Issuing Securities
If the SEC has cleared an issue, which of the following statements is TRUE? A) The SEC has guaranteed the issue. B) The SEC has endorsed the issue. C) The SEC has guaranteed the accuracy of the information in the prospectus. D) The issuer has filed a standard registration statement.
**D) The issuer has filed a standard registration statement. The SEC does not approve, disapprove, endorse, or guarantee a registration statement's accuracy.
The underwriting agreement is the contract that establishes the relationship between A) the issuer and the underwriters B) the issuer and the investing public C) the managing underwriter and the underwriting group members D) the underwriting group and selling group members
*A) the issuer and the underwriters The underwriting agreement is the contract that establishes the relationship between the issuer and the underwriters setting forth both parties' rights and obligations.
If a corporation issues stock to the public at $10 per share, and the syndicate manager's fee is $.10 per share, the underwriting fee is $.25 per share, and the selling concession is $.45 per share, what is the spread? A) $.80. B) $.60. C) $.70. D) $.90.
A) $.80.
ABC Corporation is offering 500,000 units to the public at $5 per unit. Each unit consists of 2 shares of ABC preferred stock and 1 perpetual warrant for ½ common share of ABC exercisable at $5. How much capital was raised by the initial sale of the issue? A) $2.5 million. B) $1.25 million. C) $5 million. D) $7.5 million.
A) $2.5 million. Since the issuing corporation is offering 500,000 units to the public at $5 per unit, the total amount of capital to be raised by this sale will be $2.5 million (500,000 units x $5 per unit).
Under the provisions of Rule 147, what percentage of an issuer's gross business revenues must be derived from sales within the company's home state? A) 0.8. B) 0.7. C) 0.9. D) 1.
A) 0.8.
***If a member firm is underwriting an initial public offering of common stock for ABCD Corp., a new issue that qualifies for Nasdaq listing, a prospectus must be provided to all purchasers for how many days following the effective date? A) 25. B) 40. C) 60. D) 90.
A) 25. **For new issues that qualify for listing on an exchange or Nasdaq, the prospectus delivery requirement period in the aftermarket is 25 days. For non-listed 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.
**XYZ Corporation is preparing a registration statement for a new issue consisting of 300,000 new shares and 200,000 existing shares held by officers. The offering price is $30 per share and the spread taken by the underwriters is $2 per share. After the offering is complete, XYZ will receive: A) 8400000. B) 9000000. C) 14000000. D) 15000000.
A) 8400000. **XYZ Corporation will receive $28 per share for each of the 300,000 new shares being issued ($30 per share price less the $2 spread). The proceeds from the 200,000 shares sold by the officers will benefit the officers themselves, not XYZ Corporation.
*Which of the following are TRUE regarding the two tiers of securities offerings under Regulation A+? A) Both tiers are open to the public for investing B) Both tiers require that public investors be accredited C) Neither tier requires public investors to be accredited D) Both tiers specify maximum investment limits per offering for investors
A) Both tiers are open to the public for investing *While both tiers under Regulation A+ are open to the public with general solicitation permitted, investors wanting to invest in Tier 2 securities offerings must be accredited. Tier 1 offerings have no investment limits for investors but tier 2 offerings do. The maximum investment allowed for a Tier 2 offering is the greater of 10% of the investors net worth or 10% of their net income per offering.
If an investment representative gave her retail customers copies of sales literature for a variable annuity she was recommending and promised to send the prospectus soon, which of the following statements are TRUE? I. She should not have distributed sales literature without the prospectus. II. It was okay to distribute the sales literature and send the prospectus later to those who were interested. III. She should not have recommended a specific variable annuity without having the prospectus available. IV. Because she only answered questions about the investment, she was not required to provide a prospectus. A) I and III. B) I and II. C) II and IV. D) III and IV.
A) I and III. A prospectus must precede or accompany any solicitation, including distribution of sales literature to retail customers.
**Under the Securities Act of 1933, the Securities and Exchange Commission has the authority to: I. issue stop orders regarding a new issue registration filing. II. approve new issues. III. review standard registration forms. IV.guarantee the accuracy of the information contained in the registration forms. A) I and III. B) I and IV. C) II and III. D) II and IV.
A) I and III. I. issue stop orders regarding a new issue registration filing. III. review standard registration forms. During the cooling-off period, the SEC reviews registration statements and can issue **stop orders if the registration is not complete or was not filed properly**. The SEC does not approve securities or guarantee that any information found within a prospectus is accurate; it only clears the securities for distribution (sale) to the public.
