New issues: Corporate Underwritings

When a selling group member sells securities in a corporate underwriting, which of the following is earned? a. takedown b. spread c. concession d. reallowance

concession

ABC Corporation stock is being sold in a primary offering. The total offering is $10,000,000, of which $7,000,000 is allocated to the syndicate and $3,000,000 is allocated to the selling group. The public offering price is set at $10.00 per share. The issuer received $9.00 per share from the underwriters. The management fee is $0.30 per share. A syndicate member sells to a selling group member. how much will the syndicate member earn per share? a. $.10 b. $.30 c. $.60 d. $.90

$.60

ABC Corporation stock is being sold in a primary offering. The total offering is $10,000,000, of which $7,000,000 is allocated to the syndicate and $3,000,000 is allocated to the selling group. The public offering price is set at $10.00 per share. The issuer received $9.00 per share from the underwriters. The management fee is $0.30 per share. A syndicate member sells directly to the public. How much will the syndicate member earn per share? a. $.10 b. $.30 c. $.60 d. $.90

$.90 earns the underwriters concession. Whole share ($1.00) - the management fee (.10) = $.90

ABC Corporation stock is being sold in a primary offering. The total offering is $10,000,000, of which $7,000,000 is allocated to the syndicate and $3,000,000 is allocated to the selling group. The public offering price is set at $10.00 per share. The issuer received $9.00 per share from the underwriters. The management fee is $0.30 per share. The spread is: a. $.10 b. $.30 c. $.60 d. $1.00

$1.00 the difference between price paid to issuer by the underwriter and public offering price

The Public Offering Price for a new issue is set at $25 per share. Which of the following are likely to be stabilizing bids? I. $20.00 II. $24.88 III. $25.00 IV. $30.00

$24.88 $25.00

ABC Corporation stock is being sold in a primary offering. The total offering is $10,000,000, of which $7,000,000 is allocated to the syndicate and $3,000,000 is allocated to the selling group. The public offering price is set at $10.00 per share. The issuer received $9.00 per share from the underwriters. The management fee is $0.30 per share. The issuer will receive: a. $9,000,000 b. $9,100,000 c. $9,600,000 d. $10,000,000

$9,000,000 9.00 per share x $10,000,000

Which of the following activities are prohibited during the "cooling off" period? I. Accepting an indication of interest from the customer for part of the issue II. Accepting an order for part of the issue in registration III. Confirming a certain amount of the issue to a customer IV. Accepting a check from a customer for the part of the issue

Accepting an order for part of the issue in registration Confirming a certain amount of the issue to a customer Accepting a check from a customer for the part of the issue During the cooling off period, an offer or sale of the issue is prohibited. Accepting an order, confirming a certain amount of the issue, or accepting a check from a customer are all considered to be "sales" and are prohibited until registration is effective. Sending a preliminary prospectus or accepting an indication of interest does not legally constitute an "offer" under the Securities Act of 1933, and thus is permitted.

Immediate family members of employees of member firms that are prohibited from buying new issue offerings under FINRA's IPO rules include: I. Spouses of member firm employees II. Siblings of member firm employees III. Parents of member firm employees IV. Children of member firm employees

All of them

In a new corporate bond offering, the lead underwriter selects syndicate members based upon: I. geographic location II. track record III. financial capability IV. historic relationships

All of them When selecting underwriters in a corporate offering, the manager will consider the track record of that firm in previous underwritings; whether the firm has sufficient capital to handle its portion of the offering; whether the firm has participated in underwritings with that manager in the past and; the geographic location of the syndicate members. Geographic location is important because the manager wants to reach as many potential investors as possible.

