Unit 7 - The Securities Act of 1933 and the Primary Markets Quiz/Test Questions

Each of the following may be traded on an exchange except A) life insurance. B) options. C) bonds. D) equities.

A) life insurance. Explanation 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.

Public offerings of securities are regulated under A) the Securities Act of 1933. B) Financial Industry Regulatory Authority (FINRA)'s communications with the public rules. C) the Securities Act of 1934. D) the Consumer Protection Act.

A) the Securities Act of 1933. Explanation In a public offering, securities are offered and sold to the investing public. Public offerings of securities are regulated under the Securities Act of 1933.

All of the following are exempt issuers except A) the Southwest Railroad Co. B) the City of Alta Loma. C) Alta Loma Community Foundation. D) Modulux, Inc., a home manufacturer.

D) Modulux, Inc., a home manufacturer. Explanation Common carriers (e.g., railroads), municipalities, and charities are all examples of exempt issuers under the Securities Act of 1933. A for-profit corporation is not exempt.

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) I and III B) II and IV C) I and IV D) II and III

B) II and IV Explanation 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.

Issuance and trading of securities are regulated at more than one governmental level. These would include regulations at which of the following? I County level II City level III Federal level IV State level A) I and IV B) III and IV C) I and II D) II and III

B) III and IV Explanation Issuance and trading of securities are regulated at the federal level by the Securities and Exchange Commission (SEC) and the various self-regulatory organizations (SROs) in the securities industry. They are also regulated at the state level through the Uniform Securities Act and state laws regulating securities.

A person who looks to provide advice to a city government concerning the issuance of municipal debt securities would best be described as A) a municipal securities representative. B) a municipal advisor. C) a market maker. D) an investment adviser.

B) a municipal advisor. Explanation A municipal advisor is a person that provides advice to or on behalf of a municipal entity with respect to municipal products or the issuance of municipal securities.

The access equals delivery rule applies to A) all prospectuses delivered before the registration date. B) the final prospectus and aftermarket delivery obligations. C) the preliminary prospectus delivery requirements during the cooling-off period. D) the final prospectus delivery requirements during the cooling-off period.

B) the final prospectus and aftermarket delivery obligations. Explanation 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.

Capital markets can be characterized by all of the following except A) entities can utilize them to finance both long- and short-term capital needs. B) they are utilized by the public sector only. C) securities traded in them can be bought and sold by both individuals and institutions. D) they would include stock and bond markets.

B) they are utilized by the public sector only. Explanation In capital markets, both public and private sectors sell securities (stocks and bonds) to raise funds to finance both long-and short-term initiatives. Both individuals and institutions can trade securities in these markets.

Which of the following calls for the underwriters to buy securities from the issuer acting as an agent, not as principal? A) Follow-on offering B) Firm commitment underwriting C) Initial public offering D) Best efforts underwriting

D) Best efforts underwriting Explanation In a best efforts underwriting the underwriters (syndicate) buy securities from the issuer acting simply as an agent, not as principal. This means that the underwriter is not committed to purchasing the shares and is therefore not at risk. The underwriter acts as an agent contingent on its ability to sell shares in either a public offering or a private placement.

Which of the following calls for the underwriters to buy securities from the issuer acting as an agent, not as principal? A) Follow-on offering B) Initial public offering C) Firm commitment underwriting D) Best efforts underwriting

D) Best efforts underwriting Explanation In a best efforts underwriting the underwriters (syndicate) buy securities from the issuer acting simply as an agent, not as principal. This means that the underwriter is not committed to purchasing the shares and is therefore not at risk. The underwriter acts as an agent contingent on its ability to sell shares in either a public offering or a private placement. Agent: BD is a middleman connecting buyer and seller, charges commision. Principal: BD directly buys/sells securities. Sells w/ mark-ups and buys at discount for profit

The SEC has established rules regarding delivery of a prospectus when a secondary market transaction occurs after the effective date. Which of these comply with those rules for initial (IPO) and additional (APO) public offerings? I An IPO of a stock to be listed on the NYSE requires delivery for a period of 25 days. II An IPO of a stock that will not be listed nor quoted over Nasdaq requires delivery for a period of 40 days. III An APO of a stock listed on the NYSE requires delivery for a period of 25 days. IV An APO of a stock that will not be listed nor quoted over Nasdaq requires delivery for a period of 40 days. A) I and IV B) II and III C) III and IV D) I and II

