chapter 6
Blue-Sky laws apply to which TWO of the following choices? I. Registered representatives II. Securities issued by the City of Chicago III. Commercial paper IV. Securities issued by a REIT a.I and III b.I and IV c.II and III d.II and IV
Blue-Sky laws are state securities laws. These laws apply to the registration of sales personnel (registered representatives), the registration and sale of nonexempt securities. REITs (real estate investment trusts) are considered nonexempt securities and are, therefore, regulated by state laws. Municipal securities and commercial paper are considered exempt securities.
A corporation is planning to issue new stock to the public and has filed a registration statement with the SEC. As a registered representative of the firm that is expected to do the underwriting, you are permitted to: I.Obtain indications of interest from prospective purchasers II.Receive monies from customers who intend to purchase the issue III.Send a preliminary prospectus to retail investors IV.Guarantee a customer that he will be able to purchase 1,000 shares of the issue a. I and III b. I and IV c. II and III d. II and IV
a A registered representative is permitted to send a preliminary prospectus to any type of investor and obtain nonbinding indications of interest. The RR cannot accept money nor guarantee a customer that he would receive a particular amount of the issue. If the corporation has not filed a registration statement with the SEC, none of the choices listed would be acceptable.
In order to have an issuer of securities exempt from the provisions of the Securities Act of 1933 under Regulation D, which TWO of the following statements are TRUE? I.The purchasers must sign an investment letter restricting the resale of the securities II.The size of the offering must be limited III.The number of accredited buyers is unlimited IV.The issuer must file an offering document with the SEC a. I and III b. I and IV c. II and III d. II and IV
a According to Regulation D, certain conditions must be met for the securities to be exempt from the provisions of the Securities Act of 1933. The offering must be restricted to persons who are knowledgeable and experienced in business and financial matters and who are able to afford the economic risks involved. The issuer must provide the buyer with detailed financial information (this offering document does not need to be filed with the SEC). The number of nonaccredited purchasers must be limited to 35, and the offering must be made in direct negotiations between the issuer and the buyer or his purchaser representative. Also, the buyer must sign an investment letter stating that the purchase was made for investment and not for short-term trading purposes. The size of the offering is not limited and there is no limit as to the number of accredited investors.
A corporation is issuing 5,000,000 shares of stock at a public offering price of $13 per share. The manager of the underwriting syndicate receives $0.15 per share. The syndicate members' compensation is $0.65 per share for each share they sell. The selling group's concession is $0.40 per share for each share they sell. The syndicate is allocated 4,000,000 shares and the selling group is allocated 1,000,000 shares. Assuming that all of the shares are sold, what amount will the syndicate members receive for their risk on shares sold by the selling group? a. $0.25 per share for a total of $250,000 b. $0.25 per share for a total of $1,000,000 c. $0.40 per share for a total of $400,000 d. $0.65 per share for a total of $650,000
a The members of the syndicate receive $0.25 per share for their risk. Since the selling group was allocated 1,000,000 shares, the syndicate will receive $0.25 per share on 1,000,000 shares for a total of $250,000. (0.65-0.40= 0.25)
When raising capital, which TWO of the following securities are required to be registered with the SEC under the Securities Act of 1933? I.Common stock in a software company that will be listed on Nasdaq II.Debentures issued by a finance company sold only to qualified institutional buyers III.An American Depositary Receipt issued by a Canadian company IV.A revenue bond issued to finance a stadium a. I and III b. I and IV c. II and III d. II and IV
a There is no specific exemption under the registration provisions of the Securities Act of 1933 for ADRs or shares of a software company that will be listed on Nasdaq. Both securities, if sold to the public in the U.S., require SEC registration. A security sold only to qualified institutional buyers (QIBs) is exempt and may be resold under a 144A exemption. Also exempt are municipal securities, which include both revenue bonds and general obligation bonds.