In a leveraged buy out: I. a public company is taken "private" II. a private company is taken "public" III. financing for the takeover is provided by a commercial bank or by issuing junk bonds IV. financing for the takeover is provided by issuing common stock

a public company is taken "private" financing for the takeover is provided by a commercial bank or by issuing junk bonds

Which of the following statements are TRUE about the activities of an investment banker? I. The investment banker can accept time deposits from customers who buy new issue offerings II. The investment banker can either act as an agent or principal in an underwriting III. The investment banker analyzes the prospects for the industry in which the issuer operates before handling the offering IV. The investment banker helps the issuer structure the offering, advising on the type and amount of securities to be sold

The investment banker can either act as an agent or principal in an underwriting The investment banker analyzes the prospects for the industry in which the issuer operates before handling the offering The investment banker helps the issuer structure the offering, advising on the type and amount of securities to be sold Investment bankers can not accept deposits nor make commercial loans to customers. These activities can only be performed by commercial or savings banks. Investment bankers help structure new securities offerings; decide the pricing on the issue based on market conditions; and act as either principals (firm commitment) or agents (best efforts), handling the offering.

Which of the following statements are TRUE regarding the use of a preliminary prospectus? I. The preliminary prospectus may be sent to a potential customer prior to that customer expressing an indication of interest II. The preliminary prospectus may not be sent unless a customer expresses an indication of interest for the new issue III. The preliminary prospectus may be sent prior to the issue entering the 20-day cooling off period IV. The preliminary prospectus may be sent once the issue enters the 20-day cooling off period

The preliminary prospectus may be sent to a potential customer prior to that customer expressing an indication of interest The preliminary prospectus may be sent once the issue enters the 20-day cooling off period A "red herring" preliminary prospectus may be sent to any prospective purchaser of that new issue. There is no requirement for the customer to give an "indication of interest" first. The use of the red herring is permitted only when the issue has entered into the "20-day cooling off" period that commences upon filing of the registration statement with the Securities and Exchange Commission. It cannot be sent to prospects prior to this date - as a matter of fact, no communications to customers about the proposed offering are permitted prior to the filing of the registration statement.

Investment banks perform all of the following functions EXCEPT: A. distribute new issues on an agency basis B. assist issuers in publicizing new issue offerings C. accept time and demand deposits D. buy new securities offerings from issuers on a principal basis

accept time and demand deposits Investment banks are prohibited from accepting time and demand deposits. These can only be accepted by commercial and savings banks. Investment banks can underwrite new issues on a principal basis, an agency basis, and can help publicize the issues underwritten.

In a best efforts underwriting, the underwriter is acting as a(n): A. agent B. principal C. dealer D. specialist (DMM)

agent In a best efforts underwriting, the underwriter promises to use his or her best efforts to sell the issue but takes no financial liability. Thus, this is an agency relationship. In contrast, firm commitment underwritings are principal relationships.

Underwriting selling group members act as: A. agent for the syndicate, selling the new issue and take liability for any unsold portion of the new issue B. agent for the syndicate, selling the new issue but take no liability for any unsold portion of the new issue C. principal for the syndicate, selling the new issue and take liability for any unsold portion of the new issue D. principal for the syndicate, selling the new issue but take no liability for any unsold portion of the new issue

agent for the syndicate, selling the new issue but take no liability for any unsold portion of the new issue Selling group members in a new issue underwriting group act as agent for the syndicate, helping the syndicate to sell the new issue, earning a selling concession on each share (or bond) sold. However, unlike the syndicate members, they take no liability for unsold shares.

All of the following statements are true regarding "indications of interest" EXCEPT indications of interest: A. allow an underwriter to gauge investor interest in the issue B. help the underwriter to decide the final Public Offering Price C. are binding on both the customer and the underwriter D. can be canceled by both the customer and the underwriter

are binding on both the customer and the underwriter An indication of interest is taken during the 20 day cooling off period before a new issue's registration is effective. The issue may never "go effective" and the indication can be canceled by the underwriter. Thus, the underwriter can cancel or change the indication. Similarly, the customer can also cancel or change his indication. These are not binding because the issue cannot be legally "offered or sold" until the effective date. Indications are used by the underwriter to gauge investor interest in the issue; and to help establish the proper Public Offering Price for the securities.