A) I and IV Explanation The prospectus delivery rules include the following: IPO for listed or Nasdaq—25 days APO for listed or Nasdaq—none IPO for non-Nasdaq—90 days APO for non-Nasdaq—40 day

The Big Shoe Sneaker Company is a small manufacturer of athletic shoes. It is selling $100 million of its stock. This will be its first public offering. It will use the money to enhance both marketing and production with a plan to grow the business and obtain a Nasdaq listing in two or three years. After the initial sale of the new shares, buyers of the stock in the over-the-counter market should expect to receive the final prospectus for how many days? A) 25 B) 90 C) 40 D) Buyers in the secondary market are never entitled to the IPO prospectus

B) 90 Explanation This is the initial public offering of an unlisted, non-Nasdaq, security. The requirement is that the prospectus be made available to buyers in the secondary market for 90 days after the release date.

A municipal advisor does which of the following activities? A) Advises institutions on selling municipal bonds B) Advises municipalities on selling securities C) Advises institutions on buying municipal bonds D) Advises municipalities on buying securities

B) Advises municipalities on selling securities Explanation A municipal advisor acts under contract with a municipality, providing advice on the structure and sale of the municipality's securities. A municipal advisor may not switch from that role to the role of an underwriter on an issue the advisor has consulted on.

A corporation seeking to raise funds in order to expand its manufacturing capacity would do so in A) the funding market. B) the secondary market. C) the capital market. D) the currency market.

C) the capital market. Explanation Raising new capital is generally accomplished through the issuance of stock (equity capital) or bonds (debt capital). This is done in the capital market. When an issuer offers stock and the proceeds from the sale are added to the company's capital, it is called a primary offering. By contrast, a secondary offering is one in which one or more shareholders in the corporation sell all, or a portion of their equity holdings to the public. The proceeds of a secondary offering are paid to the selling shareholder(s), not the company.

GEMCO Oil and Gas, a non-NMS stock, wishing to sell up to $100 million of convertible debt as market conditions permit, files a shelf registration statement with the SEC. Which of these statements are true? I For securities offered via a shelf registration, a supplemental prospectus must be filed with the SEC before each sale. II The registration statement is effective upon completion of the cooling-off period. III Shelf registration allows the issuer to sell portions of a registered shelf offering over a 2-year period without having to reregister the security. IV Shelf registration allows the issuer to sell portions of a registered shelf offering over a 4-year period without having to reregister the security. A) I and III B) I and IV C) II and III D) II and IV

A) I and III Explanation Section 415 of the Securities Act of 1933 allows publicly traded issuers to register an offering for sale at times to be determined by the issuer. In essence, the issuer is taking the securities off the shelf and selling them when needed; hence the name, shelf offering. No new registration is required for a period of two years, but a supplemental prospectus must be filed with the SEC before each sale. Some issuers, called Well-Known Seasoned Issuers (WKSI), may have a three-year period. This relatively small non-NMS stock is not likely to be a WKSI.

Which of these may be found in the final prospectus that is not in the preliminary prospectus? I Next year's sales II Public offer price III Release date IV Planned use of the proceeds A) II and III B) I and IV C) I and II D) II and IV

A) II and III Explanation The public offer price may vary up until the release date. The SEC determines the release date, not the issuer. Next year's sales are counted next year, and could not be in the prospectus. Planned use of the proceeds is in both documents.

Which of the following is true regarding the primary market? A) Issuer transactions occur in the primary market. B) Price is determined by supply and demand. C) The NYSE is an example of a primary market. D) It is regulated by the Securities Act of 1934.

A) Issuer transactions occur in the primary market. Explanation The primary market is where securities are sold to the investing public through issuer transactions. It is regulated by the Securities Act of 1933. The NYSE is an example of a secondary market where price is determined by supply and demand.

Which of the following offerings is most likely exempt from the registration requirements of the Securities Act of 1933? A) Private (nonpublic) securities offerings B) Shelf offerings C) Additional public offerings (APOs) D) Initial public offerings (IPOs)

A) Private (nonpublic) securities offerings Explanation Public securities offerings must be registered under the Securities Act of 1933. These would include IPOs, APOs, and shelf offerings. Issuers choosing to offer securities privately may find relief (are exempt) from the registration provisions of the Securities Act of 1933.

