Chapter 7: Issuing Securities

Question #12 of 138Question ID: 606255 Each of the following persons is (are) accredited under Regulation D EXCEPT: A)a person with a net worth of $200,000 or more. B)an officer of the issuer. C)an institution. D)a person with annual income of $200,000 or more.

Accredited investors include individuals with annual incomes of $200,000 or more, individuals with a net worth of $1 million or more not including net equity in a primary residence, officers or directors of the issuer, and institutions. Reference: 7.6.2.2 in the License Exam

Question #16 of 138Question ID: 606199 Your customer wishes to purchase shares of an IPO. During the cooling- off period, the customer can: A)enter an order to sell the new issue short upon the effective date. B)indicate an interest in the offering. C)pay in advance for shares to be purchased when the cooling-off period ends. D)purchase shares in limited amounts.

During the cooling-off period, neither purchases or sales can be made, and orders for either cannot be accepted by the broker/dealer, However, indications of interest can be made by customers and accepted by broker/dealers. Indications of interest are non-binding for both parties. Reference: 7.2.2 in the License Exam

Question #3 of 138Question ID: 606186 The Act of 1934 applies to all of the following EXCEPT: A)registration of broker/dealers. B)regulation of new issues. C)secondary market trading. D)the extension of credit on purchase of securities.

The Act of 1933 deals with new issues. The Act of 1934 created the SEC, required the registration of broker/dealers, empowered the Federal Reserve to control the extension of credit on securities transactions, and created rules dealing with secondary market trading. Reference: 7.1.1.2. in the License Exam

Question #88 of 138Question ID: 606200 Where must the SEC's no-approval clause appear in a prospectus? A)On the cover. B)On the last page, under the name of the fund. C)Anywhere as long as it is conspicuous. D)It is not mandatory, but, if used, it must appear on the first page.

The SEC wants investors to know that it does not approve or disapprove new issues. The disclaimer statement must appear on the cover of all prospectuses. Reference: 7.2.2.5 in the License Exam

Question #19 of 138Question ID: 606191 The provisions of the Securities Act of 1933 include all of the following EXCEPT: A)prohibition of fraud in the sale of new securities. B)requirement that an issuer provide full and fair disclosure about an offering. C)regulation of offerings of new securities. D)regulation of the secondary market.

The Securities Act of 1933 regulates new issues of corporate securities sold to the public and is designed to prevent fraud in the sale of newly issued securities. Trading and the secondary markets are regulated under the Securities Exchange Act of 1934. Reference: 7.1.1.1 in the License Exam

Question #85 of 138Question ID: 606261 The maximum amount of securities that can be offered under Regulation A+ Tier 2 is: A)$50 million over an indefinite period of time B)$25 million in a 12-month period C)$50 million in a 12-month period D)$40 million in a 2-year period

Under Reg. A+ a Tier 2 securities offering allows small to medium sized companies raise up to $50 million. Reference: 7.6.2.1 in the License Exam

Question #4 of 138Question ID: 606303 If an officer of a bank wants to purchase new issues, which of the following statements is TRUE? A)He may not purchase a new issue unless the amount he wishes to purchase is considered small in relation to the total offering. B)He may not purchase a new issue because he is considered a restricted person. C)He may purchase a new issue because no banking rules prohibit it. D)He may purchase a new issue because anyone is allowed to purchase new issues.

Under the rules regarding the purchase of new issues bank officers would be characterized as restricted persons. They may not, therefore, purchase new issues. Reference: 7.6.3.1 in the License Exam

Question #92 of 138Question ID: 722204 A corporation wants to issue new shares in a primary offering. Included in the issue, existing shareholders are also offering shares that they own. This is known as A)a primary offering exclusively B)a secondary offering exclusively C)a shelf offering D)a split offering

When a corporation issues a portion of the stock offered, and existing shareholders offer the balance of the shares offered, this is known as a split or combination offering. It combines elements of a primary offering (new shares offered by the issuer) and a secondary offering (existing shares offered by shareholders). Reference: 7.3.3.5 in the License Exam

Question #59 of 138Question ID: 606217 If a broker/dealer is assisting in the registration of a stock issue, a registered representative of the firm may: A)accept an order. B)accept an indication of interest. C)perform a private transaction for a customer. D)promise a specific number of shares.

When an issue is in registration during the cooling-off period, no sales may take place. The registered representative may, however, distribute preliminary prospectuses and accept nonbinding indications of interest. Reference: 7.2.2.1 in the License Exam

Question #39 of 138Question ID: 606271 All of the following statements regarding corporate insiders are true EXCEPT A)reports of changes in holdings must be filed with the SEC B)only public information may be used to make transactions C)purchases may not be made through the exercise of options D)short selling of the company's stock is prohibited

A corporate insider is defined as an officer, director, 10% stockholder, or family member of an insider. Insiders are required to report any changes in their holdings to the SEC within two business days. The Securities Exchange Act of 1934 also prohibits short selling of company shares by company insiders. They cannot use inside (nonpublic) information for their own benefit. Reference: 7.6.2.4 in the License Exam

Question #13 of 138Question ID: 606202 A due diligence meeting occurs between: A)the underwriter and the SEC before the issuance of a final prospectus to insert the public offering price and make any last minute changes at the SEC's request. B)the FINRA member firm and FINRA's Corporate Finance Department to discuss the fairness of the underwriting spread on a pending public offering. C)All of these. D)the issuing corporation and the underwriters to review and reexamine the full details of the pending underwriting and negotiate final terms to be included in the formal underwriting contract.

A due diligence meeting is held between the issuer and the underwriter 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. Reference: 7.2.2.3. in the License Exam

Question #31 of 138Question ID: 606285 All of the following are nonexempt securities EXCEPT a: A)variable annuity unit. B)fixed annuity. C)U.S. government bond mutual fund share. D)municipal unit investment trust share.

