not be listed are

A

Non-NMS securities

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35
Q

These types of governments issue bonds and other types of debt. They are governments at the state or lower level, such as counties and cities.

A

Municipalities

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36
Q

Debt from municipalities are also called

A

Munis

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37
Q

What is the largest issuer of debt in the United States?

A

The Treasury Department

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38
Q

Debt issued by the government is sometimes called

A

Govies

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39
Q

These 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.

A

Underwriters

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40
Q

This calls for the underwriters (syndicate) to buy securities from the issuer acting simply as an agent, not as the principal. The underwriters are not committed to purchase the shares themselves and are therefore not at risk. The underwriter is acting as an agent contingent on the underwriter’s ability to sell shares in either a public offering or a private placement. The underwriter is not at risk, but the issuer is.

A

Best efforts underwriting

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41
Q

What are the two types of best effort underwriting?

A

All-or-none (AON) and Mini Max

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42
Q

This is when the issuing corporation has determined that it wants an agreement outlining that the underwriter must either sell all the shares or cancel the underwriting.

A

All-or-none (AON)

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43
Q

This sets a floor or minimum as well as a ceiling or maximum on the dollar amount of securities the issuer is willing to sell. The underwriter must locate enough interested buyers to support the minimum issuance requirement.

A

Mini-max

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44
Q

This is a widely used type of underwriting contract. The underwriters contract with the issuer to buy securities. The underwriter buys shares from the issuer and resells the securities to the public at a higher price - the POP- and earns this price differential for its efforts. The underwriters are acting as principals rather than agents and its the underwriters who are at risk for any shares they cannot sell to the public, not the issuer.

A

Firm commitment underwriting

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45
Q

True or False: A firm may never guarantee to a customer that it will agree to repurchase the shares at the POP if the deal subsequently trades lower

A

True

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46
Q

This is a type of joint venture where the BDs form up to share both the risk and the profits from the offering. One of the members will take on the lead role and provide significant resources to the venture called managing underwriter.

A

Syndicates

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47
Q

This is a group that syndicates create by bringing in other BDs to assist the syndicate in the sale of the secutities

A

Selling group

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48
Q

The members of the selling group __ ___ ___ ___ nor do they hold the securities in inventory the way a syndicate member does.

A

Do not commit capital

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49
Q

Selling group members take on ___ ___ ___ ___ ___.

A

No liability for unsold shares

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50
Q

These are who purchases the new issue with the intent to hold the security for a period of time within the primary market.

A

Investors

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51
Q

This is an entity that pools money to purchase securities and other investment assets. They can include banks, insurance companies, pensions, hedge funds, investment advisers and mutual funds.

A

Institutional Investors

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52
Q

Some institutional investors are called

A

Qualified institutional investors

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53
Q

The QIB owns and invests a minimum of $100 million in securities on a discretional basis is called?

A

A qualified institutional buyer (QIB)

54
Q

This type of investor is investing his own assets.

A

Retail investor

55
Q

Any investor who does not qualify as an institution should be treated as a

A

Retail investor

56
Q

Retail investors are ___ ____ than institutional investors, and have ____ ____ and ____ expectations.

A
  1. Less knowledgeable

2. Higher communication and disclosure

57
Q

These type of investors are a subset of investors made up of all institutional investors and certain retail investors

A

Accredited investors

58
Q

These type of retail investors are _____ investors:

  1. Insiders of the security’s issuer
  2. Meet certain financial criteria:
    1. An income of at least $200,000 or more the past two years and expected to meet that criteria in the current year
    2. Or have a net worth of 1 million or more
A

Accredited

59
Q

The assumption is that the accredited investor will have a ____ ______ level than the average retail investor and does not need the same level of _____.

A
  1. Higher sophistication

2. Protection

60
Q

Retail and institutional investors are active participants in the

A

Secondary markets

61
Q

Accredited investors are used exclusively in

A

Private market transactions

62
Q

These are a type of investment bankers that advises municipalities on the issuing of municipal debt and other type of municipal securities. They work under the contract with the municipality to provide advice on issues such as debt structure, bond features and other issues involved with raising capital.

A

Municipal advisors

63
Q

Municipal advisors are not compensated as part of the _____ of any issue they provide advice on.

A

Underwriting

64
Q

The main purpose of the ____ ___ ____ ___ also known as the paper act, is to ensure that the investing public is fully informed about a security and its issuing company when the security is first sold in the primary market.