**To which of the following firms could a member grant concessions or other allowances? I. Another member firm. II. A suspended member firm. III. A foreign nonmember broker/dealer ineligible for FINRA membership. IV. A U.S. nonmember broker/dealer. A) I and III. B) I and II. C) II and IV. D) III and IV.
A) I and III. A member can grant discounts and other concessions only to other member firms. A suspended member must be treated like a member of the general public (no discounts or concessions). The only exception is that a member firm can grant concessions to a foreign nonmember firm that is ineligible for FINRA membership.
Which of the following are SROs? FINRA. SIPC. SEC. Chicago Stock Exchange. A) I and IV. B) I and III. C) II and III. D) II and IV.
A) I and IV. FINRA. Chicago Stock Exchange. Like FINRA, the exchanges are registered with the SEC. FINRA regulates the OTC market and members of the New York Stock Exchange, whereas the other exchanges regulate transactions occurring on their trading floors. The SEC is a federal commission, not an SRO. All SROs are subject to SEC oversight.
**Which of the following are characteristics of the Securities Act of 1933? Requires registration of exchanges. Called the Truth in Securities Act. Requires full and fair disclosure of material facts. Enabled the Federal Reserve Board to determine margin requirements. A) II and III. B) I and II. C) I and III. D) II and IV.
A) II and III.
**Which of the following are defined as securities? Fixed annuities. Variable annuity units. Investment company shares. Negotiable CDs insured by the FDIC. A) II and III. B) I and III. C) I and IV. D) II and IV.
A) II and III. A security is any investment for profit with management performed by a third party, in which an element of risk is present.
If a company has filed a registration statement for an initial public offering of its common stock with the SEC, as a registered representative you may take which of the following actions? I. Send out a research report on the company to your customers. II. Take indications of interest from your customers. III. Send a preliminary prospectus to each of your customers. IV. Take orders for the stock from customers in cash accounts only. A) II and III. B) I and III. C) I and IV. D) II and IV.
A) II and III. New issues may be sold only by prospectus. Indications of interest may be taken when the issue is in registration. During the registration period, only the preliminary prospectus may be sent to clients. Sales literature, such as research reports, may not be distributed while the IPO is in registration, nor may orders be taken.
**Smith and Company, a FINRA member firm, is preparing to underwrite securities to be issued by KLC Corporation for a new business venture. For which of the following will Smith and Company be responsible? Filing the registration statement with the SEC and state regulatory bodies. Providing advice on the type of security to be issued. Distributing the security to the public. Providing advice on how KLC can best utilize the funds raised. A) II and III. B) I and III. C) I and IV. D) II and IV.
A) II and III. The issuer is ultimately responsible for filing registration statements with federal and state regulatory bodies and has already determined how the money will be used. The underwriter confines his activities and advice to the type and sale of the securities.
Which of the following statements regarding a shelf offering are TRUE? It can be used to distribute an initial public offering only. It can be used to distribute an additional offering only. Its maximum duration is 90 days. Its maximum duration is 3 years. A) II and IV. B) I and III. C) I and IV. D) II and III.
A) II and IV.
Using a prospectus to sell a security eliminates a salesperson's responsibility to disclose: A) None of these. B) a company's negative financial information. C) a company's poor growth potential. D) speculative factors about the security.
A) None of these.
**Where must the SEC's no-approval clause appear in a prospectus? A) On the cover. B) It is not mandatory, but, if used, it must appear on the first page. C) On the last page, under the name of the fund. D) Anywhere as long as it is conspicuous.
A) On the cover. The SEC wants investors to know that it does not approve or disapprove new issues. The disclaimer statement must appear on the cover of all prospectuses.
Your customer is interested in purchasing shares of a new issue where the demand for shares has already exceeded the number of shares the issuer intends to offer. Which of the following options might you look for that could allow your customer to receive shares? A) Over-allotment (Green Shoe Provision) B) Selling group C) Regulation A offering D) Firm commitment offering
A) Over-allotment (Green Shoe Provision) An over-allotment option (Green Shoe Provision), if one exists in the underwriting agreement, will allow the underwriters to sell up to 15% more shares than the issuer had originally intended to offer when demand exceeds supply.
All of the following would be excluded from raising capital under Regulation A+ EXCEPT A) a small manufacturing company B) a venture capital firm raising money for small and medium size companies C) a private equity fund D) a hedge fund specializing in small startup companies
A) a small manufacturing company
**A company without business operations that raises money through an IPO in order to have its shares publicly traded for the sole purpose of seeking out a business or combination of businesses is known as: A) a special purpose acquisition company (SPAC). B) a growth company. C) a special situation company. D) a regulation D, Private Placement company.