A fixed annuity is an insurance product exempt from registration with the SEC. Variable annuities, which carry investment risk, are nonexempt securities under the Securities Act of 1933 and must be registered before public sale. Similarly, unit trusts and mutual funds are nonexempt even though the underlying securities may be exempt, such as municipals and U.S. government securities. Reference: 7.6.1 in the License Exam

Question #93 of 138Question ID: 606224 Which of the following statements regarding red herrings are TRUE? They may be used to obtain indications of interest. They may be sent out with sales literature. They contain the final offering price. Their use ends when the offering becomes effective. A)I and III. B)I and IV. C)II and IV. D)II and III.

A preliminary prospectus, or red herring, is used only during the cooling-off period. The red herring does not contain the final price; offerings are priced immediately before the effective date. Reference: 7.2.2.1 in the License Exam

Question #25 of 138Question ID: 606226 Which of the following activities are characteristic of a primary offering? Raising additional capital for the company. Selling previously issued securities. Increasing the number of shares outstanding. Buying previously issued securities. A)I and III. B)II and IV. C)I and II. D)III and IV.

A primary offering involves the sale of previously unissued securities. The issuing company receives the proceeds from the sale; once the securities are sold, more securities will be outstanding. Reference: 7.3.3.3 in the License Exam

Question #68 of 138Question ID: 606223 Which of the following characteristics describes a final prospectus? A)Complies with the full and fair disclosure requirements of the Securities Act of 1933. B)Filed with the SEC semiannually. C)Filed with the SEC and not available to the general public. D)Used to solicit indications of interest in a new issue.

A prospectus is a disclosure document meant for distribution to the public. It must constitute full and fair disclosure of all material facts about the issuer and the security. Reference: 7.2.2.4 in the License Exam

Question #95 of 138Question ID: 721434 A new issue has been filed with the SEC and a final prospectus can be found on the SEC website. This information has been made known to a customer interested in the securities. In this instance, the access equals delivery requirements regarding that prospectus A)have not been met as a prospectus must always be physically delivered B)have been met for mutual funds only C)have been met D)have been met for equity issues only

A prospectus must precede or accompany a security for sale and will be deemed so if the final prospectus has been filed with the SEC. Because prospectuses filed with the SEC can be viewed on the SEC website, the access equals delivery requirement is satisfied. Reference: 7.2.2.6 in the License Exam

Question #70 of 138Question ID: 606225 If an investment representative gave her retail customers copies of sales literature for a variable annuity she was recommending and promised to send the prospectus soon, which of the following statements are TRUE? She should not have distributed sales literature without the prospectus. It was okay to distribute the sales literature and send the prospectus later to those who were interested. She should not have recommended a specific variable annuity without having the prospectus available. Because she only answered questions about the investment, she was not required to provide a prospectus. A)III and IV. B)I and II. C)II and IV. D)I and III.

A prospectus must precede or accompany any solicitation, including distribution of sales literature to retail customers. Reference: 7.2.2.4 in the License Exam

Question #63 of 138Question ID: 606208 In the case of an unsolicited order, a prospectus must be delivered to the purchaser of a unit investment trust: A)before the purchase. B)before the month's end. C)with the purchase confirmation. D)between 45 days and 18 months following the initial deposit.

A purchaser of newly issued securities must receive a prospectus no later than by receipt of the purchase confirmation. However, any solicitation must be preceded or accompanied by a prospectus. Reference: 7.2.2.4 in the License Exam

Question #80 of 138Question ID: 606233 A corporate offering of 200,000 additional shares to existing stockholders may be made through a: A)rights offering. B)secondary offering. C)tender offer. D)warrant.

A rights offering is an offering of additional shares of stock to existing shareholders. Reference: 7.3.3 in the License Exam

Question #97 of 138Question ID: 606189 Which of the following are defined as securities? Fixed annuities. Variable annuity units. Investment company shares. Negotiable CDs insured by the FDIC. A)II and III. B)II and IV. C)I and IV. D)I and III.

A security is any investment for profit with management performed by a third party, in which an element of risk is present. Reference: 7.1.1.1 in the License Exam

Question #1 of 138Question ID: 606229 Which of the following underwriting arrangements allows an issuer whose stock is already publicly traded to structure the timing of sales for an additional issue? A)Negotiated. B)Standby. C)Shelf. D)Competitive.

A shelf registration with the SEC allows an issuer to sell the registered securities for up to 3 years from the effective date. This allows an issuer to time its sales with market conditions. Reference: 7.3.3.6 in the License Exam

Question #28 of 138Question ID: 606238 An underwriting spread is the: A)amount a syndicate receives. B)amount a selling group receives. C)difference between an offering price and the proceeds to an issuer. D)amount a managing underwriter receives.

A spread is the difference between the public offering price and the price an underwriter pays an issuer. Reference: 7.5.4 in the License Exam

Question #66 of 138Question ID: 606265 Which of the following securities are exempt from the registration and disclosure provisions of the Securities Act of 1933? Any interest in a railroad equipment trust certificate. Municipal bonds. U.S. government securities. Commercial paper maturing in 270 days or less. A)I and II. B)I and III. C)II and III. D)I, II, III and IV.

All the securities listed are exempt from the registration and disclosure provisions of the Securities Act of 1933. Reference: 7.6.1 in the License Exam

Question #98 of 138Question ID: 721438 Cutting Edge securities is the managing underwriter for a new issue of 1 million shares of ABC common. While the underwriter has agreed to sell as much stock as possible in the market, ABC will cancel the offering if any portion of the stock remains unsold. This arrangement is known as what type of underwriting? A)Best efforts. B)Mini-max. C)All-or-none. D)Standby.

All-or-none underwritings require the underwriter to either sell the entire issue of stock or cancel the offering completely. Reference: 7.5.3.1 in the License Exam

Question #17 of 138Question ID: 606212 Which of the following statements regarding a red herring is NOT true? A)An agent may accept funds to be placed in escrow until the effective date if the request to do so is made by a potential purchaser. B)The final offering price does not appear in a red herring. C)A red herring is used to accept indications of interest from investors. D)Additional information may be added to a red herring at a later date.