A

Securities Act of 1933

65
Q

This act protects investors who buy new issues by:

  1. Requiring registration of new issues
  2. Requiring an issuer to provide full and fair disclosure about itself and the offering
  3. Requiring an issuer to make available all material information necessary for an investor to judge the issue’s merit
  4. regulating the underwriting and distribution of primary issues
  5. Providing criminal penalties for fraud in the issuance of new securities
A

The Securities Act of 1933

66
Q

What is the primary federal regulator in the securities industry?

A

The Securities and Exchange Commission

67
Q

When an issue desires to sell a security that does not meet one of the exemptions to registration under the 1922 Act, the issue must first be registered with

A

SEC

68
Q

What does a registration statement contain?

A
  1. Description of issuer’s business
  2. The name and addresses of company officers and directions, their salaries, and a five year business history
  3. The amount of corporate securities company officers and directors own and who owns 10% or more of the company
  4. The company’s capitalization, including equity and debt
  5. A description of how the proceeds will be used
  6. Whether the company is involved in an legal proceedings.
69
Q

____ may assist the issuer in preparing and filing the registration statement and prospectus.

A

Underwriters

70
Q

After filing the registration statement, the ___ ___ period begins.

A

Cooling-off

71
Q

The cooling-off period lasts for

A

A minimum of 20 calendar days, but can be longer

72
Q

If the SEC finds that the registration statement needs revision, the SEC may ____ the review and issue a ____ ____ to the issuer of the securities.

A
  1. Suspend

2. Deficiency letter

73
Q

The cooling-off period will resume once the issuer submits a ____ ____ ____.

A

Corrected registration statement

74
Q

During the cooling-off period no one can

A

Solicit sales of secuities

75
Q

These types of ad have the bar-bones/minimum information provided. They are an announcement and description of the securities to be offered.

A

Tombstone Ads

76
Q

The is the only form of advertising that is permitted during the cooling-off period.

A

Tombstone ads

77
Q

The cooling-off period is the time between the ____ ____ with the SEC and the ___ ____.

A
  1. Registration filing

2. Effective date

78
Q

Tombstone ads may be placed by the ____ ___ or with the assistance of the underwriter.

A

Issuer directly

79
Q

Tombstone ads must include

A
  1. Name of the issuer
  2. Type of security being offered
  3. Number of shares to be sold
  4. POP or a range if the POP is not yet set
  5. Names of the underwriting members
80
Q

This advisory is for which type of add?

“This announcement is neither an offer to sell nor a solicitation of an offer for any of these securities. This offer is made only by prospectus.

A

Tombstone ads

81
Q

This can be used as a prospecting tool, allowing issuers and underwriters to gauge investor interest and gather indications of interest. There is no final price included in the prospectus, though a range is often included. Must be made available to any customer who expresses interest in the securities during the cooling-off period

A

A preliminary prospectus (Red herring)

82
Q

This is an investors declaration of potential interest in purchasing some of the issue from the underwriter after the security comes out of registration. It is not a commitment to buy because sales are prohibited until after the registration becomes effective.

A

Indications of interest

83
Q

“I might be interested” means

A

Indications of interest

84
Q

This is when underwriters and selling group members examine the issue to determine which customers the issue is suitable for

A

Due Diligence

85
Q

This is a meeting to make a formal presentation to those representatives that may offer the security to their customers.

A

Due Diligence meetings

86
Q

The process of coordinating the federal and the state registrations is called

A

Blue Sky

87
Q

This is when the SEC allows for the security to be offered to investors, usually after 20 days. The SEC does not approve the issue. The SEC avoids language that sounds like an endorsement, preferring to say it “allows” the issue to be “released”.

A

Release or effective date

88
Q

A ___ ____ is also available at release.

A

Final prospectus

89
Q

What does a final prospectus need to include?

A
  1. Description of offering
  2. Offering price
  3. Selling discounts
  4. Offering date
  5. The use of the proceeds
  6. Description of the underwriting, but not the actual contract
  7. Statement of the possibility that the issue’s price may be stabilized
  8. History of the business
  9. Risks to the purchasers
  10. Description of management
  11. Material financial information
  12. Legal opinion concerning the formation of the corporation
  13. SEC disclaimer
90
Q

When a corporation issues stock to sell to the public for the first time, it is considered to be an

A

IPO

91
Q

When a corporation choose to sell more shares of the company this is called an additional

A

Primary offering

92
Q

____ requires filing with the SEC and a prospectus.

A

APO

93
Q

If the issuer is getting the money, it is a

A

Primary offering

94
Q

When most the money is going to the corporation for the new shares, but some to individual for their shares, this is called

A

Hybrid or combination offering

95
Q

What are the two types of offerings?

A

Shelf offering and greenshoe offering

96
Q

This is when an issuer who is already a publicly trades company can register new securities without selling any of the shares until alter or some of the shares initially and waiting to sell the remaining portion of the shares. The registration is good for two years and allows the issue to sell portions of a registered ___ offering over a two-year period without having to reregister the security.