Morris Investments is working a leveraged buyout deal to purchase Simon Entertainment Group. The fundamental financing for the deal will consist mostly of: a. Debt issued using the assets of Simon Entertainment Group as collateral b. Debt issued using the assets of Morris Investments as collateral c. Equity issued by Simon Entertainment Group d. Equity issued by Morris Investments
a- A leveraged buyout (LBO) is the acquisition of a company primarily using debt to finance the purchase. The assets of the acquired company are generally used as collateral for the borrowed funds. This type of acquisition allows the acquiring company, which is referred to as a private equity (PE) firm, to make the purchase without using much of its own equity. In many circumstances, since a large amount of borrowed funds are used to make the purchase, they are usually non-investment-grade
In an underwriting of a new issue by a syndicate, which of the following statements is TRUE? a. The underwriting spread is larger than the selling concession b. The selling concession is larger than the underwriting spread c. The reallowance is larger than the underwriting spread d. The reallowance is larger than the selling concession
a- In the underwriting of a new issue, the underwriting spread is larger than the selling concession. The underwriting spread is larger because members of the underwriting syndicate assume the risks of the underwriting. The selling concession given to the selling group is less because the selling group acts in a best-efforts capacity and does not assume the risks involved in a firm-commitment underwriting. A reallowance is compensation given to broker-dealers who are nonmembers of the syndicate or selling group who would like to participate in the underwriting. The reallowance given is less than the amount members of the syndicate or selling group receive.
XYZ Corporation is selling 10,000,000 shares of common stock through an underwriter, at $15 per share. The underwriting spread is as follows. The manager's fee is 20 cents, the underwriting risk 20 cents, and the selling concession 60 cents. Selling group members have been allocated 500,000 shares. If the selling group members sell their entire allocation, their compensation will be: a.$300,000 b.$400,000 c.$500,000 d.$6,000,000
a- Selling group members are broker-dealers who participate in the sale of the issue on a best-efforts basis (i.e., assuming no risk). They receive a selling concession (compensation) that is less than that received by syndicate members, who do assume risk. The selling concession is $.60. This is part of the $1.00 underwriting spread. If the selling group members sell their entire allocation, they will receive $300,000 (500,000 shares x $0.60 per share). Syndicate members receive the selling concession and the underwriting risk per share sold, or $.80.
Which TWO of the following activities are normally functions of the investment banking department of a broker-dealer? I.Working with issuers to raise capital II.Selling securities to institutional investors III.Assisting companies with mergers and acquisitions IV.Making a secondary market for new issues a. I and III b. I and IV c. II and III d. II and IV
a-A corporation that wishes to raise capital will typically employ the services of an investment banker and engage in an underwriting process. Investment bankers provide financing for corporations by bringing an issue, whether debt or equity, to market for the issuer. The investment banking department will also assist companies with mergers and acquisitions. Investment bankers do not make a secondary market for new issues or sell securities to institutional investors.
A registered representative's broker-dealer is an underwriter of an initial public offering of stock. The RR's father-in-law may purchase: a.The IPO from a different broker-dealer b.The IPO from the RR's broker-dealer c.Only a limited quantity of the IPO from any broker-dealer d.The IPO but only from a member of the selling group
a-A restricted person is not permitted to purchase any shares of a new issue unless an exemption applies. There is no exemption for restricted persons to purchase limited quantities of an IPO. An immediate family member of an employee (an RR) of a member firm may be a restricted person. Immediate family members include a spouse, children, parents, siblings, in-laws, and any other person who is materially supported by an employee of a member firm. An exception exists if a nonsupported, immediate family member buys the IPO from a different broker-dealer. There is no requirement to purchase the shares only from a selling group member.
A director of BDG owns 180,000 shares of BDG stock, which were purchased in the secondary market. If the director wants to sell 17,000 shares of BDG that she has owned for nine months, which of the following statements is TRUE? a.The director is permitted to sell the shares if the trade is reported b.The director is permitted to sell the shares only if they are held for three additional months and the trade is reported c.The director is permitted to sell the shares and no report is required d.The director is permitted to sell
a-An insider, as defined by the Securities Exchange Act of 1934, is a director, officer, or owner of more than 10% of the voting stock of a corporation. Immediate family members of the insider are also subject to the same limitations. An officer or director is required to register with the SEC regardless of her ownership levels in the company. The director as an insider is required to report the transaction to the SEC within two business days. Insiders are not permitted to make short-swing profits (based on ownership of six months or less in their own company's stock). Since the director owned the shares for nine months, there is no violation. Since the shares were purchased by the director in the secondary market, the shares are considered control, not restricted stock, and are not subject to the six months' holding.