Which of the following would be allowed during the cooling off period? A) Taking indications of interest B) Distributing a prospectus C) Taking orders D) Allocating shares to investors

A) Taking indications of interest Explanation No selling or soliciting is allowed during the cooling off period. Taking indications of interest is permitted.

Which of the following acts requires the registration of most new issues? A) The Securities Act of 1933 B) The Securities Exchange Act of 1934 C) The Securities Investor Protection Act of 1970 D) The Securities Market Improvement Act of 1975

A) The Securities Act of 1933 Explanation The Securities Act of 1933 requires the registration of most new issues; the Securities Exchange Act of 1934 created the SEC; the Securities Investor Protection Act of 1970 created the SIPC; the Securities Market Improvement Act of 1975 created the MSRB.

Which of the following acts requires the registration of most new issues? A) The Securities Act of 1933 B) The Securities Investor Protection Act of 1970 C) The Securities Market Improvement Act of 1975 D) The Securities Exchange Act of 1934

A) The Securities Act of 1933 Explanation The Securities Act of 1933 requires the registration of most new issues; the Securities Exchange Act of 1934 created the SEC; the Securities Investor Protection Act of 1970 created the SIPC; the Securities Market Improvement Act of 1975 created the MSRB.

Securities sold in an issuer-related transaction would best be described as A) a primary offering. B) a balance of payments. C) a split offering. D) a secondary offering.

A) a primary offering. Explanation When an issuer offers stock and the proceeds from the sale are added to the company's capital, it is called a primary offering. By contrast, a secondary offering is one in which one or more shareholders in the corporation sell all or a portion of their equity holdings to the public. The proceeds of a secondary offering are paid to the selling shareholder(s), not the company.

A select pair or group of companies organized to underwrite corporate or municipal securities is best known as A) a syndicate. B) an investment club. C) an introducing broker-dealer. D) a market maker.

A) a syndicate. Explanation A syndicate is two or more broker-dealers (investment bankers) which work with an issuer through, for example, the registration process in the case of corporate securities and bring the issuer's securities to the market by selling them to investors. There are syndicates that specialize in underwriting municipal bonds. The members of a syndicate are also known as the underwriters or collectively the underwriting group.

A company that offers sales of another company's securities in a primary market transaction would best be described as A) an underwriter. B) a transfer agent. C) an issuer. D) a market maker.

A) an underwriter. Explanation A broker-dealer (investment banker) that works with an issuer to bring the issuer's securities to the market by offering the securities for sale to investors is best described in this context as an underwriter.

A tombstone advertisement placed before the effective date can A) be placed by the issuer directly or by the underwriters. B) only be placed by those assisting the issuing company in the underwriting. C) always be deemed to be an offer to sell the securities. D) only be placed by the issuing company.

A) be placed by the issuer directly or by the underwriters. Explanation Tombstone advertisements can be placed by either the issuer or the underwriters and are the only ads that can be placed before the registration's effective date. They are not an offer or solicitation to sell the securities.

Regarding the registration statement filed with the Securities and Exchange Commission (SEC) when new securities are to be issued, all of the following are true except A) the accuracy and adequacy of the registration documents is the responsibility of the underwriters. B) a description of how the proceeds raised from the sale will be used must be disclosed. C) underwriters may assist the issuer in preparing and filing the registration statement. D) the names and addresses of company officers and directors, their salaries, and a five-year business history of each must be shown.

A) the accuracy and adequacy of the registration documents is the responsibility of the underwriters. Explanation 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.

Seacoast Securities is a syndicate member for the initial public offering of WeariTech, Inc., WeariTech is a hot new issue in the wearable technology space. The S-1 registration statement has been filed but the effective date has not yet been released. This is A) the cooling-off period. B) the pre-filing period. C) the posteffective period. D) the mandated waiting period.

A) the cooling-off period. Explanation The period of time after the offering is filed, but before the SEC releases the security for sale, is called the cooling-off period.

The preliminary prospectus for the IPO of the Big Shoes Sneaker Company indicates that the number of shares sold may be increased as much as 15% if market demand is sufficient. This is called a A) Shelf offering B) Green Shoe option C) Secondary IPO offering D) Flex offering

B) Green Shoe option Explanation This is a Green Shoe offering, based on a rule first used in the IPO, for the Green Shoe Manufacturing Company (now known as Stride-Rite). A shelf offering occurs when the shares may be held and sold later under Rule 415. The other names are fictional.