The US Gov orders a company that has 80% of the computer software market to split itself into 4 separate operating companies, that have the right to compete with each other. This is a: a. break up b. spin off c. fall out d. leveraged buy out

break up

The self-supporting spouse of a registered rep has an account with your firm. Your firm is underwriting the initial public offering (IPO) of ACME Co. common stock, and the spouse inquires about whether it is possible to receive an allocation. The registered rep should inform the spouse that the issue: a. cannot be purchased through the IPO b. can only be purchased through the IPO if the amount purchased is insubstantial c. can only be purchased through the IPO with the approval of FINRA d. can be purchased through the IPO without restriction

cannot be purchased through the IPO

Once registration is effective for a non-exempt new issue, customers that previously received a preliminary prospectus during the 20-day cooling off period are: A. automatically confirmed with a purchase of the issue B. contacted by the underwriter to see if they wish to purchase the issue C. obligated to buy an amount of the issue determined by the underwriter D. permitted to make a competitive bid for the issue

contacted by the underwriter to see if they wish to purchase the issue Once registration is effective, customers, who previously received a preliminary prospectus during the 20-day cooling off period, may be contacted by the underwriter to see if they wish to purchase the issue

A preliminary prospectus: I. contains the public offering price of the issue II. does not contain the public offering price of the issue III. contains the financial statements of the issuer IV. does not contain the financial statements of the issuer

does not contain the public offering price of the issue contains the financial statements of the issuer The preliminary prospectus contains the financial statements of the issuer. It does not contain the Public Offering Price - this is not set by the underwriters until just before the offering is made. Thus, it is found only in the Final Prospectus.

To set the price for a new corporate stock issue, the syndicate manager will consider all of the following EXCEPT: a. expected demand for the security by investors b. expected earnings for the company over the coming years c. price/earnings ratios for similar companies already trading d. expected spread to be earned by the syndicate

expected spread to be earned by the syndicate

Stand-by underwritings are a(n): A. firm commitment underwriting B. best efforts underwriting C. all or none underwriting D. agency underwriting

firm commitment underwriting Stand-by underwritings are used in connection with rights offerings. If all of the new shares are not subscribed by the existing shareholders, the issuer has an underwriter stand-by on a firm commitment basis to purchase any unsubscribed shares. Thus, the issuer is assured of selling all of the new shares. Best efforts and all or none are types of underwritings where the underwriter is not liable for any unsold shares - the underwriter is acting as agent for the issuer helping in the sale of the offering.

A new issue can be quoted on NASDAQ: a. immediately after the effective date b. 10 days after the effective date c. 20 days after the effective date d. 30 days after the effective date

immediately after the effective date

Responsibility for printing and delivering stock certificates in a new issue offering rests with the: A. registrar B. transfer agent C. issuer D. managing underwriter

issuer In a new issue offering, the issuer is responsible for originally printing and delivering the shares. These shares go to the transfer agent, who transfers the shares into the names of the purchasers of the new issue.

Which statements are TRUE about the "red herring" preliminary prospectus? I. it is used to solicit indications of interest II. it use terminates when the 20-day cooling off period expires III. it contains the final offering price of the issue IV. it is not considered to be an "offer" of the issue

it is used to solicit indications of interest it use terminates when the 20-day cooling off period expires it is not considered to be an "offer" of the issue

In a corporate new issue offering, the underwriter's responsibilities include which of the following? I. managing the syndicate amount II. determining each syndicate member's participation III. printing the certificates IV. registering the certificates

managing the syndicate amount determining each syndicate member's participation

All of the following information would be found in a new issue "tombstone" announcement EXCEPT the: A. names of the underwriters B. aggregate offering price C. net proceeds to the issuer D. type of security offered

net proceeds to the issuer A tombstone announcement is published once a new issue's registration is effective. Under SEC rules, the announcement is very limited in scope, since it cannot be considered to be an "offer or advertisement," as these can only be made through the prospectus.

