SIE Unit 7 Checkpoint exam
The aftermarket prospectus requirement following an APO for exchange-listed securities is A) 40 days. B) 0 days. C) 90 days. D) 25 days.
B) 0 days. For exchange-listed additional public offerings, there is no aftermarket prospectus requirement. LO 7.g
Which of the following would take place in the primary market? A) Securities sold to the public by the issuer B) Securities bought and sold on the OTC C) Securities sold on both the OTC and NYSE D) Securities bought and sold on the NYSE
A) Securities sold to the public by the issuer When an issuer is selling its securities, that is a primary market transaction. LO 7.
The federal law requiring companies offering public equity or debt securities to provide a prospectus to investors is known as A) the Securities Exchange Act of 1934. B) the Securities Act of 1933. C) the Trust Indenture Act of 1939. D) the Securities Investors Protection Act of 1970.
B) the Securities Act of 1933. The Securities Act of 1933 is also known as the Prospectus Act. With limited exceptions, companies looking to offer securities to the public must provide a prospectus to those who are approached about purchasing those securities. A prospectus is a disclosure document that provides key information about the company. LO 7.d
An underwriter is placing a tombstone advertisement for a company's new issue. A prospective investor might expect to see all of the following information on the advertisement except A) the type of security to be sold (stock or bond). B) the names of the company's officers. C) the names of the underwriting members. D) the number of shares to be sold.
B) the names of the company's officers. Information on a tombstone, those advertisements allowed to be placed prior to the effective date, is limited to; name of issuer, type of security, number of shares to be sold, public offering price or expected range, and names of the underwriters or group. LO 7.d
Primary market transactions would include which of the following? A) Sale of $10 million of corporate bond by a broker-dealer acting as an underwriter B) Sale of $10 million of U.S. Treasury bonds by a broker-dealer acting as a market maker C) Sale of $10 million of corporate stock by a broker-dealer acting as a market maker D) Sale of $10 million of municipal bonds by a broker-dealer acting as a market maker
A) 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. LO 7.c
A company's management team has agreed to issue additional shares of common stock in part to provide an employee stock ownership plan. It is agreed the issuance of the stock is not urgent and can wait until more favorable market conditions exist. What type of registration is most suitable under these conditions? A) A shadow registration B) A shelf registration C) An expansion registration D) An employee stock ownership plan (ESOP) registration
B) A shelf registration The Securities Act of 1933 permits issuers to quickly raise money in the capital markets when needed or when market conditions are just right. For example, if a company files a shelf registration statement with the Commission, there is no intention to immediately sell the securities. However, when the right time arrives—either interest rates are at a likely low point or funds are needed to complete a project—the company can in essence, take the securities from the shelf without the delay of registering with the Securities and Exchange Commission (SEC), as that has already been done. Shelf registration (shelf offering) is available for both primary and secondary offerings. LO 7.h
An investor requests a preliminary prospectus for a new issue. Regarding the document which of the following is true? A) The final price for the securities is published within it. B) It is made available between the registration date and the effective date. C) Receipt of it is a commitment that the underwriters will sell securities to the recipient. D) It can be deemed an offer to sell securities to the public.
B) It is made available between the registration date and the effective date. The preliminary prospectus (red herring) is a prospecting tool used to gauge indications of interest. It is made available to those who request it between the registration date and the effective date (cooling-off period). Receiving it is not a commitment to purchase shares and making it available is not a commitment to sell shares to the recipient. No final price would be found on a preliminary prospectus. LO 7.d
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) Private (nonpublic) securities offering C) Initial public offering D) Additional public offering (APO)
B) 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. LO 7.b
An investor is viewing a company's prospectus on the Securities Exchange Commission's (SEC's) website. Which of the following is true? A) Access equals delivery can only mean physical delivery of the prospectus and not viewing one on a website. B) This satisfies the access equals delivery rule for a final prospectus. C) This does not satisfy the access equals delivery rule for an aftermarket prospectus. D) This satisfies the access equals delivery rule for a preliminary prospectus.
B) This satisfies the access equals delivery rule for a final prospectus. A prospectus will be deemed to precede or accompany a security for sale if the final prospectus has been filed with the SEC and can be viewed on the SEC website. The access equals delivery model applies to the final prospectus and aftermarket prospectus delivery obligations but not to the preliminary prospectus delivery obligations. LO 7.g
An indication of interest given by an investor during the cooling-off period is A) an investor's binding commitment to purchase some of the issue after the security comes out of registration. B) an investor's declaration of potential interest in purchasing some of the issue after the security comes out of registration. C) an investor's declaration of potential interest in purchasing some of the issue immediately. D) an investor's binding commitment to purchase some of the issue immediately.