During the 20-day cooling-off period, I solicitations of sales can be made. II solicitations of sales may not be made. III deficiency letters, if issued, are sent to the issuer. IV deficiency letters, if issued, are sent to the underwriters. A) I and III B) II and III C) II and IV D) I and IV

B) II and III Explanation No solicitations of sales are permitted during the cooling-off period. If a deficiency letter is issued by the Securities and Exchange Commission (SEC) halting the review of the registration, it is sent to the issuer who is responsible for correcting the deficiency.

The ATOP Company is planning to offer shares of both common and preferred stock to the investing public in order to raise operating capital intended to be used for expansion. Which of the following laws enacted by Congress would be the most relevant when issuing these equity securities to the public? A) The Trust Indenture Act of 1939 B) The Securities Act of 1933 C) The Investment Company Act of 1940 D) The Securities Investors Protection Act of 1970

B) The Securities Act of 1933 Explanation The Securities Act of 1933, is also known as the Paper Act, Prospectus Act, or New Issues Act. This federal law requires that issuers who want to raise capital by making a public offering of securities to the public, provide full and fair disclosure of all material facts about the company and the securities being offered.

Modulux, Inc., a NYSE listed manufacturing company, was founded by Clarence Mod. Clarence is now 82 years old and is looking to divest his significant interest in Modulux to capitalize the Mod Family Foundation, a charity. He has enlisted the help of Seacoast Securities, a regional investment banker based in Seattle, to run the sale. This is an example of A) a CRUT. B) a secondary offering. C) an APO. D) an IPO.

B) a secondary offering. Explanation The shares that are to be sold belong to a person (Clarence Mod), not the issuer. This is a secondary offering. An APO or an IPO are both issuer transactions. A charitable remainder unitrust (CRUT) is an estate planning tool often used by the wealthy, but is not something you are likely to see on this exam.

The Mod Family Foundation is a $500,000,000 charitable foundation headed by Clarence Mod. The foundation is seeking to purchase a large block of WeariTech, Inc., a Nasdaq listed company, for the foundation's portfolio. Seacoast Securities is assisting with this secondary market transaction. In this example, the Mod Family Foundation is A) a venture capitalist. B) an institutional investor. C) an issuer. D) a retail investor.

B) an institutional investor. Explanation With half a billion in assets, the foundation is an institutional investor. We know that they are not acting as a venture capitalist because the company is already trading, and these shares are to be purchased in the secondary markets.

In the capital markets, securities such as stocks and bonds can be A) purchased and sold by individuals only. B) offered by both public and private sectors. C) purchased and sold by institutions only. D) offered by the public sector only.

B) offered by both public and private sectors. Explanation In capital markets, both public and private sectors sell securities in order to raise funds. These securities can be bought and sold (traded) in the capital markets by individuals and institutions alike.

During the cooling-off period the disclosure document that may be delivered to interested parties is called the A) summary prospectus. B) preliminary prospectus. C) final prospectus. D) cool off period prospectus.

B) preliminary prospectus. Explanation The document available during the cooling-off period in the preliminary prospectus, also called a red herring.

For nonlisted and non-Nasdaq securities, a prospectus must be provided to all those who purchase securities as part of an APO for how many days after the effective date? A) 10 days B) 30 days C) 40 days D) 60 days Explanation For nonlisted and non-Nasdaq securities, the prospectus delivery requirement period in the aftermarket is 40 days (90 days for an IPO). The requirement is 25 days for an IPO for a Nasdaq or exchange listed security (zero days for an APO).

C) 40 days Explanation For nonlisted and non-Nasdaq securities, the prospectus delivery requirement period in the aftermarket is 40 days (90 days for an IPO). The requirement is 25 days for an IPO for a Nasdaq or exchange listed security (zero days for an APO).