A

Shelf offering

97
Q

What is WKSI

A

Well known seasoned issuer

98
Q

A WKSI can extend a shelf offering to

A

3 years

99
Q

For securities offered via a ___ ____, a supplemental prospectus must be filed with the SEC before each sale

A

Shelf offering

100
Q

This allows the underwriters to increase the number of shares offered up to an additional 15% if there is sufficient demand.

A

Greenshoe offering

101
Q

When securities are required to be registered in order to be sold to the public, there are known as

A

Nonexempt securities

102
Q

Issuers of the federal government, an agency of the federal government, a municipal government are all

A

Exempt from registration and prospectus requirements.

103
Q

The ___ ___ applies only to the securities of banks, not the the securities of bank holding companies.

A

Bank exemption

104
Q

____ ____ are not included in the definition of a security.

A

Insurance policies

105
Q

If you see the word variable or “separate account product” this product must be

A

Registered

106
Q

This eases the requirements for small- and medium sized companies to raise capital

A

Regulation A+

107
Q

This provides two offering tiers for small- and medium sized companies that will allow the companies to raise capital in amounts substantially more than the $5 million previously allowed.

A

Regulation A+

108
Q

This tier is for securities offerings up to $20 million in a 12 month period. No more than $6 million can be sold on behalf of existing selling shareholders. The offering will be subject to a coordinated review by individual stated and the SEC

A

Tier 1

109
Q

This tier is for securities up to $50 million in a 12 month period. No more than $15 million can be sold on behalf of existing selling shareholders. The offerings are subject to SEC review only and none at the state level. They are subject to rigorous disclosure requirements to the SEC

A

Tier 2

110
Q

Offerings made under both tiers are ___ to the ____.

A

Open to the public

111
Q

What are the two ways for Tier 2 investors to become qualified?

A
  1. Be an accredited investor
  2. Limit the investment to a maximum of the greater of 10% of the investors net worth or 10% of the investors net income per offering
112
Q

Tier 1 has ___ ___ ___

A

No investment limits

113
Q

Regulation A+ excludes

A

Investment companies

114
Q

In a Regulation A+ offering, the issuer files an abbreviated ___ of ____ or ____ ____ with the regional SEC office. They provide this instead of a full prospectus.

A

Notice of sale or offering circular

115
Q

Offerings that take place entirely in one state are exempt from registration when the issuer has its principal office in the state and all purchasers are residents of the state under what rule?

A

Rule 147

116
Q

In order to qualify under rule 147, a company must been one criteria:

A
  1. It received at least 80% of its income in the state
  2. At least 80% of the issuers assets are located within the state
  3. At least 80% of the offering proceeds are used within the state
  4. The majority of the company’s employees must work in the state
117
Q

In order to qualify for Rule 147, the BD must be

A

Based in the state

118
Q

Securities under Rule 147 may not be ___ to ____ ____ of the state for ___ months after the initial purchase.

A
  1. Resold
  2. Non residents
  3. 6 months
119
Q

The SEC does not require registration of an offering under ____ ___ so long as there are no more than 35 nonaccredited investors.

A

Regulation D

120
Q

In regulation D, purchasers must have access to the same type of information they would receive if the securities were being sold under prospectus in a ___ ____.

A

Registered offering

121
Q

The amount of capital under Regulation D is

A

Unlimited

122
Q

Private placement stock is called ____ ____

A

Lettered stock

123
Q

A ____ ____ is a letter stating that he intends to hold the stock for investment purposes only.

A

Letters stock

124
Q

Private placement stock is also called

A

Legend Stock

125
Q

The SEC requires that all companies raising capital in nonpublic offering that qualify under the Regulation D exemption file the information on ____ _ electronically via the internet.

A

Form D

126
Q

What are the terms synonymous with private placement stock?

A
  1. Restricted (because it must be held for a six month period)
  2. Unregistered
  3. Letter Stock
  4. Legend Stock
127
Q

A primary disclosure document for a municipal security is the

A

Official statement

128
Q

The common term for the disclosure document for other type of exempt securities is the

A

Offering circular

129
Q

___ of ____ is a document very similar to a prospectus but is often not as detailed in its disclosures.

A

Notice of sale

130
Q

An investor will be entitled to the final prospectus if the purchases occurs within which timelines for the following:

  1. For IPS of NMS securities
  2. For APOs of NMS securities
  3. For IPOs of non-NMS securities
  4. For APOs of non-NMS securities
A
  1. 25 days
  2. zero days (no requirements)
  3. 90 days
  4. 40 days

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