Which TWO of the following persons may be permitted to purchase issuer-directed shares of an equity IPO? I.An employee of a FINRA member whose spouse is a director of the issuer II.A portfolio manager of a mutual fund purchasing for his personal account III.Employees of the issuer if the issuer is a FINRA member IV.An outside attorney assisting in the IPO a.I and III b.I and IV c.II and III d.II and IV
a-Issuer-directed securities provide an exemption for certain individuals under the New Issue Rule. Under this provision, issuers may direct securities to the parent company of the issuer, the subsidiary of an issuer, and employees and directors of an issuer. The issuer-directed provision also permits immediate family members of employees and directors to participate in the offering. Registered representatives are also allowed to purchase shares of an equity IPO if the issuer is that person's employing broker-dealer or is the parent or subsidiary of the broker-dealer. An attorney hired to assist in the IPO is also restricted and, since he is not employed by the issuer, he is not eligible to buy issuer-directed shares. A portfolio manager of a fund may not purchase for his personal account. A purchase may be made on behalf of the fund
Which TWO of the following investors would NOT be permitted to purchase shares of an IPO of KMF? I.An attorney involved in the new issue of KMF II.An investment company registered under the Act of 1940 that has some restricted persons as shareholders III.A portfolio manager of an investment company buying for his personal account IV.The general account of an insurance company a. I and III b. I and IV c. II and III d. II and IV
a-Restricted persons include finders and fiduciaries (such as attorneys and accountants) involved in the new issue as well as portfolio managers who buy and sell securities on behalf of institutional investors. The New Issue Rule also provides a number of general exemptions. The exemptions allow a new issue defined under the rule to be sold to the following accounts. • Investment companies registered under the Investment Company Act of 1940 • The general or separate account of an insurance company • A common trust fund • An account in which the beneficial interest of all restricted persons does not exceed 10% of the account. (This is a de minimis exemption that allows an account owned in part by restricted persons to purchase a new issue if all restricted persons combined own 10% or less of the account.) • Publicly traded entities other than a broker-dealer or its affiliates that engage in the public offering of new issues • Foreign investment companies • ERISA accounts, state and local benefit plans, and other tax-exempt plans under IRS Code 501(c)(3)
Which TWO of the following statements are TRUE concerning the Securities Act of 1933? I.Registration provisions apply if the securities beings sold are listed on the NYSE II.Antifraud provisions do not apply if the securities being sold are listed on the NYSE III.Registration provisions do not apply to securities issued by a municipality IV.Antifraud provisions do not apply to securities issued by a municipality a. I and III b. I and IV c. II and III d. II and IV
a-The registration provisions of the 1933 Act apply if securities sold are listed on the NYSE or Nasdaq, but do not apply to securities issued by a municipality. The antifraud provisions of the Securities Act of 1933 apply to all securities, even those exempt from registration.
A corporation is planning to issue new stock to the public but has not yet filed a registration statement with the SEC. As a registered representative of the firm that is expected to do the underwriting, you are permitted to take which of the following actions? a. Obtain indications of interest from prospective purchasers b. Discuss the offering with investment bankers at your firm c. Send a customer a copy of a preliminary prospectus (red herring) d. Guarantee a customer that he will be able to purchase 1,000 shares of the issue
b A registered representative may discuss the offering only with employees at the firm. None of the other choices listed are permitted since the corporation has not filed a registration statement with the SEC. If a registration statement has been filed with the SEC, the registered representative may send a customer a red herring and obtain indications of interest to purchase the new issue. The registered representative cannot accept money nor guarantee a customer a particular amount of the issue.
Which of the following statements is TRUE concerning the sale of restricted securities? a. If the company is listed on Nasdaq, there is no holding period b. The sale must conform to the provisions of SEC Rule 144 c. A brokerage firm may act only in an agency capacity d. The sale must be at the bid price as determined by the current quote of the outstanding securities
b The sale of restricted securities must conform to the provisions of SEC Rule 144. There is a six-month holding period even if the securities are listed on Nasdaq or the NYSE. A brokerage firm may act in an agency or principal capacity. The sale does not need to be at the bid price as determined by the current quote of the outstanding securities. The sale can be made at whatever price is agreed upon between the buyer and seller.