Cypress Care Nurseries, Inc., owns and operates a chain of nurseries and is headquartered in Cypress, California. The company is considering selling shares of the company to the public in California. In order to be exempt from registration with the SEC, under Rule 147 it would need to meet several criteria. Which of these is not a listed criterion under Rule 147? A) 80% of the issuer's proceeds will be used in the state of California. B) 80% of the issuer's assets are located in the state of California. C) 80% of the issuer's customers must be located in the state of California. D) 80% of the issuer's revenue must be generated from the state of California. Explanation The 80% rule is that the company must meet at least one of the three 80% rules: 80% of revenue from the state, 80% of the proceeds earmarked for the state, or 80% of company assets in the state. The rule is the percentage of revenue, not the percentage of customers, from the state. Theoretically Cypress could have a majority of its customers from outside the state, so long as it has a few large customers generating at least 80% of revenue within the state it meets the requirement of Rule 147.

C) 80% of the issuer's customers must be located in the state of California. Explanation The 80% rule is that the company must meet at least one of the three 80% rules: 80% of revenue from the state, 80% of the proceeds earmarked for the state, or 80% of company assets in the state. The rule is the percentage of revenue, not the percentage of customers, from the state. Theoretically Cypress could have a majority of its customers from outside the state, so long as it has a few large customers generating at least 80% of revenue within the state it meets the requirement of Rule 147.

The Securities Act of 1933 requires that A) registration with the Securities and Exchange Commission (SEC) before public sale can be made be an option for all new issues. B) both exempt and nonexempt new issues be registered with the Securities and Exchange Commission (SEC) before public sale. C) a new issue, unless specifically exempted from the Act, be registered with the Securities and Exchange Commission (SEC) before public sale. D) all new issues be exempted from registration with the Securities and Exchange Commission (SEC) so that they may be sold to the public.

C) A new issue, unless specifically exempted from the Act, be registered with the Securities and Exchange Commission (SEC) before public sale. Explanation While some new issues can be exempt from registration, the Securities Act of 1933 requires that a new issue, unless it is specifically exempted from the act, be registered with SEC before public sales can be made.

A corporation needs to build a new manufacturing facility costing several hundred million dollars. In which of the following markets could this new capital be raised? A) Municipal bond market B) Secondary market C) Capital market D) Government bond market

C) Capital market Explanation Capital markets are a source of financing for corporations, municipalities, and governments. Capital can be raised by issuing equities or debt and offering the securities to investors in an initial public offering (IPO) or an additional public offering (APO). Note that bonds might be issued by a municipality or the federal government to raise money, but corporations (as noted in this question) do not issue government bonds, either federal or municipal.

Which of the following is true regarding the primary market? A) The NYSE is an example of a primary market. B) Price is determined by supply and demand. C) Issuer transactions occur in the primary market. D) It is regulated by the Securities Act of 1934.

C) Issuer transactions occur in the primary market. Explanation The primary market is where securities are sold to the investing public through issuer transactions. It is regulated by the Securities Act of 1933. The NYSE is an example of a secondary market where price is determined by supply and demand.

The Securities Act of 1933 requires that all of the following be offered by a prospectus except A) mutual fund shares. B) unit investment trusts. C) Treasury bonds. D) variable annuities.

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

Modulux, Inc., a NYSE listed manufacturer, is offering 5,000,000 shares to the public, which will raise capital to build a new plant. The new technology and design should allow Modulux to increase market share significantly in the modular home business. This offer is A) an IPO. B) a secondary offering. C) an APO. D) a venture offering.

C) an APO. Explanation There are two important points to consider (1) This is an offering of stock to raise money for the issuer, which is (2) a primary transaction. The company's stock is actively trading in the secondary markets so this must be additional shares. This is an additional public offering (APO).

Modulux, Inc., a NYSE listed manufacturing company, was founded by Clarence Mod. Clarence is now 82 years old and is looking to divest his significant interest in Modulux to capitalize the Mod Family Foundation, a charity. He has enlisted the help of Seacoast Securities, a FINRA member broker-dealer based in Seattle, to run the sale. Seacoast Securities is acting as A) an owner. B) an issuer. C) an investment banker. D) a dealer.

C) an investment banker. Explanation In this example, Seacoast is acting as an investment banker, assisting a person (Clarence) in a secondary offering.

When the Securities and Exchange Commission (SEC) clears securities for sale to the investing public, this is A) the time upon which the SEC approves the securities. B) the exudate. C) the effective date. D) the due date.

C) the effective date. Explanation 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.

Under the de minimis exemption, an initial public offering of common stock may be sold to an account where restricted persons have a beneficial interest as long as their interest in the account does not exceed A) 5%. B) 20%. C) 25%. D) 10%.

