Offerings

Underwriters acting as principals and committing to purchase any unsold shares for the syndicate account would BEST be described as being engaged in a(n)

Firm commitment In a firm commitment underwriters contract with the issuer to buy its securities, acting as principals rather than agents. They are committing to purchase any unsold shares for the syndicate account. In this type of underwriting, it is the underwriters who are at risk for any shares they cannot sell to the public, not the issuer. The issuer knows that ultimately all of the securities will be sold, and all of the capital needed will be raised.

Which of the following prospectus delivery requirements for negotiable securities sold in the secondary markets is NOT accurate?

For an additional issue if the security is non-Nasdaq there is no delivery requirement. For an additional issue, if the security is non-Nasdaq the delivery requirement is 40 days.

Which of the following will NOT be found in a final prospectus?

Agreement among underwriters The agreement among underwriters is not a part of a prospectus.

Which of the following would be considered an isolated nonissuer transaction exempt from state registration under the Uniform Securities Act?

An individual buying stock from another individual without using the services of a registered representative Isolated nonissuer transactions are those occurring in the secondary market (nonissuer) that occur infrequently (very few transactions per agent/representative per year; the exact number varies by state). These transactions generally do not involve securities professionals.

All the following are exempt from the Securities Act of 1933 EXCEPT:

Limited partnership Limited partnership interests are not exempt securities. The exempt securities include U.S. government securities, municipal bonds, commercial paper and banker's acceptances that have maturities of less than 270 days, insurance policies and fixed annuity contracts (but not variable annuities), charitable, religious, educational, and nonprofit association issues and more.

Which of the following would NOT be expected to be found in a tombstone advertisement for a new issue?

The intended purpose for which to use the sales proceeds While the intended purpose for which to use the sales proceeds would be expected to be found in a prospectus, it would not be found in a tombstone advertisement permitted to offer only bare bones facts about the new issue.

Regarding primary offerings, which of the following is TRUE?

There is no limit to the number of primary offerings a corporation can issue. While a corporation can have only one initial public offering (IPO), there is no limit to the number of subsequent public offerings (SPOs) or additional public offerings (APOs) it can issue. IPOs, SPOs, and APOs are all primary offerings—those where the offering proceeds go to the issuer.

The Securities Act of 1933 requires that all of the following be offered by a prospectus EXCEPT:

Treasury bonds. Treasury securities are exempt from registration requirements, and therefore do not require a prospectus.

An offering in which one or more stockholders in the corporation are selling all or a portion of their own shares to the investing public for the first time is known as

a secondary offering A secondary offering is one in which one or more stockholders in the corporation are selling all or some of their shares to the public. The sale proceeds for these shares are paid to the selling stockholders rather than to the corporation.

Each of the following may be traded on an exchange EXCEPT

life insurance All types of financial assets and investment instruments are traded among buyers and sellers on securities exchanges. Stocks (equity securities), bonds (debt securities), options (derivative securities), currencies, and more are traded on exchanges and other securities markets every business day. Life insurance is not a security and may not be traded.

The Securities Act of 1933 protects investors who buy new issues by doing all of the following EXCEPT

requiring the licensing of persons affiliated with broker-dealers Licensing of individuals associated with broker-dealers is mandated under the Securities Exchange Act of 1934. The Securities Act of 1933 protects investors who buy new issues regulating, among other things, registration of new issues, underwriting, full disclosure, and the potential for fraud in the issuance of securities.

Regarding the registration statement filed with the SEC when new securities are to be issued, all of the following are true EXCEPT

the accuracy and adequacy of the registration documents is the responsibility of the underwriters While underwriters (broker-dealers and investment bankers) may assist the issuer in preparing and filing the registration statement, the accuracy and adequacy of the registration documents is the responsibility of the issuer. Full disclosure is also made on a number of issues, including but not limited to names and addresses of company officers and a description of how the sale proceeds will be used.

Regarding a shelf registration filed with the SEC, which of the following statements are TRUE?

- A supplemental prospectus must be filed before each sale. - Portions of a shelf offering can be sold over a 3-year period without having to reregister the security. Shelf offerings are for issuers who already have publically traded securities in the marketplace. This type of offering registration allows the issuers to register additional shares to be offered and then issue the securities when the need for raising capital arises—taking the securities "off the shelf" and selling them when needed. While portions of the issue can be sold over a 3-year period, a supplemental prospectus must be filed with the SEC before each sale.

Which of the following are methods of registering securities within a state?

- Registration by coordination - Registration by qualification States have two ways to register (or blue sky) securities: coordination and qualification. Notice filing is used solely for those securities that are referred to as federal covered, such as those listed on the NYSE, NASDAQ, or any national securities exchange and investment companies registered under the Investment Company Act of 1940. In this case, the states do not have jurisdiction over the registration requirements of these securities. However, the Uniform Securities Act does provide for states requiring a filing of a notice along with a filing fee to sell securities in that state.

Six days into the cooling-off period, an issuer receives a deficiency letter from the 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

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 6 days, which means that the issue should be effective 14 days later.

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?

25 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.

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 "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 SEC, as that has already been done. Shelf registration (shelf offering) is available for both primary and secondary offerings.

Which of the following best describes a final prospectus?

Meets the full and fair disclosure requirements of the Securities Act of 1933 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. Only a preliminary prospectus or tombstone ads can be used during the cooling-off period.

The XYZ Company is looking to offer shares of its common stock to the public. Which of the following laws enacted by Congress would have the most relevance to the issuance of these securities?

The Securities Act of 1933 The Securities Act of 1933, also known as the Paper Act or Prospectus Act, is the bedrock of all modern securities law. It requires issuers looking to make a public offering of securities to provide full and fair disclosure of all material facts about the company and the securities being offered. The company does this by registering its securities with the U.S. Securities and Exchange Commission (SEC), often with the aid of accountancy firms, securities attorneys, and underwriters. Part of the registration process for newly offered securities is the publishing of a prospectus which all prospective investors must receive at or prior to purchase.

When the Securities and Exchange Commission clears securities for sale to the investing public, this is

The effective date is when the SEC clears an issue to be sold to the public; the registration becomes effective. At no time does the SEC approve, disapprove, or make any representation that the information in the registration documents is accurate.

An investor is viewing a company's prospectus on the Securities Exchange Commission's website. Which of the following is TRUE?

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.

Tombstone ads

are permitted before the effective date Tombstone ads are the only form of advertising that is permitted from the time the registration statement is filed with the Securities and Exchange Commission and the effective date of the offering. While they are not mandatory for new issues, they can be used as an announcement and description of the securities to be offered, showing only minimal information. They are not an offer to sell the securities.

In an underwriting where fixing a minimum dollar amount to be sold in order to move forward with the entire offering is most commonly referred to as

mini-max A mini-max offering is a best efforts underwriting setting a floor or minimum, which is the least amount the issuer needs to raise in order to move forward with the underwriting, and a ceiling or maximum on the dollar amount of securities the issuer is willing to sell.

Notice filing for securities at the state level is for

securities that are deemed to be federally covered only Notice filing at the state level is for securities deemed to be federal covered. The state may require a notice be filed for these securities, such as those listed on national exchanges and those registered under the Investment Company Act of 1940, even though it has no jurisdiction over the registration requirements.

The access equals delivery rule applies to

the final prospectus and aftermarket delivery obligations The access equals delivery rule applies to the final prospectus and aftermarket prospectus delivery obligations. It does not apply to preliminary prospectuses. No prospectus can be delivered before the registration date.