A broker-dealer is underwriting an initial public offering (IPO) for a company that will be listed on the NYSE. The broker-dealer is required to deliver prospectuses: a. Only on purchases made, at the public offering price b. For 25 days after the effective date c. For 40 days after the effective date d. For 90 days after the effective date
b When a company that is the subject of an IPO is listed, on the effective date of the offering, prospectuses must continue to be delivered on all purchases in the aftermarket for 25 days. The prospectus delivery requirement for an IPO that will not be listed on an exchange continues for 90 days after the deal closes
A clause in an underwriting agreement that allows an underwriting syndicate to purchase additional shares from the issuer for sale to the public is a(n): a.Best-efforts clause b.Green Shoe clause c.Violation d.All-or-none clause
b-A clause in an underwriting agreement that allows the syndicate to sell more of an issue than was originally available, and acquire those shares from the issuer, is known as a Green Shoe clause. This clause is found in the offering's overallotment provision and is limited to 15% of the offering.
Which TWO of the following new issues may be purchased by an employee of a broker-dealer under the New Issue Rule? I.An exchange-traded fund II.An initial public offering in which the RR's firm is not an underwriter III.A new issue of common stock in which the broker-dealer is the managing underwriter IV.Convertible debt a. I and III b. I and IV c. II and III d. II and IV
b-An employee of a broker-dealer is considered a restricted person and may not purchase new issues under FINRA rules. New issues under the rule are defined as initial public offerings (IPOs) of equity securities sold under a registration statement. Exemptions from the definition of an IPO include all debt offerings, investment company offerings such as mutual funds and exchange-traded funds, and preferred stock. Whether the broker-dealer is participating as an underwriter does not alter the restrictions.
An equity security that is distributed under Regulation S may be resold by: a. Immediate sale within the U.S. market b. Immediate sale in a designated offshore market c. Regulatory approval from SROs d. Waiting six months, then selling within the U.S. market
b-An overseas investor who acquires securities pursuant to Regulation S may sell the securities overseas immediately through a designated offshore securities market. There is a distribution compliance period (holding period) of 40 days for debt securities and a one-year period before an equity security sold pursuant to Regulation S may be resold in the U.S.
A charity has received restricted stock from the director of a corporation. The director owned the stock for two years before giving it to the charity. According to SEC Rule 144, the charity may sell the stock: a.Only if sold to a qualified institutional buyer b.Freely under Rule 144 c.After holding the stock for an additional six months, subject to the volume restrictions of Rule 144 d.After holding the stock for an additional six months, but not subject to the volume restrictions of Rule 144
b-The charity may sell the stock freely (immediately) since the required holding period for restricted stock has already been met by the director. Since the charity is a not affiliated with the issuer (a nonaffiliated person), it is not subject to the volume restrictions. However, the stock is still restricted (unregistered) and must be sold under Rule 144. Rule 144A, not Rule 144, requires the purchaser to be a qualified institutional buyer
Which of the following choices makes a financial commitment in the distribution of a new issue of securities? a. The selling group b. The underwriting syndicate c. A customer who provides an indication of interest d. The exchange on which the security will be listed
b-The underwriting syndicate makes a commitment to the issuer to purchase the entire offering. If the syndicate cannot resell the offering at the public offering price, it may suffer a loss. While the selling group also participates in the sale of the new issue, it does not run the risk of losses if the securities do not sell. Regarding choice (c), a customer who provides an indication of interest has no obligation of any kind.
An underwriting syndicate that offered a new issue at $21 could stabilize the offering at which TWO of the following prices? I.$20.90 II.$21.01 III.$21.20 IV.$20.20 a. I and III b. I and IV c. II and III d. II and IV
bAn underwriter can stabilize a new issue at or below the offering price. The underwriter could stabilize at $20.90 and $20.20.