A) a special purpose acquisition company (SPAC). Generally, with IPOs the business purpose and products or services offered by a company are clearly defined. However, both the NYSE and Nasdaq allow companies without a defined business purpose to raise capital through an IPO in order to have it's shares traded for the sole purpose of seeking out a business or combination of businesses that when located would be submitted to shareholders for their approval. These types of companies are known as special purpose acquisition companies (SPACs)
When the SEC rules that an offering has become effective, the SEC has: A) cleared the offering for sale. B) verified the accuracy of the statements in the registration statement. C) not verified the accuracy of each statement in the registration statement but has approved of the offering. D) approved the offering for registration.
A) cleared the offering for sale.
**If the customers of a selling-group member sell into a penalty stabilizing bid, the selling-group member must pay back to the underwriter the: A) concession. B) reallowance. C) give up. D) spread.
A) concession. If selling-group members liquidate into the stabilizing bid, they may be required to return the concession they were originally paid.
**The Securities Act of 1934 deals with all of the following EXCEPT: A) filing an updated prospectus . B) filing of financial statements by broker/dealers. C) monitoring accounts for insider trading violations. D) marking sales long or short on an order ticket.
A) filing an updated prospectus .
The smallest component of a corporate underwriting spread is usually the: A) manager's fee. B) selling concession. C) takedown. D) underwriter's fee.
A) manager's fee.
**Under SEC Rule 134, a tombstone advertisement includes all of the following EXCEPT: A) net proceeds to the issuer. B) number of shares to be sold. C) the public offering price. D) names of the syndicate members.
A) net proceeds to the issuer. **Under SEC Rule 134, a tombstone advertisement may be placed by the syndicate manager on or before the offering's effective date and is limited to the name of the issuer, type of security being offered, number of shares to be sold, public offering price, and names of the syndicate members.
**A Tier 1 securities offering under Regulation A+ allows small to medium sized companies to A) raise up to a maximum of $20 million in a 12-month period B) raise up to a maximum of $15 million in a 12-month period C) raise up to a maximum of $10 million in a 12-month period D) raise up to a maximum of $5 million in a 12-month period
A) raise up to a maximum of $20 million in a 12-month period Tier 1 of Regulation A+ allows small to medium sized companies to raise up to a maximum of $20 million in a 12-month period
A corporate offering of 200,000 additional shares to existing stockholders may be made through a: A) rights offering. B) tender offer. C) secondary offering. D) warrant.
A) rights offering.
A customer requests information on a new mutual fund and asks her registered representative to circle the important information in the prospectus and information he thinks will be of special interest to her. This is permitted: A) under no circumstances. B) if approved by a principal. C) if accompanied by an unmarked prospectus. D) without restriction.
A) under no circumstances.
*If a customer purchases a new issue of stock from a syndicate member, the customer will pay the public offering price: A) with no mark-up or commission. B) plus a mark-up. C) plus a commission. D) plus the spread.
A) with no mark-up or commission. New issues are sold at the public offering price without a commission or mark-up. In the secondary market, securities are traded on an agency basis (commission) or on a principal basis (mark-up or mark-down).
Which of the following will NOT be found in a final prospectus? A) Statement that the SEC neither approves nor disapproves of the issue. B) Agreement among underwriters. C) Business plan. D) Date and offering price.
B) Agreement among underwriters.
Which of the following is least likely to impact an underwriter's considerations when establishing the offering price for a new issue? A) Earnings multiples for other companies in the market in the same industry. B) Geographic location of the company headquarters. C) Projected earnings for the company. D) Demand for the security by the investing public.
B) Geographic location of the company headquarters.
In which of the following types of offerings does a brokerage firm have no financial obligation for unsold securities? All-or-none. Best efforts. Standby. A) I, II and III. B) I and II. C) I and III. D) II and III.
B) I and II. All-or-none. Best efforts.
Which of the following actions of XYZ Corporation would raise additional capital? Issue callable preferred stock. Declare a stock dividend. Make a rights offering. Encourage convertible bondholders to convert to common stock. A) II and IV. B) I and III. C) I and II. D) II and III.
B) I and III.
Which of the following activities are characteristic of a primary offering? Raising additional capital for the company. Selling previously issued securities. Increasing the number of shares outstanding. Buying previously issued securities. A) III and IV. B) I and III. C) I and II. D) II and IV.