An agent is not permitted to accept funds from potential purchasers of a new issue before the effective date. Reference: 7.2.2.1 in the License Exam

Question #55 of 138Question ID: 739036 Under one of the provisions allowing a company to qualify under Rule 147 for an intrastate exemption, what percentage of an issuer's gross business revenues must be derived from sales within the company's home state? A)70% B)80% C)90% D)100%

Any one of the three 80% test provisions can be met to qualify for a Rule 147 Intrastate exemption. One of the provisions states that at least 80% of an issuer's gross revenue must be derived from the company's home state. Reference: 7.6.2.3 in the License Exam

Question #94 of 138Question ID: 606218 Before the filing of a registration statement for a new issue, an investment representative may NOT: solicit indications of interest for the security. solicit orders. confirm the sale of the security to a customer. A)I only. B)II and III. C)II only. D)I, II and III.

Before the registration statement is filed, no sale, solicitations, or indications of interest in the issue may occur. Reference: 7.2.2 in the License Exam

Question #60 of 138Question ID: 606263 All of the following securities are exempt from the registration provisions of the Securities Act of 1933 EXCEPT: A)commercial paper and bankers' acceptances that have maturities of no more than 270 days. B)national and state bank securities. C)state and municipal bonds. D)commercial bank holding company securities.

Commercial bank holding companies are corporations that have to register with the SEC. State and municipal bonds do not have to be registered under the Securities Act of 1933. Commercial paper and bankers' acceptances that have maturities of no more than 270 days are exempt from the registration provisions. National and state banks are regulated by various state and federal agencies. Reference: 7.6.1 in the License Exam

Question #9 of 138Question ID: 606197 All of the following may occur during the mandatory 20-day cooling-off period EXCEPT: A)forwarding a preliminary prospectus to a customer. B)publishing a tombstone ad. C)the performance of due diligence by the underwriters. D)soliciting transactions for the security.

During the 20-day cooling-off period, only unsolicited requests for information may be honored. Soliciting sales is prohibited. Reference: 7.2.2 in the License Exam

Question #18 of 138Question ID: 606220 Under the Securities Act of 1933, the Securities and Exchange Commission has the authority to: issue stop orders regarding a new issue registration filing. approve new issues. review standard registration forms. guarantee the accuracy of the information contained in the registration forms. A)II and III. B)I and III. C)I and IV. D)II and IV.

During the cooling-off period, the SEC reviews registration statements and can issue stop orders if the registration is not complete or was not filed properly. The SEC does not approve securities or guarantee that any information found within a prospectus is accurate; it only clears the securities for distribution (sale) to the public. Reference: 7.2.2.5 in the License Exam

Question #50 of 138Question ID: 606277 If a wife owns 9% of the common shares of XYZ, and her husband owns 2% and wishes to sell his shares, he: is considered an affiliate. is not considered an affiliate. must file a Form 144 to sell. does not have to file a Form 144 to sell. A)I and IV. B)II and III. C)II and IV. D)I and III.

If a husband and wife (either individually or jointly) own a combined total of 10% or more of a corporation's voting shares, they are considered affiliates and are subject to the requirements of SEC Rule 144. Reference: 7.6.2.4 in the License Exam

Question #72 of 138Question ID: 606310 Under FINRA rules, if a member firm receives an order to buy a new equity issue on behalf of an undisclosed principal from a bank, the member must: A)accept the order. B)reject the order. C)determine the identity of the purchaser. D)obtain a representation from the bank that the purchaser is not restricted.

If a member receives an order from a conduit such as a bank, the member must make an inquiry as to whether the ultimate purchaser is restricted. It is not necessary to determine the identity and business affiliations of the purchaser. Reference: 7.6.3.1 in the License Exam

Question #73 of 138Question ID: 606228 If the customers of a selling-group member sell into a penalty stabilizing bid, the selling-group member must pay back to the underwriter the: A)spread. B)give up. C)reallowance. D)concession.

If selling-group members liquidate into the stabilizing bid, they may be required to return the concession they were originally paid. Reference: 7.3.5.3.1 in the License Exam

Question #56 of 138Question ID: 606245 In which of the following types of offerings does a brokerage firm have no financial obligation for unsold securities? All-or-none. Best efforts. Standby. A)I and II. B)I and III. C)II and III. D)I, II and III.

In a best efforts underwriting, the underwriter serves as an agent with no financial obligation for unsold securities. In an all-or-none (AON) offering, the underwriter agrees to devote its best efforts to sell the issue, but the entire offering is canceled if all shares cannot be sold. In a standby underwriting, the underwriter agrees to purchase any unsold shares remaining after the expiration of a rights offering (firm commitment). Reference: 7.5.3 in the License Exam

Question #67 of 138Question ID: 721437 Top Notch Securities is the managing underwriter for a new issue of 1 million shares of ABC common on a firm-commitment basis. If part of the ABC issue remains unsold and results in a loss, the loss will be divided proportionately among the: A)underwriting firms. B)underwriting firms and the issuer. C)selling group firms. D)underwriting firms and the selling group firms.

In a firm-commitment arrangement, any losses incurred are divided among the underwriters' syndicate members according to the terms in the agreement among underwriters. Reference: 7.5.1 in the License Exam

Question #32 of 138Question ID: 739037 Under the intrastate offering rule (Rule 147), when may a resident purchaser of securities resell them to a nonresident? A)Three months after the first sale made in that state B)Six months after the purchase date C)Six months after the last sale made in that state D)None of these

In an intrastate offering, a purchaser of the issue may not resell the securities to a resident of another state for at least six months after the purchase date. Reference: 7.6.2.3 in the License Exam

Question #46 of 138Question ID: 606259 Private placements A)may be advertised under all circumstances B)may never be advertised under any circumstance C)may be advertised if all of those solicited are accredited investors D)can only be advertised when 35 or fewer of the investors are nonaccredited

In order to solicit or advertise private securities offerings, all purchasers of the advertised securities must be accredited investors or the business must reasonably believe that the investors are accredited investors at the time of the sale. Reference: 7.6.2.2.1 in the License Exam

Question #77 of 138Question ID: 606269 All of the following are required to be registered with the SEC EXCEPT: A)insurance companies offering fixed annuities to investors. B)securities associations, such as FINRA. C)national stock exchanges. D)securities analysts.

