QBank Unit 7
The aftermarket prospectus requirement following an APO for exchange-listed securities is
0 days For exchange-listed additional public offerings, there is no aftermarket prospectus requirement
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
10% If the beneficial interests of restricted persons do not exceed 10% of an account, the account may purchase a new equity issue
Six days into the cooling-off period, an issuer receives a deficiency letter from the Securities and Exchange Commission (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 six days, which means that the issue should be effective 14 days later
After the issuer files a registration statement with the Securities and Exchange Commission (SEC), the time known as the cooling-off period begins. This allows a registration to become effective as early as
20 calendar days after the date the SEC has received it Once the registration statement has been received by the SEC, a cooling-off period begins and it must last at least 20 calendar days. This allows the registration to become effective as early as 20 calendar days after the date the SEC has received it
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 days For new issues that qualify for listing on an exchange or Nasdaq (NMS securities), the prospectus delivery requirement period in the aftermarket (after the effective date) is 25 days. For nonlisted and non-Nasdaq (non-NMS) securities, the period is 90 days. For an APO, the reqquirement for NMS securities is 0 days (no requirement). The APO of a non-NMS security is 40 days
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?
40 days 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)
The aftermarket prospectus requirement for the IPO of nonlisted securities is
90 days For the first 90 days following the IPO, a prospectus must be provided to purchasers in the secondary market
Which of the following situations may not be disclosed to a potential buyer while a security is in registration?
A brokerage report shows the security is properly undervalued Brokerage reports may not be distributed while a security is in registration. Expected dates for pricing and road shows (due diligence meetings) may be communicated to potential buyers. The underwriters are named in the issue's registration statement
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 Securities and Exchange Commission (SEC), as that has already been done. Shelf registration (shelf offering) is available for both primary and secondary offerings
Regarding a shelf registration filed with the Securities and Exchange Commission (SEC), which of the following statements are true? - A supplemental prospectus must be filed before each sale - This registration is for issuers who want to issue securities for the first time - Portions of a shelf offering can be sold over a 10-year period without having to reregister the security - Portions of a shelf offering can be sold over a three-year period without having to reregister the security
A supplemental prospectus must be filed before each sale Portions of a shelf offering can be sold over a three-year period without having to reregister the security Shelf offerings are for issuers who already have publicly 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 three-year period, a supplemental prospectus must be filed with the SEC before each sale
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 could not be considered an institutional investor?
An accredited investor Accredited investors include officers, directors of the company, and wealthy investors; however, being wealthy does not make someone qualify as an institutional account
Regarding the purchase of new equity issues by restricted persons, which statements are true? - An investment club is permitted to buy a new equity issue at the offering price - An investment club is not permitted to buy a new equity issue at the offering price - 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 - 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
An investment club is permitted to buy a new equity issue at the offering price 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 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
Which of the following choices would best describe a follow-on offering?
An issue of shares by a public company that is already listed on an exchange A follow-on public offer (FPO) is an issue of shares by a public company [registered and reporting to the Securities and Exchange Commission (SEC)] that is currently listed on an exchange and has previously gone through the IPO process. FPOs are popular methods for companies to raise additional equity capital in the capital markets through a stock issue
Regarding primary and secondary offerings, which of the following are true? - An offering can only be either a primary or secondary - An offering can be a combination of primary and secondary - An initial public offering (IPO) is a secondary offering - An additional primary offerings (APO) is a primary offering
An offering can be a combination of primary and secondary An additional primary offerings (APO) is a primary offering 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
Which of the following calls for the underwriters to buy securities from the issuer acting as an agent, not as principal?
Best efforts underwriting 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
For the primary market, which of the following is true?
Issuer transactions occur in the primary market, and securities are offered at a public offering price The primary market, regulated by the 1933 Securities Act, is where securities are offered by issuers (issuer transactions) at an offering price. The sales proceeds of these transactions go to the issuer
Which of the following best describes a prospectus?
It is a full and fair disclosure of all material information and facts regarding the issuance of securities The Securities and Exchange Commission (SEC) requires full and fair disclosure of all material information and facts regarding the issuance of securities. This disclosure is done via a prospectus, which is required to provide investors enough information to make fully informed buying decisions
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?
Capital market 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
A prospectus displays which of the following?
Description of how the proceeds will be used A prospectus will not contain performance predictions, may not imply endorsement of the SEC, nor will it contain guarantees of gains or guarantees against loss
Which of the following would be allowed during the cooling off period?
Distributing a red herring No selling or soliciting is allowed during the cooling off period. Distributing a red herring (a preliminary prospectus) is allowed
Issuance and trading of securities are regulated at more than one governmental level. These would include regulations at which of the following? - County level - City level - Federal level - State level
Federal level State level 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
Which type of underwriting is characterized by the broker-dealer buying the entire issue from the issuer and then reoffering it to the public?
Firm commitment In a firm commitment, the underwriter buys the entire offer into inventory and then redistributes it to the public
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
For primary and secondary markets, which of the following is true?
In the primary market, securities are sold to the public and the issuer receives the sale proceeds In the primary market, the issuer of the securities receives the proceeds generated by the sale of the securities. In the secondary markets, such as an exchange or over-the-counter (OTC) securities trade between investors, one sells securities to another, and the issuer is not involved in the transaction
An investor requests a preliminary prospectus for a new issue. Regarding the document which of the following is true?
It is made available between the registration date and the effective date The preliminary prospectus (red herring) is a prospecting tool used to gauge indications of interest. It is made available to those who request it between the registration date and the effective date (cooling-off period). Receiving it is not a commitment to purchase shares and making it available is not a commitment to sell shares to the recipient. No final price would be found on a preliminary prospectus
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
Which of the following securities is exempt from the Securities Act of 1933?