Your client is president of XYZ Corporation and is selling XYZ shares pursuant to Rule 144. A filing must be made with the SEC: a. 15 days before the sale b. At the time of the sale c. 30 days after the sale d. 90 days after the sale
bThe filing must be made at the time of the sale and is effective for 90 days
Your firm is the managing underwriter of an initial public offering. How many days must the firm's research analyst wait before issuing a research report on this IPO? a.There is no waiting period and research may begin anytime after the effective date b.Three days c.10 days d.25 days
c If a firm is involved in an underwriting of an initial public offering and is the manager or comanager, it must maintain a quiet period of 10 days following an IPO or three days following a secondary offering. During this time, the firm may not issue research reports on its investment banking clients' stock. If the firm was a syndicate member or selling group member, the firm would need to wait 10 days.
Fred's Auto Centers is looking to raise $10 million to expand its business. The company has entered into an agreement to raise the capital through Winco Securities, a local investment banking firm. Winco Securities has made no guarantee that it will be able to raise the full amount of the offering. Which TWO of the following statements regarding this scenario are TRUE? I.This is an example of a firm-commitment underwriting II.This is a best-efforts underwriting III.Winco is acting as an agent for Fred's Auto Centers IV.Winco is acting as principal in this underwriting a. I and III b. I and IV c. II and III d. II and IV
c The underwriting is being done best-efforts, since no guarantee to raise the $10 million has been made by Winco Securities. Winco is acting as an agent in the transaction because any unsold shares will be retained by Fred's Auto Centers. Winco will be compensated only for the shares it sells and assumes no liability in the deal.
Under Rule 144A, a registered representative is NOT permitted to sell unregistered securities to which of the following? a.An investment company b.An insurance company c.An accredited investor d.An investment adviser
c Under Rule 144A of the Securities Act of 1933, unregistered securities may be resold only to qualified institutional buyers (QIBs). Qualified institutional buyers are entities that have at least $100 million of investable assets. The term institution includes insurance companies, investment advisers, investment companies, employee benefit plans, or other types of institutional investors. Individual investors, even if they are deemed to be accredited investors, are not considered to be QIBs.
Which TWO of the following statements are TRUE regarding the trading restrictions placed on a director of a publicly traded company? I.There is a limit on the amount of registered stock the director may purchase II.There is no limit on the amount of registered stock the director may purchase III.There is a limit on the amount of unregistered stock the director may sell IV.There is no limit on the amount of unregistered stock the director may sell a. I and III b. I and IV c. II and III d. II and IV
c- Restricted stock is stock that is not registered and is typically acquired by an individual through a private placement. With regard to restricted stock, the purchaser must hold the stock for six months before she may dispose of it. Control stock is registered stock that is acquired by an affiliate (control) person, such as an officer or director, in the secondary market. A control person who acquires stock through an open-market purchase may sell the stock anytime. There is no limit placed on the number of registered shares an insider may purchase. According to Rule 144, there is a restriction on the sale of both restricted and control stock.
An insider of XYZ Corp. buys company stock in the open market at $63/share. Ten months later, the insider wishes to sell the stock at the current market price of $68/share. Which TWO of the following statements are TRUE regarding this transaction? I.The sale is subject to the six-month holding period under Rule 144 II.This sale is not subject to the six-month holding period under Rule 144 III.The sale is subject to the volume limitations under Rule 144 IV.The sale is not subject to the volume limitations under Rule 144 a. I and III b. I and IV c. II and III d. II and IV
c- Rule 144 requires that restricted (unregistered) stock be held for six months before it may be resold. Control stock (registered stock purchased by insiders) is not subject to a holding period requirement under Rule 144. Both restricted and control stock are subject to the volume limitations under the rule.