Insurance companies are generally not required to be registered with the SEC. Reference: 7.6.1 in the License Exam

Question #58 of 138Question ID: 606308 An issuer may direct sales of a new issue to all of the following EXCEPT: A)officers of the managing underwriter. B)officers of the issuer. C)officers of its largest supplier. D)officers of its largest customer.

Issuer-directed sales are permitted if the persons to whom the new issue is sold are not restricted. Officers of the managing underwriter are restricted. Reference: 7.6.3.1 in the License Exam

Question #87 of 138Question ID: 606230 Which of the following actions of XYZ Corporation would raise additional capital? Issue callable preferred stock. Declare a stock dividend. Make a rights offering. Encourage convertible bondholders to convert to common stock. A)II and III. B)I and II. C)II and IV. D)I and III.

Issuing new stock either through an underwriting or a rights offering allows a corporation to raise capital. Stock dividends represent more shares given to existing shareholders, but no money is raised. Conversion results in the exchange of one security for another and no money is raised. Reference: 7.3.2.2 in the License Exam

Question #90 of 138Question ID: 606312 Under which of the following circumstances may a member firm sell a new equity issue to one of its nonregistered employees? A)Permission of a principal is obtained. B)Amount purchased is small and not disproportionate to the size of the issue. C)Under no circumstances. D)Transaction is consistent with the employee's normal investment practice.

Member firms and employees of members (registered and nonregistered) are prohibited from buying a new equity issue at the public offering price. Reference: 7.6.3.1 in the License Exam

Question #48 of 138Question ID: 721440 As defined by FINRA, all of the following are considered a restricted person EXCEPT A)the aunt of a member firm employee B)employees of member firms C)the sibling of a member firm employee D)member firms

Member firms, their employees, and their immediate family members, such as parents and siblings, are considered restricted. Aunts, uncles, and grandparents are not considered immediate family and, therefore, not restricted unless they live in the same household as a restricted person. Reference: 7.6.3.1 in the License Exam

Question #62 of 138Question ID: 693977 Registered Representative 1, employed by Member Firm 1, sells a new equity issue to Registered Representative 2, employed by Member Firm 2. Which of the following are responsible for violating the rules designed to protect the public and abide by restricted persons prohibitions? Registered Representative 1 Member Firm 1 Registered Representative 2 Member Firm 2 A)II and III B)I, II, III and IV C)II and IV D)I and III

Members and their associated persons may not take advantage of their insider status to gain access to new issues for their own benefit at the expense of the investing public. In this light, all of the parties are responsible for violating rules designed to protect the public regarding new issues public offerings. The member firms, as well as the designated supervisors, are included for failing to supervise. Reference: 7.6.3.1 in the License Exam

Question #45 of 138Question ID: 606213 If a company has filed a registration statement for an initial public offering of its common stock with the SEC, as a registered representative you may take which of the following actions? Send out a research report on the company to your customers. Take indications of interest from your customers. Send a preliminary prospectus to each of your customers. Take orders for the stock from customers in cash accounts only. A)II and III. B)I and IV. C)II and IV. D)I and III.

New issues may be sold only by prospectus. Indications of interest may be taken when the issue is in registration. During the registration period, only the preliminary prospectus may be sent to clients. Sales literature, such as research reports, may not be distributed while the IPO is in registration, nor may orders be taken. Reference: 7.2.2 in the License Exam

Question #51 of 138Question ID: 606201 All of the following are unlawful EXCEPT: A)representing that the SEC has approved of a broker/dealer or a security being sold. B)giving written notification to a customer that the broker/dealer is acting as a principal for the trade. C)selling new issues on margin. D)omitting a statement of a material fact.

New issues may not be sold on margin. The Securities and Exchange Commission does not approve or disapprove of securities, broker/dealers, or registered representatives. It is always unlawful to make a fraudulent communication in connection with the sale or purchase of securities; making a fraudulent communication includes failing to state a material fact. Reference: 7.2.2.5 in the License Exam

Question #44 of 138Question ID: 606300 A customer must present a signed representation letter stating that he is not a restricted purchaser prior to buying a new issue of: A)municipal bonds. B)common stock. C)U.S. government bonds. D)corporate bonds.

New issues of common stock may not be sold at the public offering price to any account in which a restricted person has a beneficial interest. Prior to buying an IPO, a customer must present a representation letter stating they are not a restricted person. Reference: 7.6.3.1 in the License Exam

Question #100 of 138Question ID: 721441 Both the Securities Acts of 1933 and 1934 address fraud in the securities industry. Regarding the antifraud provisions outlined in these acts, which of the following statements is TRUE? A)Exempt securities like those issued by municipalities are exempt from the provisions. B)No securities, issuers, or transactions are exempt from the antifraud provisions of these acts. C)Exempt issuers like the federal government are exempt from the provisions. D)Exempt transactions like those offered under Regulation A+ are exempt from the provisions.

No securities, issuers, or transactions are exempt from the antifraud provisions of either the Act of 1933 or the Act of 1934. Reference: 7.6.3 in the License Exam

Question #24 of 138Question ID: 606318 Which of the following securities issue is nonexempt, requiring registration under the Securities Act of 1933? A)Municipal bonds B)Debt instruments with maturities of 270 days or less C)Corporate bonds D)Treasury bonds

Nonexempt means that under the act the securities are required to be registered with the SEC. Corporate bonds require registration. All of the remaining answer choices are exempt securities meaning that they do not require registration. In general, exempt issues include municipal securities, U.S. government securities, bank issues, short term debt issues, and nonprofit organization securities. Reference: 7.6.1 in the License Exam

Question #5 of 138Question ID: 606301 Regarding the purchase of new equity issues, restricted persons may: A)purchase shares of a new issue only if they are employed by a broker/dealer as a registered representative on a part-time basis. B)purchase shares of a new issue only in amounts that are not substantial in relation to the total number of shares being issued. C)purchase shares of a new issue only if they work for a bank. D)not purchase shares of a new issue.