B) I and III. A primary offering involves the sale of previously unissued securities. The issuing company receives the proceeds from the sale; once the securities are sold, more securities will be outstanding.
Which of the following are TRUE of an over-allotment option or provision for a new issue? I. One is found in every underwriting agreement. II. It allows the underwriters to sell up to 15% more than the original number of shares offered. III. It allows the underwriters to sell up to 2 times the original number of shares offered. IV. It is a way for underwriters to address demand exceeding the number of shares originally offered. A) I and III B) II and IV C) III and IV D) I and IV
B) II and IV
The Securities Exchange Act of 1934 requires registration of nonexempt securities regulates trading in the secondary market prohibits fraud in the distribution of new issues created the SEC A) II and III B) II and IV C) I and III D) I and IV
B) II and IV The Securities Exchange Act of 1934 regulates secondary market activity and prohibits fraud in those markets. It created the SEC, which oversees all trading activity. The Securities Act of 1933 requires that nonexempt securities be registered and prohibits fraud in the distribution of new issues.
To which securities market does the Securities Act of 1933 apply? A) Fourth. B) Primary. C) Secondary. D) Third.
B) Primary.
*A customer owns 1,000 shares of ABC corporation. Which of the following actions on the part of ABC would dilute her equity? A) 2-1 stock split. B) Registered primary offering of shares. C) Registered secondary offering of shares. D) Payment of a 10% stock dividend.
B) Registered primary offering of shares. An additional primary issue of shares would dilute a present shareholder's ownership, unless she personally purchases a portion of the new shares (as in a rights offering). In a secondary offering, ownership of existing outstanding shares is simply changing hands. With a stock dividend or stock split, percent equity does not change.
The names of all of the following are included on tombstone ads EXCEPT: A) a syndicate member. B) a member of the selling group. C) the issuer. D) the syndicate manager.
B) a member of the selling group.
Underwriters that reserve the right to stabilize the price of securities distributed to the public under an SEC registration statement may do so: A) under no circumstances. B) only if notice is given in the prospectus. C) only if the securities being distributed will be immediately listed for trading on the NYSE or other exchange. D) without restriction.
B) only if notice is given in the prospectus.
The provisions of the Securities Act of 1933 include all of the following EXCEPT: A) requirement that an issuer provide full and fair disclosure about an offering. B) regulation of the secondary market. C) regulation of offerings of new securities. D) prohibition of fraud in the sale of new securities.
B) regulation of the secondary market.
The primary difference between an underwriting syndicate member and a selling group member in a firm commitment underwriting is that: A) the securities offered by each differs within the offering. B) the syndicate assumes liability for unsold shares; the selling group does not. C) the price per share paid by the public (POP) is more if purchasing new shares from a selling group member. D) the size of a syndicate member firm will always be larger than a selling group member firm.
B) the syndicate assumes liability for unsold shares; the selling group does not.
**In the case of an unsolicited order, a prospectus must be delivered to the purchaser of a unit investment trust: A) between 45 days and 18 months following the initial deposit. B) with the purchase confirmation. C) before the purchase. D) before the month's end.
B) with the purchase confirmation. A purchaser of newly issued securities must receive a prospectus no later than by receipt of the purchase confirmation. However, any solicitation must be preceded or accompanied by a prospectus.
A shelf registration statement is good for two years, but once effective with the SEC, it allows shares to be sold over a maximum period of: A) 90 days. B) 1 year. C) 3 years. D) 30 days.
C) 3 years.
Which of the following securities is NOT exempt from the registration provisions of the Securities Act of 1933? A) A high-quality corporate zero-coupon bond maturing in 180 days. B) An equity security issued in only one state solely to residents of that state. C) A new stock being offered in three states. D) A U.S. government bond.
C) A new stock being offered in three states.
Which of the following terms is used in connection with a municipal securities underwriting? A) In-registration. B) Effective date. C) Agreement among underwriters. D) Cooling-off period.
C) Agreement among underwriters.
**Which of the following statements regarding a red herring is NOT true? A) The final offering price does not appear in a red herring. B) Additional information may be added to a red herring at a later date. C) An agent may accept funds to be placed in escrow until the effective date if the request to do so is made by a potential purchaser. D) A red herring is used to accept indications of interest from investors.
C) An agent may accept funds to be placed in escrow until the effective date if the request to do so is made by a potential purchaser. *An agent is not permitted to accept funds from potential purchasers of a new issue before the effective date.