D) 10%. Explanation If the beneficial interests of restricted persons do not exceed 10% of an account, the account may purchase a new equity issue.

Which of the following prospectus delivery requirements for negotiable securities sold in the secondary markets is not accurate? A) For an initial public offering (IPO) if non-Nasdaq the delivery requirement is 90 days. B) For an additional issue listed on an exchange or Nasdaq there is no delivery requirement. C) For an IPO if listed on an exchange or Nasdaq the delivery requirement is 25 days. D) For an additional issue if the security is non-Nasdaq there is no delivery requirement.

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

Regarding the purchase of new equity issues by restricted persons, which statements are true? I An investment club is permitted to buy a new equity issue at the offering price. II An investment club is not permitted to buy a new equity issue at the offering price. III An investment club that has eight members with equal ownership, one of which is a registered representative, is permitted to buy a new equity issue at the offering price. IV An investment club that has 12 members with equal ownership, one of which is a registered representative, is permitted to buy a new equity issue at the offering price. A) II and III B) I and III C) II and IV D) I and IV

D) I and IV Explanation As long as an investment club has no restricted persons as members, it may purchase new equity issues at the public offering price. An investment club that has restricted persons as members may still participate in an initial public offering (IPO) so long as the total ownership of the club's assets by restricted persons does not exceed 10%. A registered representative is a restricted person under the rules regarding the purchase of new equity issues. In III the registered representative owns 12 ½ % (100% ÷ 8 = 12 ½) of club's assets. In IV the registered representative owns 8 1/3% (100% ÷ 12 = 8 1/3), under the 10% maximum allowed.

A private securities transaction I is nonexempt and must be register under the Act of 1933. II is exempt from registration under the Act of 1933. III can be sold to individual accredited investors. IV can be sold to institutional investors only. A) I and III B) II and IV C) I and IV D) II and III

D) II and III Explanation A private securities offering, sometimes called a private placement, is exempt from registration. While securities offered in a private securities transaction are generally sold to institutional investors, they can also be sold to small groups of wealthy individuals who meet net worth and income criteria, known as accredited investors.

The ABC Chemical Corporation wishes to advertise its upcoming offering of common stock in a tombstone advertisement that they, the issuer, will place. When placing the tombstone advertisement, which of the following would be least likely to appear? A) The name of the issuer B) The expected price range of the offering C) The total number of shares being offered D) The names of the investment bankers underwriting the issue

D) The names of the investment bankers underwriting the issue Explanation In most cases, the names of the firms underwriting the issue only appear in the tombstone ad when they, rather than the issuer, have placed the ad. In this instance, with the tombstone advertisement placed by the issuers, the names of the underwriters would not likely appear.

An offering is defined as the sale of a security. Regarding offerings, all of the following are true except A) offerings of bonds can be made to the investing public. B) offerings of stocks can be made to the investing public. C) offerings can be identified by who is selling the securities issuer or investor. D) corporate securities can only be offered in public securities offerings.

D) corporate securities can only be offered in public securities offerings. Explanation Both stocks and bonds can be made available to the investing public through an offering. Different types of offerings are identified by who is selling the securities—an issuer or another investor. Securities offered by corporations for sale to the investing public are sold to investors through either public or private securities offerings.

A preliminary prospectus is used to solicit A) sales before the effective date. B) sales after the effective date. C) indications of interest before the registration filing date. D) indications of interest before the effective date.

D) indications of interest before the effective date. Explanation 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.

All the following are exempt from the Securities Act of 1933 except A) fixed annuity contracts. B) U.S. Treasury securities. C) debt securities issued by religious organization. D) limited partnership.

D) limited partnership. Explanation 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.

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 A) all or none (AON). B) firm commitment. C) de minimis. D) mini-max.

D) mini-max. Explanation 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.

Regarding the sale of a new issue, a customer is considered a restricted person if the person is A) working as a private investigator collecting information on the issuing firm's competitors. B) a grandparent of an associated person of a member firm. C) working as a salesperson for a supplier of the issuing corporation. D) working as a salesperson who works for the issuing firm's underwriter.

D) working as a salesperson who works for the issuing firm's underwriter. Explanation Restricted persons include Financial Industry Regulatory Authority (FINRA) member firms and their associated persons, such as a salesperson working for an underwriter, plus immediate family members. Immediate family members do not include aunts and uncles or grandparents.