Persons characterized as restricted persons are prohibited from purchasing shares of new issues. Reference: 7.6.3.1 in the License Exam

Question #78 of 138Question ID: 606193 The Securities Act of 1934 deals with all of the following EXCEPT: A)filing of financial statements by broker/dealers. B)monitoring accounts for insider trading violations. C)marking sales long or short on an order ticket. D)filing an updated prospectus .

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

Question #26 of 138Question ID: 606266 Regarding Regulation D (Private Placement) offerings, which of the following statements is TRUE? A)The SEC requires no filings be made by the issuer. B)The amount of capital that can be raised via a private placement is limited. C)Purchasers need not be provided or have access to offering information normally provided by a prospectus. D)Registration with the SEC is not required.

Regulation D offerings are exempt transactions and therefore no SEC registration is required. However, issuers must still file information with the SEC on Form D regarding the issue. This filing will contain all of the information a potential investor might want to know, similar to the information contained on a prospectus. There is no limit to the amount of capital that can be raised via a Regulation D private placement transaction. Reference: 7.6.2.2 in the License Exam

Question #54 of 138Question ID: 606254 To be exempt under Regulation D of the Securities Act of 1933, the sale of securities must be limited with respect to the number of: A)broker/dealers who offer the securities. B)agents authorized to sell the security. C)shares issued. D)nonaccredited investors to whom the security is sold.

Regulation 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. Reference: 7.6.2.2 in the License Exam

Question #71 of 138Question ID: 606287 All of the following identify exemptions from the registration statement and prospectus provisions of the Securities Act of 1933 EXCEPT: A)Regulation D. B)Regulation A. C)Rule 147. D)Regulation U.

Regulation U regulates loans from lenders other than broker/dealers for the purpose of purchasing securities and is not related to exempt transactions under the Securities Act of 1933. Reference: 7.6 in the License Exam

Question #52 of 138Question ID: 606239 Which of the following factors is (are) considered when determining whether underwriting compensation is fair and reasonable? The size of the offering. The type of underwriting commitment. The market conditions. The profitability of the underwriter. A)II and IV. B)II and III. C)I and II. D)I and III.

Relevant factors considered by FINRA in determining the fairness of underwriting compensation include the size of the offering (total dollar amount), the type of commitment (firm commitment or best efforts), the type of securities (i.e., stocks or bonds), the form of compensation (i.e., cash or stock), the total value of all forms of compensation, the underwriter's relationship to the issuer, and any form of potential conflicts of interest. Reference: 7.5.4 in the License Exam

Question #21 of 138Question ID: 606305 Regarding the sale of a new issue, a customer becomes a restricted person if he is: A)a private investigator collecting information on one of the issuing firm's officers. B)the grandfather of an associated person of a member firm. C)a salesperson who works for a supplier of the issuing corporation. D)a salesperson who works for the issuing firm's underwriter.

Restricted persons include FINRA member firms and their associated persons, plus immediate family members. Reference: 7.6.3.1 in the License Exam

Question #64 of 138Question ID: 606309 Under the rules regarding the sales of new equity issues, which of the following are restricted purchasers? Aunts and uncles. In-laws. Supported persons. Grandparents. A)I and IV. B)I and III. C)II and III. D)II and IV.

Restricted purchasers include spouses, parents, children, siblings, and in-laws. Aunts and uncles, as well as grandparents, are excluded. A person supported by an employee of a member can never buy a new equity issue. Reference: 7.6.3.1 in the License Exam

Question #14 of 138Question ID: 606267 Under the provisions of Rule 144, what percentage of outstanding stock may a control person sell every 90 days? A)0.05. B)0.04. C)0.01. D)0.03.

Rule 144 (sale of restricted or control stock) allows for the sale of 1% of the outstanding shares or the weekly average of the last 4 weeks' trading volume (whichever is greater), every 90 days. Reference: 7.6.2.4 in the License Exam

Question #43 of 138Question ID: 606275 An affiliate or insider holding unregistered shares can sell under Rule 144: A)1 time a year. B)2 times a year. C)12 times a year. D)4 times a year.

Rule 144 allows an affiliate to sell the greater of 1% of the outstanding shares or the average of the last four weeks' trading volume with each Form 144 filing. The filing is good for 90 days, which would allow for as many as four filings per year. Reference: 7.6.2.4 in the License Exam

Question #8 of 138Question ID: 606262 Which of the following exemption provisions of the Act of 1933 may NOT be used for an initial offering of securities? A)Regulation D. B)Rule 144. C)Regulation A. D)Rule 147.

Rule 144 does not pertain to primary offerings; it affects secondary market transactions in restricted or control securities. Reference: 7.6.2.4 in the License Exam

Question #69 of 138Question ID: 606315 Which of the following investors would be exempt from filing form 144 when selling securities they own? A)An employee of the company selling registered shares purchased in the open market. B)An affiliated person selling unregistered shares. C)An investor selling shares acquired in a Regulation D private placement. D)An employee of the company selling unregistered shares.

Rule 144 regulates the sale of control or restricted securities. Securities bought in a registered public offering are not restricted and therefore an employee of the company selling registered shares need not file form 144. Unregistered shares or securities purchased in a private placement are restricted and Rule 144 would apply. Reference: 7.6.2.4 in the License Exam

Question #57 of 138Question ID: 606279 An offering of securities in compliance with Rule 144A is sold primarily to: A)All of these. B)American individual investors. C)foreign individual investors. D)qualified institutional buyers.

Rule 144A allows securities to be sold to (qualified) institutional buyers without having to meet the holding period or volume requirements of Rule 144. Reference: 7.6.2.5 in the License Exam

Question #27 of 138Question ID: 606286 SEC Rule 145 exempts which of the following from registration? Stock resulting from a stock split. Stock resulting from a stock dividend. Stock issued in connection with an acquisition. IPO in which the entire amount is being sold by officers. A)III and IV. B)I and III. C)II and IV. D)I and II.