LMN Securities is the managing underwriter for a new issue of one million MIC common shares. LMN has agreed to sell as much stock as possible in the market, and MIC has agreed to take back any unsold shares. If MIC has not specified a minimum amount of capital for LMN to raise, this is what type of offering? A) All-or-none. B) Contingency. C) Best efforts. D) Standby.
C) Best efforts. a best efforts underwriting, any stock that remains unsold is returned to the issuing corporation.
Which of the following characteristics describes a final prospectus? A) Filed with the SEC and not available to the general public. B) Filed with the SEC semiannually. C) Complies with the full and fair disclosure requirements of the Securities Act of 1933. D) Used to solicit indications of interest in a new issue.
C) Complies with the full and fair disclosure requirements of the Securities Act of 1933.
Which of the following is typically the largest component of a corporate underwriting spread? A) Manager's fee. B) Underwriting fee. C) Concession. D) Reallowance.
C) Concession.
Which of the following securities issue is nonexempt, requiring registration under the Securities Act of 1933? A) Treasury bonds B) Debt instruments with maturities of 270 days or less C) Corporate bonds D) Municipal bonds
C) Corporate bonds
Which of the following two are NOT included in a preliminary prospectus? Final public offering price Effective (release) date. Intended purpose for the funds being raised. Financial statements and history of the company. A) III and IV B) I and IV C) I and II D) II and III
C) I and II Final public offering price Effective (release) date.
Which of the following factors is (are) considered when determining whether underwriting compensation is fair and reasonable? The size of the offering. The type of underwriting commitment. The market conditions. The profitability of the underwriter. A) II and III. B) II and IV. C) I and II. D) I and III.
C) I and II.
The letter of intent in a corporate underwriting is typically signed by which of the following parties? Issuer. Managing underwriter. Syndicate members. Selling group members. A) II and IV. B) III and IV. C) I and II. D) I and III.
C) I and II. Issuer. Managing underwriter. The letter of intent **initiates the underwriting process** and is signed by the issuer and managing underwriter.
**Which of the following statements regarding a firm commitment underwriting are TRUE? An underwriting syndicate is a group of broker/dealers who have banded together to distribute new issue securities to the public and whose members have made financial commitments to the issuer. A selling group consists of 2 or more broker/dealers who have agreed to participate in the distribution of new issue securities to the public and have made financial commitments to the underwriting syndicate in advance. An underwriting syndicate is a group of broker/dealers who have banded together to buy new issue securities to be held by the syndicate members for investment purposes. A selling group consists of 2 or more broker/dealers who have agreed to participate in the distribution of new issue securities as selling agents only, without principal risk. A) II and III. B) II and IV. C) I and IV. D) I and III.
C) I and IV. Members of an underwriting syndicate buy securities from issuers in principal transactions, assuming financial risk (in a firm commitment underwriting). Members of a selling group act merely as agents and assume no financial risk.
Under SEC Rule 145, which of the following events require(s) a corporation to receive the approval of its stockholders? Merger. Consolidation. Acquisition. Transfer of assets. A) I and IV. B) III only. C) I, II, III and IV. D) I and II.
C) I, II, III and IV. Rule 145 requires that a corporation have its stockholders' consent in the event of a merger, consolidation, acquisition, reclassification, or transfer of corporate assets.
In a corporate underwriting, the syndicate letter is signed by which of the following? Issuer. Managing underwriter. Syndicate members. Selling group members. A) I and IV. B) II and IV. C) II and III. D) I and II.
C) II and III.
**A prospectus must be delivered to customers who purchase which of the following new issues? U.S. government bonds. Corporate bonds. Fixed annuities. Unit Investment Trusts. A) I and IV. B) II and III. C) II and IV. D) I and III.
C) II and IV. **U.S. government bonds are exempt securities under the Act of 1933 and are not subject to the Act's registration and prospectus delivery requirements. Fixed annuities are not considered securities as the risk is borne by the insurance company issuer. **Corporate bonds and UITs, however, are non-exempt securities and are subject to prospectus delivery requirements.**
Which of the following acts requires corporate public issuers to send annual reports to their shareholders? A) Trust Indenture Act of 1939. B) Securities Investors Act of 1970. C) Securities Exchange Act of 1934. D) Securities Act of 1933.
C) Securities Exchange Act of 1934. The Securities Exchange Act of 1934 requires public issuers to inform the shareholders of their operations at least on an annual basis.