In a Rule 144A transaction, which of the following statements is NOT TRUE? a. The seller, or any person acting on its behalf, such as a broker-dealer, must reasonably believe that the purchaser is a qualified institutional buyer (QIB) b. The buyer must be able to establish its credentials as a QIB, through relevant documentation c. The only documentation acceptable for establishing that the purchaser is a QIB is audited financial statements (or their equivalent, for foreign issuers) d. If the seller has no reason to question the accuracy of documentation provided by the purchaser, it has no duty to inquire further about the purchaser's status as a QIB
c- The SEC has provided several examples of documents that can be relied on by the seller when establishing its belief that a purchaser is a qualified institutional buyer. Audited financial statements and a certification from the issuer are common methods of demonstrating that the purchaser is a QIB
Dedicated Securities has been invited to join a syndicate selling a new offering of common stock. The head of the firm's syndicate department notices that the agreement among underwriters mentions a penalty bid. Which of the following choices is an example of a penalty bid? a. If Dedicated fails to sell its allotment, it will be liable for twice its normal commitment b. If Dedicated fails to solicit a certain number of indications of interest, it will be required to pay a fee to the syndicate manager c. If Dedicated sells some of the issue to a customer, who later sells the stock back to the syndicate at the stabilizing bid, Dedicated will forfeit the concession on those shares d. If Dedicated sells some of the issue to a customer, who later sells the stock back to the syndicate at the stabilizing bid, Dedicated could be penalized for failure to maintain the public offering price
c-A penalty bid is an arrangement that permits the managing underwriter to reclaim a selling concession from a syndicate member when securities originally sold are repurchased by the syndicate in stabilizing transactions.
In a rights offering, an underwriter offers to purchase all the shares the issuing corporation may not be able to sell. This is known as a(n): a. Firm-commitment underwriting b. Best-efforts underwriting c. Standby underwriting d. All-or-none underwriting
c-A type of underwriting in which the underwriter agrees to buy all the shares not subscribed to in a rights offering is a standby underwriting. The issuing corporation realizes that many shareholders will not participate in the rights offering. This may amount to a large number of the shares being offered. The corporation will not receive the money for the shares that are not subscribed to. The underwriter that is standing by to buy all the unsubscribed shares will either buy them at a discount or will receive a fee. This type of an arrangement assures the issuing corporation it will be able to raise the amount of capital it requires.
Why is the maturity of commercial paper 270 days or less? a. It coincides with the historical 9-month business cycle b. It is an attractive alternative to 6-month Treasury bills c. Short-term corporate debt of 270 days or less is exempt from registration d. It may be purchased by noninstitutional investors
c-Commercial paper has a maximum maturity of 270 days in order to be exempt from the registration requirements of the Securities Act of 1933. Most commercial paper is purchased by institutional investors.
ABC Corporation intends to make an initial public offering of 10,000,000 shares of common stock, 7,500,000 shares of which will be new stock being issued by ABC Corporation and 2,500,000 shares will be for selling stockholders. Which TWO of the following statements regarding this offering are TRUE? I.It is a primary distribution II.It is a primary and secondary distribution III.The proceeds of the sale will be shared by the corporation and the selling stockholders IV.The corporation will receive all of the proceeds of the sale a. I and III b. I and IV c. II and III d. II and IV
c-Since both the corporation and existing shareholders are selling stock, it is both a primary and secondary distribution. In a primary distribution, proceeds go to the corporation. In a secondary distribution, proceeds go to the selling shareholders.
An individual wishes to sell stock according to Rule 144 requirements. There are 3,500,000 shares outstanding. The individual decides to sell on January 30. The trading volume for the stock is as follows. Week ending January 1 20,000 shares Week ending January 8 48,000 shares Week ending January 15 30,000 shares Week ending January 22 36,000 shares Week ending January 29 40,000 shares How many shares may be sold? a.33,500 b.34,800 c.35,000 d.38,500
d The individual may sell the greater of 1% of the outstanding shares or the average weekly trading volume for the preceding four weeks. The average is 38,500 [(40,000 + 36,000 + 30,000 + 48,000) divided by 4]. This is greater than 1% of the outstanding shares (1% of 3,500,000 equals 35,000).
An insider owning 500,000 shares of unregistered ABC stock has filed a Form 144 Notice of Offering. The weekly volume of trading for ABC on all exchanges was: June 30 61,000 June 23 62,000 June 16 64,000 June 9 65,000 June 2 40,000 ABC has 6,500,000 shares of stock outstanding. On July 3, the insider would like to sell a portion of his unregistered stock. What is the maximum amount of shares he may sell under Rule 144? a. 57,750 b. 58,400 c. 63,000 d. 65,000
d- On July 3, the insider wants to sell unregistered ABC stock under Rule 144. The trading volume for the previous four weeks was: June 30 61,000 June 23 62,000 June 16 64,000 June 9 65,000 Total four-week volume 252,000 The average volume is 63,000 shares (252,000 divided by four weeks equals 63,000). Rule 144 states that the insider may sell an amount equal to the average weekly volume of the previous four weeks, or 1% of the outstanding shares, whichever is greater. One percent of the 6,500,000 outstanding shares equals 65,000. Therefore, the investor may sell 65,000 shares of the security.