Rule 145 exempts (from registration) additional shares resulting from stock splits or stock dividends. Stock issued in connection with an acquisition must be registered, as must stock in an IPO. Reference: 7.6.2.6 in the License Exam

Question #34 of 138Question ID: 606290 Under SEC Rule 145, which of the following events require(s) a corporation to receive the approval of its stockholders? Merger. Consolidation. Acquisition. Transfer of assets. A)I, II, III and IV. B)I and IV. C)III only. D)I and II.

Rule 145 requires that a corporation have its stockholders' consent in the event of a merger, consolidation, acquisition, reclassification, or transfer of corporate assets. Reference: 7.6.2.6 in the License Exam

Question #35 of 138Question ID: 739035 A resident of a state who acquires stock pursuant to Rule 147 (intrastate offerings) is prohibited from selling the stock to a nonresident of that state for how many months? A)18 B)12 C)6 D)3

Rule 147 stock cannot be sold to a nonresident of the state for a period of six months after the purchase date. Reference: 7.6.2.3 in the License Exam

Question #49 of 138Question ID: 606314 A registered representative opens a new account for an investment club. His spouse is a member of the club and owns 15% of the club's assets. The registered representative wants to sell shares of a common stock IPO to the investment club. This is allowed: A)with written notice to the SEC. B)with written principal approval. C)under no circumstances. D)only if the IPO is suitable for the investment club.

Rules prohibit member firms from selling common stock IPOs to restricted persons. Under the rules the account would not be restricted if the assets owned by the spouse composed less than 10% of the club's assets. Because the registered representative's spouse is a member of the investment club and owns more than 10% of the club's assets, the registered representative cannot sell shares of the IPO to the club. Reference: 7.6.3.1 in the License Exam

Question #83 of 138Question ID: 606298 Underwriters and selling group members violate rules regarding sales of new equity issues to restricted persons when they do which of the following? Sell a new issue to one of their own customers. Sell blocks of the new issue to accounts of partners or officers of the member firm. Sell to member firms that deal only in investment company products. Sell to brokers and dealers outside the selling group who position the securities for later resale at higher prices. A)II and IV. B)I and IV. C)II and III. D)I and III.

Rules prohibit the sale of a new equity issue to other brokers, partners, officers, employees of firms in the syndicate or selling group offering the issue, and their supported family members. Firms selling only investment company products and/or direct participation programs, and their employees, are exempt from these rules. Reference: 7.6.3.1 in the License Exam

Question #65 of 138Question ID: 606299 Rules regarding restricted persons state that each of the following is considered immediate family EXCEPT: A)brothers and sisters. B)aunts and uncles. C)parents-in-law. D)parents.

Rules regarding restricted persons define "immediate family" as spouses, parents, brothers, sisters, in-laws, and children. Aunts and uncles are among those excluded. Reference: 7.6.3.1 in the License Exam

Question #37 of 138Question ID: 606313 A member firm broker/dealer wishing to go public may sell a new equity issue of its own securities to all of the following EXCEPT: A)employees of other full-service member firms. B)public customers. C)family members of owners, officers, and employees of the firm. D)owners, officers, and employees of the firm.

Rules regarding restricted persons generally prohibit member firms from selling new issue securities to employees of member firms including their own. However, when member firms sell their own securities, rules regarding restricted persons do not apply to the issuer's own employees but still apply to the employees of other full-service member firms. Reference: 7.6.3.1 in the License Exam

Question #6 of 138Question ID: 606284 SEC Rule 145 requires a corporation to receive approval of its stockholders for certain events. This rule does NOT require shareholder approval for: new shares issued because of a stock split. the offer of securities in one company for the surrender of securities in another. the exchange of one company's assets for another company's securities. shares issued for a stock dividend. A)I and III. B)I and IV. C)II and IV. D)II and III.

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

Question #75 of 138Question ID: 606232 Which of the following statements regarding a shelf offering are TRUE? It can be used to distribute an initial public offering only. It can be used to distribute an additional offering only. Its maximum duration is 90 days. Its maximum duration is 3 years. A)I and IV. B)I and III. C)II and IV. D)II and III.

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

Question #96 of 138Question ID: 606240 ABC Corporation is offering 500,000 units to the public at $5 per unit. Each unit consists of 2 shares of ABC preferred stock and 1 perpetual warrant for ½ common share of ABC exercisable at $5. How much capital was raised by the initial sale of the issue? A)$2.5 million. B)$7.5 million. C)$5 million. D)$1.25 million.

Since the issuing corporation is offering 500,000 units to the public at $5 per unit, the total amount of capital to be raised by this sale will be $2.5 million (500,000 units x $5 per unit). Reference: 7.5.4.1 in the License Exam

Question #30 of 138Question ID: 606234 Stabilizing bids may be entered at: A)whatever stabilizing price is stated in the prospectus. B)any reasonable price necessary to support the public offering price. C)a price not exceeding 5% above the public offering price. D)a price no higher than the public offering price.

Stabilizing bids cannot be used to raise the market price of an issue. Stabilization may only be used to support a new issue security at or below the public offering price. Reference: 7.3.5.3 in the License Exam

Question #23 of 138Question ID: 606235 Underwriters that reserve the right to stabilize the price of securities distributed to the public under an SEC registration statement may do so: A)without restriction. B)under no circumstances. C)only if the securities being distributed will be immediately listed for trading on the NYSE or other exchange. D)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

Question #42 of 138Question ID: 606219 In reviewing prospectuses and registration statements, the SEC: A)does not approve or disapprove of the issue. B)certifies the accuracy of the disclosures made in a prospectus. C)guarantees the adequacy of the disclosures made in a prospectus. D)passes on the merits of a particular security covered by a registration statement.

The SEC requires full disclosure regarding a new issue so that investors can make informed decisions on the security. The SEC does not, however, guarantee the accuracy or adequacy of the information, nor does it approve or disapprove of the issue. Reference: 7.2.2.5 in the License Exam

Question #11 of 138Question ID: 606221 Which of the following acts requires full and fair disclosure of all material information about equity and debt securities offered for the first time to the public? A)Securities Exchange Act of 1934. B)Trust Indenture Act of 1939. C)Securities Act of 1933. D)Securities Investor Protection Act of 1970.