ABC is engaged in a stock rights offering with the help of Alpha Securities as managing underwriter. If Alpha Securities agrees to purchase the unused rights for any stock that ABC cannot sell to current stockholders, and use them to purchase stock for resale to the public, what type of underwriting arrangement is this? A) Best efforts. B) All-or-none. C) Standby. D) Special.
C) Standby.
**The names of all of the following are included on tombstone ads EXCEPT: A) the managing underwriter. B) a syndicate member. C) a member of the selling group. D) the issuer.
C) a member of the selling group. A tombstone ad lists the syndicate manager(s) in bold print and all syndicate members in smaller print. Selling group members are not included on the tombstone.
**Stabilizing bids may be entered at: A) a price not exceeding 5% above the public offering price. B) whatever stabilizing price is stated in the prospectus. C) a price no higher than the public offering price. D) any reasonable price necessary to support the public offering price.
C) a price no higher than the public offering price. Stabilizing bids cannot be used to raise the market price of an issue. Stabilization may only be used to support a new issue security at or below the public offering price.
During the 20-day cooling-off period for an initial public offering, all of the following are permitted EXCEPT: A) mailing a red herring to a customer. B) accepting indications of interest. C) accepting a deposit from a customer to purchase the new issue. D) publishing a tombstone advertisement.
C) accepting a deposit from a customer to purchase the new issue.
The largest portion of an underwriting spread is the: A) underwriting fee. B) stabilizing bid. C) concession. D) manager's fee.
C) concession.
Shortly before the end of the cooling-off period, the underwriters and representatives of the issuer have a meeting to review the status of the new issue. This is called a: A) syndicate meeting. B) negotiation meeting. C) due diligence meeting. D) pre-sales meeting.
C) due diligence meeting.
The Securities Exchange Act of 1934 regulates or mandates each of the following EXCEPT: A) manipulation of the secondary market. B) extension of credit to customers. C) full and fair disclosure on new offerings. D) creation of the SEC.
C) full and fair disclosure on new offerings.
**All of the following are unlawful EXCEPT: A) representing that the SEC has approved of a broker/dealer or a security being sold. B) omitting a statement of a material fact. C) giving written notification to a customer that the broker/dealer is acting as a principal for the trade. D) selling new issues on margin.
C) giving written notification to a customer that the broker/dealer is acting as a principal for the trade. New issues may not be sold on margin. The Securities and Exchange Commission does not approve or disapprove of securities, broker/dealers, or registered representatives. It is always unlawful to make a fraudulent communication in connection with the sale or purchase of securities; making a fraudulent communication includes failing to state a material fact.
A customer is interested in an IPO of a stock in registration. He requests that you highlight the important information on the preliminary prospectus and send an analysis of the company's past performance. You may: A) comply with the request because the customer solicited the information and analysis. B) not comply with the request because the stock is not yet listed for trading on any exchange. C) not comply with the request because the preliminary prospectus may not be altered. D) comply with the request because it involves an IPO in which little information is known about the issuer.
C) not comply with the request because the preliminary prospectus may not be altered.
During the cooling-off period, a registered representative (in order to highlight key points) marks a preliminary prospectus and sends it to a client. This action is: A) permitted if approved by a principal. B) permitted if the customer is an accredited investor. C) prohibited. D) permitted without restriction.
C) prohibited.
**All of the following are covered under the Securities and Exchange Act of 1934 EXCEPT: A) proxy solicitation. B) margin. C) trust indentures. D) short sales.
C) trust indentures. Trust Indentures are covered under the trust indenture act of 1939.
A registered representative opens a new account for an investment club. His spouse is a member of the club and owns 15% of the club's assets. The registered representative wants to sell shares of a common stock IPO to the investment club. This is allowed: A) with written notice to the SEC. B) only if the IPO is suitable for the investment club. C) under no circumstances. D) with written principal approval.
C) under no circumstances. Rules prohibit member firms from selling common stock IPOs to restricted persons. Under the rules the account would not be restricted if the assets owned by the spouse composed less than 10% of the club's assets. Because the registered representative's spouse is a member of the investment club and owns more than 10% of the club's assets, the registered representative cannot sell shares of the IPO to the club.
An affiliate holding restricted stock wishes to sell shares under Rule 144. He has held the shares, fully paid, for 6 months, and the issuer has 2.4 million outstanding shares. Form 144 is filed on Monday, April 10, and the average weekly trading volume for the last four weeks is 24,500 shares per week. The maximum number of shares the customer can sell with this filing is: A) 23,000. B) 24,000. C) 24,250. D) 24,500.