B) an investor's declaration of potential interest in purchasing some of the issue after the security comes out of registration. An indication of interest given by an investor during the cooling-off period is the investor's declaration of a nonbinding potential interest to purchase some of the issue after the security comes out of registration (after the effective date). LO 7.d
Regarding primary and secondary offerings, which of the following are true? I. An offering can only be either a primary or secondary. II. An offering can be a combination of primary and secondary. III. An initial public offering (IPO) is a secondary offering. IV. An additional primary offerings (APO) is a primary offering. A) II and III B) I and IV C) II and IV D) I and III
C) II and IV An offering can be a combination of primary and secondary. These are known as split offerings. Both IPOs and APOs are primary offerings, where the issuer receives the sale proceeds. LO 7.d
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 and will not be allowed to purchase equity shares of an IPO. C) is not a restricted account and will be allowed to purchase equity shares of an initial public offering (IPO). D) is a restricted account but will be allowed to purchase equity shares of an IPO.
C) 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. LO 7.b
A preliminary prospectus is used to solicit A) indications of interest before the effective date. B) sales after the effective date. C) indications of interest before the registration filing date. D) sales before the effective date.
A) 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. LO 7.d
Which type of underwriting is characterized by the broker-dealer buying the entire issue from the issuer and then reoffering it to the public? A) All-or-none B) Firm commitment C) Mini max D) Best efforts
B) Firm commitment In a firm commitment, the underwriter buys the entire offer into inventory and then redistributes it to the public. LO 7.b
Six days into the cooling-off period, an issuer receives a deficiency letter from the Securities and Exchange Commission (SEC) requesting clarification and corrections. Once the issuer submits these, and assuming that they satisfy the deficiency, the cooling-off period will resume. With no other deficiencies arising, the issue should become effective in A) 20 days. B) 15 days. C) 8 days. D) 14 days.
D) 14 days. When the issuer submits the corrections necessary to satisfy the deficiency letter, the 20-day cooling-off period picks up where it left off; in this case, from six days, which means that the issue should be effective 14 days later. LO 7.d
For a new issue that qualifies for listing on an exchange, a prospectus must be provided to all purchasers for how many days after the effective date? A) 40 days B) 90 days C) 60 days D) 25 days
D) 25 days For new issues that qualify for listing on an exchange or Nasdaq, the prospectus delivery requirement period in the aftermarket (after the effective date) is 25 days. For nonlisted and non-Nasdaq securities the period is 40 days. If the new issue will be specifically quoted on the OTCBB or the electronic OTC Pink, the period is 90 days. LO 7.g
For a new issue that qualifies for Nasdaq listing, a prospectus must be provided to all purchasers within how many days after the effective date? A) 90 days B) 40 days C) 60 days D) 25 days
D) 25 days For new issues that qualify for listing on an exchange or Nasdaq, the prospectus delivery requirement period in the aftermarket is 25 days. For nonlisted and non-Nasdaq securities, the period is 40 days. If the new issue will be specifically quoted on the OTCBB or the electronic OTC Pink, the period is 90 days. LO 7.g
A company is looking to raise additional capital to fund an expansion plan. The company's senior management chooses to issue additional bonds to the general public. The best expression to explain this type of offering would be A) a secondary offering. B) a private securities offering. C) an initial public offering (IPO). D) a primary offering.
D) a primary offering. A primary offering is one in which the proceeds raised go to the issuing corporation, municipality, or government. The corporation in this case looks to increase its liquid capital by offering bonds. Primary offerings of bonds may be made by an issuer publicly, as is the case, or privately. This question points to an additional public offering (APO) of securities, not an initial public offering. LO 7.b
A member firm receives an order to purchase shares in a common stock initial public offering (IPO) from another broker-dealer for a customer. Regarding restricted persons, the member must A) obtain a list of all of the broker-dealer clients to determine eligibility. B) refuse to accept the order. C) obtain a statement witnessed by a notary representing that the buyer is not restricted. D) obtain a written representation that the buyer is not a restricted person.
D) obtain a written representation that the buyer is not a restricted person. When receiving an order to buy a new equity issue, a member must obtain a written representation that purchasers are in compliance with rules regarding sales of new issues to restricted persons (i.e., they are not restricted persons). LO 7.b
The primary purpose of the Securities Act of 1933 is to A) authorize the designated self-regulatory organizations (SROs) to enforce securities rules and regulations. B) provide a basis for the regulation of exchanges and electronic trading venues. C) regulate all persons associated with industry member firms. D) require full and fair disclosure in connection with the sale of securities to the public.
D) require full and fair disclosure in connection with the sale of securities to the public. The primary purpose of the Securities Act of 1933 is to require full and fair disclosure in connection with the sale of securities to the public. LO 7.b