Rule 145 applies to a(n): a. Stock split b. Stock dividend c. Adjustment in par value d. Merger or acquisition
d- Rule 145 applies to mergers, consolidations, reclassifications of securities, or transfers of corporate assets. Rule 145 requires a company to provide written disclosures to shareholders in connection with the previously listed corporate actions. Stock splits, dividends, and the resulting changes in par value are specifically exempted from filing under Rule 145.
A client has a brokerage account with a broker-dealer in New York City. She decides to move to Montana to retire. She still intends to maintain the account with the broker-dealer, which is registered only in New York. Which of the following statements is TRUE? a.This is permitted provided the client maintains a P.O. Box in New York b.This is permitted since the account was opened in New York prior to the client's move to Montana c.The client can maintain the brokerage account if the firm registers as an investment adviser in Montana d.The client can maintain the brokerage account if the firm registered as a broker-dealer in Montana
d-A broker-dealer must be registered in each state in which it conducts business. In addition, the securities and the registered representative must be registered in all states in which the issue is SOLD. Registration as an investment adviser is not the same as registration as a broker-dealer.
A registered representative receives an order from the president of XYZ Corporation to sell unregistered XYZ shares. The client purchased the shares in a private placement 90 days ago. This order: a. Will require the filing of Form 144 with the SEC b. May be executed without any restrictions c. Must be approved by a principal prior to execution d. Is a violation of Rule 144 if executed
d-According to Rule 144, an affiliated person (e.g., the president of a company) must hold unregistered (restricted) stock for at least six months before it may be sold. Since the president of XYZ Corporation owned the stock for only 90 days, the order to sell violates Rule 144, if executed.
XYZ Corporation has 4,000,000 shares of common stock authorized and 2,500,000 shares issued, of which 100,000 shares are treasury stock. The corporation is issuing an additional 1,000,000 shares through a standby underwriting. If only 600,000 shares are subscribed to in the corporation's offering, the number of outstanding shares will: a. Remain the same since the entire issue was not fully subscribed b. Increase by 600,000 to 3,000,000 shares c. Increase by 600,000 to 3,100,000 shares d. Increase by 1,000,000 to 3,400,000 shares
d-Since 100,000 shares of the 2,500,000 shares issued is treasury stock (repurchased by the corporation), there are 2,400,000 shares outstanding prior to the new issue. On a standby underwriting, the underwriting syndicate agrees to purchase any shares that the corporation does not sell. Since the corporation only sold 600,000 shares, the underwriters will purchase the remaining 400,000 shares. After the new issue, there will be 3,400,000 shares outstanding (2,400,000 + 1,000,000).
Volume and holding-period restrictions do NOT apply to the resale of private placements when: a.Purchasers' representatives assist investors b.Both parties are accredited investors c.The transaction is initiated by a registered principal d.The purchaser is a qualified institutional buyer
d-Under Rule 144A of the Securities Act of 1933, the owner of securities obtained through a private placement may resell those securities to a qualified institutional buyer (QIB) without the volume and holding-period restrictions of Rule 144. Qualified institutional buyers must have at least $100 million dollars of investable assets
XYZ Corporation will need to borrow funds in the bond market soon. While current interest rates are not attractive from its viewpoint, the company knows that interest rates could drop suddenly. The company would like to be ready to sell the bonds quickly. It would also like the bonds to be as liquid as possible in order to attract investors. Which of the following choices is most appropriate for its needs? a. A private placement under Regulation D b. An intrastate offering under Rule 147 c. A traditional registration statement d. A shelf registration under Rule 415
d-While the sales described in choices (a), (b), and (d) will usually be faster than a full registration, both Regulation D and Rule 147 place various restrictions on resales, reducing the liquidity of the issue. A shelf registration under Rule 415 will satisfy all of XYZ Corporation's needs