D) 24,500. Under Rule 144, after holding the fully paid restricted shares for 6 months, the affiliate can begin selling. For affiliates, volume restrictions always apply. They can sell the greater of 1% of the total shares outstanding or the weekly average of the prior 4 weeks' trading volume (the 4 weeks preceding the Form 144 filing).
Corporate debt securities (such as commercial paper) are exempt from registration under the Securities Act of 1933 if their maturities do not exceed how many days? A) 30. B) 90. C) 365. D) 270.
D) 270.
A resident of a state who acquires stock pursuant to Rule 147 (intrastate offerings) is prohibited from selling the stock to a nonresident of that state for how many months? A) 6. B) 12. C) 18. D) 9.
D) 9.
Within a firm commitment underwriting, which document details the responsibilities and liabilities of each firm? A) Registration statement. B) Underwriting agreement. C) Letter of intent. D) Agreement among underwriters.
D) Agreement among underwriters. The agreement among underwriters, also called the syndicate letter, is signed by representatives of all syndicate members and establishes a joint account to sell newly-issued securities.
Alpha is the managing underwriter for a new issue of 1 million shares of ABC common. While Alpha has agreed to sell as much stock as possible in the market, ABC will cancel the offering if any portion of the stock remains unsold. This arrangement is known as what type of underwriting? A) Standby. B) Best efforts. C) Mini-max. D) All-or-none.
D) All-or-none.
Which of the following statements regarding red herrings are TRUE? They may be used to obtain indications of interest. They may be sent out with sales literature. They contain the final offering price. Their use ends when the offering becomes effective. A) I and III. B) II and III. C) II and IV. D) I and IV.
D) I and IV. A preliminary prospectus, or red herring, is used only during the cooling-off period. The red herring does not contain the final price; offerings are priced immediately before the effective date.
**Before the filing of a registration statement for a new issue, an investment representative may NOT: solicit indications of interest for the security. solicit orders. confirm the sale of the security to a customer. A) I only. B) II only. C) II and III. D) I, II and III.
D) I, II and III. Before the registration statement is filed, no sale, solicitations, or indications of interest in the issue may occur.
Which of the following describe indications of interest secured during the 20-day cooling-off period? Binding on the customer. Nonbinding on the customer. Binding on the broker/dealer. Nonbinding on the broker/dealer. A) I and III. B) I and IV. C) II and III. D) II and IV.
D) II and IV.
**Under the intrastate offering rule (Rule 147), when may a resident purchaser of securities resell them to a nonresident? A) Three months after the first sale made in that state. B) Six months after the last sale made in that state. C) None of these. D) Nine months from the end of the distribution.
D) Nine months from the end of the distribution. In an intrastate offering, a purchaser of the issue may not sell the securities to a resident of another state for at least nine months from the end of the distribution.
Which of the following securities is NOT exempt from the Securities Act of 1933? A) Municipal issues. B) U.S. government agency issues. C) U.S. government issues. D) Real estate investment trusts.
D) Real estate investment trusts.
Which of the following acts requires full and fair disclosure of all material information about equity and debt securities offered for the first time to the public? A) Securities Exchange Act of 1934. B) Trust Indenture Act of 1939. C) Securities Investor Protection Act of 1970. D) Securities Act of 1933.
D) Securities Act of 1933.
Which of the following underwriting arrangements allows an issuer whose stock is already publicly traded to structure the timing of sales for an additional issue? A) Negotiated. B) Standby. C) Competitive. D) Shelf.
D) Shelf.
**When an investment banker is successful on a competitive bid corporate underwriting in which they agree to purchase the shares from the issuer, the underwriters will be handling the offering as: A) an all or none. B) a best efforts. C) a standby underwriter. D) a firm commitment.
D) a firm commitment. An underwriting is known as a **firm commitment** when the investment banking firm (underwriters) winning the competitive bid have agreed to purchase the entire issue from the issuing corporation with the obligation to resell to the public.
The demand is far less than anticipated for a new issue of common stock. In this situation, the underwriter may stabilize the issue by placing bids in the open market: A) at the public offering price only. B) slightly above the public offering price. C) at or anywhere above the public offering price. D) at or slightly below the public offering price.
D) at or slightly below the public offering price.
The Securities Act of 1933 covers all of the following EXCEPT: A) liabilities for misleading filings. B) prospectus requirements. C) full and fair disclosure. D) blue-sky laws.
D) blue-sky laws. The purpose of the Securities Act of 1933 is to provide investors with full disclosure about a new securities issue. The act is federal in scope, whereas blue-sky laws refer to STATE securities regulations.