The Securities Act of 1933 regulates new issues of nonexempt securities sold to the public. Reference: 7.2.1 in the License Exam

Question #82 of 138Question ID: 606188 The Securities Exchange Act of 1934 regulates or mandates each of the following EXCEPT: A)full and fair disclosure on new offerings. B)manipulation of the secondary market. C)creation of the SEC. D)extension of credit to customers.

The Securities Exchange Act of 1934 created the SEC and regulates the secondary market. The Securities Exchange Act of 1934 does not address full and fair disclosure issues; the Securities Act of 1933 addresses such issues. Reference: 7.1.1.2 in the License Exam

Question #99 of 138Question ID: 606184 Which of the following acts requires corporate public issuers to send annual reports to their shareholders? A)Securities Investors Act of 1970. B)Securities Act of 1933. C)Securities Exchange Act of 1934. D)Trust Indenture Act of 1939.

The Securities Exchange Act of 1934 requires public issuers to inform the shareholders of their operations at least on an annual basis. Said reports should include a statement of the company's financial condition (i.e., balance sheet and income statements). The act further requires public companies to provide proxies to all shareholders regarding any action that requires a vote of the shares outstanding. Reference: 7.1.1.2 in the License Exam

Question #38 of 138Question ID: 606288 Which of the following terms is used in connection with a municipal securities underwriting? A)Agreement among underwriters. B)Effective date. C)Cooling-off period. D)In-registration.

The agreement among underwriters (or syndicate letter) details the participation and obligations of each syndicate member. "Cooling-off period", "registration period", and "effective date" are terms that apply to nonexempt issues that must be registered with the SEC in accordance with the Securities Act of 1933. Municipal issues are exempt from these registration requirements. Reference: 7.6.1 in the License Exam

Question #61 of 138Question ID: 606243 Within a firm commitment underwriting, which document details the responsibilities and liabilities of each firm? A)Letter of intent. B)Agreement among underwriters. C)Registration statement. D)Underwriting agreement.

The agreement among underwriters, also called the syndicate letter, is signed by representatives of all syndicate members and establishes a joint account to sell newly-issued securities. Reference: 7.5.1 in the License Exam

Question #10 of 138Question ID: 606242 Which of the following is typically the largest component of a corporate underwriting spread? A)Underwriting fee. B)Manager's fee. C)Concession. D)Reallowance.

The concession tends to be the largest component of a corporate underwriting spread; the manager's fee is generally the smallest component. Reference: 7.5.4 in the License Exam

Question #7 of 138Question ID: 606283 Regarding the purchase of a new issue, a customer would NOT be considered a restricted person if he were: A)a registered representative working for a FINRA member firm not involved in the issue. B)the wife of a principal of a FINRA member firm. C)the retired uncle of a bank clerical employee. D)a registered representative working for the issuing firm's investment banker.

The definition of a restricted person includes FINRA members and their associated persons. Immediate family members of such persons are also included under the definition. Reference: 7.6.3.1 in the License Exam

Question #86 of 138Question ID: 606207 Shortly before the end of the cooling-off period, the underwriters and representatives of the issuer have a meeting to review the status of the new issue. This is called a: A)pre-sales meeting. B)syndicate meeting. C)due diligence meeting. D)negotiation meeting.

The final meeting before the end of the cooling-off period is known as a due diligence meeting and is always held before the effective date of the new offering. Reference: 7.2.2.3 in the License Exam

Question #36 of 138Question ID: 606206 Smith and Company, a FINRA member firm, is preparing to underwrite securities to be issued by KLC Corporation for a new business venture. For which of the following will Smith and Company be responsible? Filing the registration statement with the SEC and state regulatory bodies. Providing advice on the type of security to be issued. Distributing the security to the public. Providing advice on how KLC can best utilize the funds raised. A)II and IV. B)I and III. C)II and III. D)I and IV.

The issuer is ultimately responsible for filing registration statements with federal and state regulatory bodies and has already determined how the money will be used. The underwriter confines his activities and advice to the type and sale of the securities. Reference: 7.2.1.1 in the License Exam

Question #47 of 138Question ID: 606248 The largest portion of an underwriting spread is the: A)stabilizing bid. B)manager's fee. C)concession. D)underwriting fee.

The largest portion of the spread is the concession. Reference: 7.5.4 in the License Exam

Question #40 of 138Question ID: 606241 The letter of intent in a corporate underwriting is typically signed by which of the following parties? Issuer. Managing underwriter. Syndicate members. Selling group members. A)II and IV. B)I and III. C)III and IV. D)I and II.

The letter of intent initiates the underwriting process and is signed by the issuer and managing underwriter. Reference: 7.5.1 in the License Exam

Question #41 of 138Question ID: 606209 A customer requests information on a new mutual fund and asks her registered representative to circle the important information in the prospectus and information he thinks will be of special interest to her. This is permitted: A)without restriction. B)if accompanied by an unmarked prospectus. C)under no circumstances. D)if approved by a principal.

The prospectus is a legal document and may not be altered. Reference: 7.2.2.6 in the License Exam

Question #89 of 138Question ID: 606198 All of the following must be part of a registration statement EXCEPT: A)identification of investors who own 5% or more of the company. B)the signatures of CEO, CFO, CAO, and majority of the board. C)a statement as to whether the company is involved in any legal proceedings. D)a prospectus.

The registration statement must identify investors who own 10% or more of the company. Reference: 7.2.1.1 in the License Exam

Question #81 of 138Question ID: 606249 If a corporation issues stock to the public at $10 per share, and the syndicate manager's fee is $.10 per share, the underwriting fee is $.25 per share, and the selling concession is $.45 per share, what is the spread? A)$.80. B)$.60. C)$.90. D)$.70.