Which of the following statements are TRUE about new stock offerings? I. new issues are sold under a prospectus II. new issues are not sold under a prospectus III. new issues are sold at the public offering price IV. new issues are sold at the public offering price plus a commission or mark-up

new issues are sold under a prospectus new issues are sold at the public offering price

A "reallowance" is a discount given to a: a. syndicate member b. selling group member c. non-member of the underwriting "group" d. retail customer

non-member of the underwriting "group"

During the period when a new issue is "in registration," which of the following are permitted? I. obtaining an indication of interest from a customer II. accepting payment for the issue III. distributing a preliminary prospectus IV. Soliciting an order for the issue

obtaining an indication of interest from a customer distributing a preliminary prospectus

In a firm commitment underwriting, the underwriter is acting as a(n): A. agent B. principal C. intermediary D. specialist (DMM)

principal In a firm commitment underwriting, the underwriter buys the issue outright from the issuer, with the intention of reselling the issue to the public at a profit. Thus, the underwriter is a principal in the transaction, and is taking full financial liability.

In corporate underwritings, if there are unfilled orders placed by a syndicate member that has completed its participation; and securities remain unsold in the syndicate account; then these orders will be filled and the syndicate member placing the order will earn the: A. management fee B. selling concession C. underwriter's concession D. spread

selling concession When a syndicate member sells its own allotment, the syndicate member earns the underwriter's concession (for a corporate underwriting) or the "takedown" (for a municipal underwriting). In a Western account, in theory, once the syndicate member has sold his allotment, it has no more profit potential. However, the manager will permit this syndicate member to help other syndicate members, if it looks like there will be an undersale on their portion of the issue. The manager allows this syndicate member to place orders filled out of the other members' allotments as a "selling group" member, and for these orders, this syndicate member earns the selling concession.

Underwriting syndicate group members: A. share in both selling responsibility for the new issue and liability for any unsold portion of the new issue B. share in selling responsibility for the new issue but are not liable for any unsold portion of the new issue C. do not share in selling responsibility for the new issue and are liable for any unsold portion of the new issue D. do not share in selling responsibility for the new issue and are not liable for any unsold portion of the new issue

share in both selling responsibility for the new issue and liability for any unsold portion of the new issue Syndicate members in the underwriting group share in both the selling responsibility for the issue and in liability for any unsold shares (or bonds).

Arrange the following compensation items found in corporate underwritings from largest to smallest? I. underwriter's concession II. selling concession III. spread IV. reallowance

spread underwriter's concession selling concession reallowance

Corporate syndicate member "A" has oversold its allotment. The manager covers from another syndicate member who has undersold. On the oversale, corporate syndicate member "A" earns: a. nothing b. the spread c. the concession d. the reallowance

the concession

In a new corporate bond offering, the lead underwriter selects syndicate members based upon all of the following factors EXCEPT: a. geographic location b. track record c. financial capability d. trade execution capability

trade execution capability

An automobile manufacturer buys a tire manufacturer. This is a: a. horizontal merger b. vertical merger c. diagonal merger d. leveraged buy out

vertical merger

In a corporate underwriting, a syndicate member that has sold its portion, wishes to place additional orders to be filled from the unsold allocations of other members. These orders: A. cannot be filled B. will be filled by the manager with the ordering member receiving the selling concession C. will be filled by the manager with the ordering member receiving the underwriter's concession (or "takedown") D. will be filled by the manager with the ordering member receiving the spread

will be filled by the manager with the ordering member receiving the selling concession When a syndicate member sells its own allotment, the syndicate member earns the underwriter's concession (for a corporate underwriting) or the "takedown" (for a municipal underwriting). In a Western account, in theory, once the syndicate member has sold his allotment, it has no more profit potential. However, the manager will permit this syndicate member to help other syndicate members, if it looks like there will be an undersale on their portion of the issue. The manager allows this syndicate member to place orders filled out of the other members' allotments as a "selling group" member, and for these orders, this syndicate member earns the selling concession.