From the point of view of a corporate issuer, the most conservative means of raising capital would be the issuance of: A) preferred stock. B) convertible bonds. C) convertible preferred stock. D) common stock.
D) common stock. **Common stock issues add to the capital of a corporation and do not saddle it with additional cash flow demands. This approach is the most conservative. Because of the desire of bondholders and preferred stockholders to receive their interest and dividends, respectively, the issuance of preferred stock or bonds creates additional and ongoing demands on a corporation's cash flow.
An underwriting spread is the: A) amount a managing underwriter receives. B) amount a selling group receives. C) amount a syndicate receives. D) difference between an offering price and the proceeds to an issuer.
D) difference between an offering price and the proceeds to an issuer.
In reviewing prospectuses and registration statements, the SEC: A) guarantees the adequacy of the disclosures made in a prospectus. B) certifies the accuracy of the disclosures made in a prospectus. C) passes on the merits of a particular security covered by a registration statement. D) does not approve or disapprove of the issue.
D) does not approve or disapprove of the issue.
***All of the following must be part of a registration statement EXCEPT: A) a prospectus. B) the signatures of CEO, CFO, CAO, and majority of the board. C) a statement as to whether the company is involved in any legal proceedings. D) identification of investors who own 5% or more of the company.
D) identification of investors who own 5% or more of the company. The registration statement must identify investors who own 10% or more of the company.
Your customer wishes to purchase shares of an IPO. During the cooling- off period, the customer can: A) pay in advance for shares to be purchased when the cooling-off period ends. B) enter an order to sell the new issue short upon the effective date. C) purchase shares in limited amounts. D) indicate an interest in the offering.
D) indicate an interest in the offering.
**The Securities Exchange Act of 1934 covers all of the following EXCEPT: A) trading on exchanges. B) trading of corporate securities. C) issuance of financial reports by corporations. D) issuance of corporate securities.
D) issuance of corporate securities. The Securities Exchange Act of 1934 regulates secondary trading or trading markets, including reporting requirements. The Securities Act of 1933 regulates the issuance of new, nonexempt securities.
A registered representative may use a preliminary prospectus to: A) solicit orders from investors for the purchase of a new issue. B) demonstrate SEC approval of the issue. C) accept nonbinding orders from investors for a specific number of shares at a specific price. D) obtain indications of interest from investors.
D) obtain indications of interest from investors.
If XYZ Corporation intends to offer stock in a public offering, it must do all of the following EXCEPT: A) issue a prospectus. B) file a registration statement. C) register the securities with the SEC. D) publish a tombstone advertisement.
D) publish a tombstone advertisement. Tombstones are advertisements often appearing in business newspapers to publicize new issues and are generally placed by a syndicate manager. **They are not required.
The Act of 1933 applies to all of the following EXCEPT: A) registration of new issues . B) full and fair disclosure. C) prospectus preparation. D) regulation of insider trading.
D) regulation of insider trading. The regulation of insider trading is covered under the Act of 1934. ** The Act of 1933 deals with new issues and related disclosures.
All of the following may occur during the mandatory 20-day cooling-off period EXCEPT: A) the performance of due diligence by the underwriters. B) publishing a tombstone ad. C) forwarding a preliminary prospectus to a customer. D) soliciting transactions for the security.
D) soliciting transactions for the security.
**A due diligence meeting occurs between: A) the FINRA member firm and FINRA's Corporate Finance Department to discuss the fairness of the underwriting spread on a pending public offering. B) the underwriter and the SEC before the issuance of a final prospectus to insert the public offering price and make any last minute changes at the SEC's request. C) All of these. D) the issuing corporation and the underwriters to review and reexamine the full details of the pending underwriting and negotiate final terms to be included in the formal underwriting contract.
D) the issuing corporation and the underwriters to review and reexamine the full details of the pending underwriting and negotiate final terms to be included in the formal underwriting contract. A due diligence meeting is held between the issuer and the underwriter before the effective date and is one of the final meetings held before the sale of the security so that each party may review all aspects of the issue.
Alpha Securities is the managing underwriter for a new issue of 1 million shares of ABC common on a firm-commitment basis. If part of the ABC issue remains unsold and results in a loss, the loss will be divided proportionately among the: A) underwriting firms and the issuer. B) selling group firms. C) underwriting firms and the selling group firms. D) underwriting firms.
D) underwriting firms. **In a firm-commitment arrangement, any losses incurred are divided among the underwriters' syndicate members according to the terms in the agreement among underwriters.