The spread is the sum of the manager's fee, the underwriting fee, and the selling concession. Reference: 7.5.4 in the License Exam

Question #2 of 138Question ID: 721436 The underwriting agreement is signed by A)the issuer and the SEC B)the issuer and the managing underwriter C)the managing underwriter and the syndicate members D)the selling group members and the syndicate members

The underwriting manager represents all underwriting members, and on behalf of the underwriting group, signs the underwriting agreement with the issuer. The agreement among underwriters is the document signed by the managing underwriter and all syndicate members. The selling group members have no formal agreement with the underwriters to be signed. Reference: 7.4.0.1 in the License Exam

Question #15 of 138Question ID: 606237 The primary difference between an underwriting syndicate member and a selling group member in a firm commitment underwriting is that: A)the securities offered by each differs within the offering. B)the price per share paid by the public (POP) is more if purchasing new shares from a selling group member. C)the size of a syndicate member firm will always be larger than a selling group member firm. D)the syndicate assumes liability for unsold shares; the selling group does not.

The underwriting syndicate makes a financial commitment in a firm underwriting to bring a new issue to market and to take liability for unsold shares. A member of a selling group only agrees to provide a sales service for a certain number of shares in exchange for a commission on shares it sells. It has no responsibility for any unsold shares. The securities offered are identical and the public offering price is the same. Both large and small firms can be either syndicate members or selling group members. Reference: 7.4.1.3 in the License Exam

Question #79 of 138Question ID: 606256 To be designated as an accredited investor under Regulation D, a married couple investing in a joint account must have income of at least: A)$100,000. B)$300,000. C)$500,000. D)$200,000.

To be accredited, a couple must have at least $300,000 in annual income. For individuals, the income threshold is $200,000. Reference: 7.6.2.2 in the License Exam

Question #53 of 138Question ID: 606203 All of the following regarding a tombstone advertisement for a new issue are true EXCEPT A)They are the only types of advertising allowed during the cooling off period B)The advertisement is a statement of facts used to announce the new issue C)Underwriters are not required to publish tombstone advertisements D)They are used to offer the securities for sale

Tombstone advertisements, though not required, are the only type of new issue advertisement that would be allowed during the cooling off period. While they are a statement of facts used primarily to announce the new issue, they may not offer the securities for sale. Reference: 7.2.2.2 in the License Exam

Question #33 of 138Question ID: 606216 If XYZ Corporation intends to offer stock in a public offering, it must do all of the following EXCEPT: A)issue a prospectus. B)register the securities with the SEC. C)file a registration statement. D)publish a tombstone advertisement.

Tombstones are advertisements often appearing in business newspapers to publicize new issues and are generally placed by a syndicate manager. They are not required. Reference: 7.2.2.2 in the License Exam

Question #29 of 138Question ID: 606185 All of the following are covered under the Securities and Exchange Act of 1934 EXCEPT: A)proxy solicitation. B)short sales. C)margin. D)trust indentures.

Trust Indentures are covered under the trust indenture act of 1939. Reference: 7.1.1.2 in the License Exam

Question #22 of 138Question ID: 606289 All of the following would be excluded from raising capital under Regulation A+ EXCEPT A)a private equity fund B)a hedge fund specializing in small startup companies C)a small manufacturing company D)a venture capital firm raising money for small and medium size companies

Under Reg. A+ intended to facilitate small to medium size companies raise investment capital, venture capital firms, private equity funds and hedge funds are specifically excluded. Reference: 7.6.2.1 in the License Exam

Question #74 of 138Question ID: 606268 Which of the following provisions govern the offering of restricted shares to the public without filing a Form 144? The dollar amount is $1 million or less. 100,000 shares or fewer are sold. 5,000 shares or fewer are sold. The dollar amount is $50,000 or less. A)I and III. B)II and IV. C)I and II. D)III and IV.

Under Rule 144, Form 144 need not be filed if 5,000 or fewer shares are sold and the dollar amount is $50,000 or less. This de minimis rule applies to sales in any 90-day period. Reference: 7.6.2.4 in the License Exam

Question #84 of 138Question ID: 606195 Under SEC Rule 134, a tombstone advertisement includes all of the following EXCEPT: A)net proceeds to the issuer. B)names of the syndicate members. C)the public offering price. D)number of shares to be sold.

Under SEC Rule 134, a tombstone advertisement may be placed by the syndicate manager on or before the offering's effective date and is limited to the name of the issuer, type of security being offered, number of shares to be sold, public offering price, and names of the syndicate members. Reference: 7.2.2.2 in the License Exam

Question #20 of 138Question ID: 606194 During the cooling-off period, a registered representative (in order to highlight key points) marks a preliminary prospectus and sends it to a client. This action is: A)permitted if approved by a principal. B)permitted if the customer is an accredited investor. C)permitted without restriction. D)prohibited.

Under no circumstances may a registered representative mark a preliminary or final prospectus. Reference: 7.2.2 in the License Exam

Question #91 of 138Question ID: 606306 A member firm receives an order from an investment adviser to purchase shares in a common stock IPO. Regarding restricted persons, the member must: A)obtain a representation from the conduit that the purchaser is not a restricted person. B)obtain a list of all of the adviser's clients to determine eligibility. C)refuse to accept the order. D)obtain a list of the client(s) whose account(s) will be credited with the shares in order to determine eligibility.

When receiving an order to buy a new equity issue from a bank, investment adviser, or other conduit, a member must obtain a representation from the conduit that all purchasers are in compliance with rules regarding sales of new issues to restricted persons (i.e., they are not restricted persons). Reference: 7.6.3.1 in the License Exam

Question #76 of 138Question ID: 642522 Which of the following are TRUE regarding the two tiers of securities offerings under Regulation A+? A)Both tiers require that public investors be accredited B)Neither tier requires public investors to be accredited C)Both tiers are open to the public for investing D)Both tiers specify maximum investment limits per offering for investors

While both tiers under Regulation A+ are open to the public with general solicitation permitted, investors wanting to invest in Tier 2 securities offerings must be "qualified" not accredited. Tier 1 offerings have no investment limits for investors but tier 2 offerings do. The maximum investment allowed for a Tier 2 offering is the greater of 10% of the investors net worth or 10% of their net income per offering. Reference: 7.6.2.1 in the License Exam