Municipal note Municipal debt securities, including short-term notes, are exempt from the Securities Act of 1933
Which of the following statements is true?
Municipalities, the federal government, and corporations can raise funds in the capital markets Capital markets are a source of financing for corporations, municipalities, and governments
Which of the following would be allowed during the cooling off period?
Placing a tombstone ad No selling or soliciting is allowed during the cooling off period. Publishing a tombstone is considered an announcement, not a solicitation. The final prospectus is not available during the cooling off period
A company is considering raising capital without going through the registration process requirements mandated by the Securities Act of 1933. To be exempt from the act, which of the following offerings might they employ?
Private (nonpublic) securities offering Issuers wanting relief (exemption) from the registration provisions of the Securities Act of 1933 can offer securities privately. These securities offerings are often called private placements
Which of the following offerings is most likely exempt from the registration requirements of the Securities Act of 1933?
Private (nonpublic) securities offerings 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
A final prospectus contains all of the following except
SEC approval The SEC neither approves nor disapproves a final prospectus; they allow the issue to become effective. Beware of any approval language when referring to a regulator
Primary market transactions would include which of the following?
Sale of $10 million of corporate bond by a broker-dealer acting as an underwriter Market makers are broker-dealers who sell out of their own account in the secondary market. Underwriters are broker-dealers who help issuers bring their securities to market in the primary market
Which of the following would be applicable to nonexempt securities (those that must be registered) being offered to the public by a corporate issuer? - Securities Act of 1933 - Prospectus - Securities Act of 1934 - Secondary market
Securities Act of 1933 Prospectus Offering nonexempt securities [those that must be registered with the Securities and Exchange Commission (SEC)] such as common stock to the public requires the registration of the securities under the Securities Act of 1933. The offering must be made by prospectus
For nonexempt securities being offered to the public for the first time by a corporate issuer, which of the following would be applicable?
Securities Act of 1933 regulating issues that must be offered by prospectus Nonexempt securities are those that must be registered with the Securities and Exchange Commission (SEC) under the Securities Act of 1933. The Securities Act of 1933 mandates that offerings of these securities must be made by prospectus
Which of the following would take place in the primary market?
Securities sold to the public by the issuer When an issuer is selling its securities, that is a primary market transaction
Member firms violate rules regarding sales of new equity issues to restricted persons when they do which of the following? - Sell a new issue to one of their own customers - Sell blocks of the new issue to accounts of partners or officers of the member firm - Sell shares to the grandparent of a member affiliate - Sell to accountants or attorneys acting on behalf of the underwriters
Sell blocks of the new issue to accounts of partners or officers of the member firm Sell to accountants or attorneys acting on behalf of the underwriters Rules prohibit the sale of a new equity issue to other brokers, partners, officers, employees of firms in the syndicate or selling group offering the issue, and their immediate or supported family members. For purposes of this rule, aunts, uncles, and grandparents are not considered immediate family
Which of the following would be allowed during the cooling off period?
Taking indications of interest No selling or soliciting is allowed during the cooling off period. Taking indications of interest is permitted
All of the following names describe the Securities Act of 1933 except
The Exchange Act The Exchange Act is the Securities Exchange Act of 1934 and covers the secondary markets. The Securities Act of 1933 covers the primary market and requires full and fair disclosure on new issues by providing a prospectus to the investor
Which of the following acts requires the registration of most new issues?
The Securities Act of 1933 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
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
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?
The Securities Act of 1933 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
Shelf offerings are covered under which if the following?
The Securities Act of 1933 The shelf offering (registration) provision under the Securities Act of 1933 allows issuers to quickly raise capital when needed or when market conditions are favorable
Which of the following statements with regard to the issuance of securities is true?
The Securities Act of 1933 provides criminal penalties for fraud The Securities Act of 1933 (also known as the Paper Act, Full Disclosure Act, New Issues Act, Truth in Securities Act, and Prospectus Act) ensures that the investing public is fully informed about a security and its issuer when the security is offered on the primary market. The act provides criminal penalties for fraud in the issuance of new securities. The SEC review period, known as the cooling-off period, must last a minimum of 20 days before the SEC releases the securities for sale to the public (effective date). Solicitations and the acceptance of orders may never occur before the effective date
Regarding the issuance of new securities to the public, which of the following is true?
The Securities Act of 1933 provides criminal penalties for fraud The Securities Act of 1933, which provides for criminal penalties for fraud in the issuance of new securities, ensures that investors are fully informed about a security and its issuer when the security is offered to the public. The SEC review or cooling-off period must last a minimum of 20 days before the SEC releases the securities for sale to the public (effective date). Solicitations and the acceptance of orders may never occur before the effective date
When the Securities and Exchange Commission (SEC) clears securities for sale to the investing public, this is
The effective date 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
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
If an officer of a bank with the authority to purchase and sell securities on behalf of the bank wants to purchase new issues, which of the following statements is true?
The officer may not purchase a new issue because he is considered a restricted person Under the rules regarding the purchase of new issues, bank officers would generally be characterized as restricted persons. They may not, therefore, purchase new issues
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 IPO, there is no limit to the number of SPOs or 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
A company is already public with several major stockholders. The company proposes an offering where sale proceeds for shares being sold to the investing public will go to some of the existing stockholders who want to divest of their shares as well as to the corporation. This is - a combination offering - a primary offering - a secondary offering - an initial primary offering (IPO)
a combination offering Anytime proceeds are going to the selling shareholders rather than the issuer, it is a secondary offering. Because the company is already public (has shares in the hands of stockholders), this offering of those shares to the investing public would be an APO rather than an IPO. The best description of this offering is a combination offering
Underwriters acting as principals and committing to purchase any unsold shares for the syndicate account would best be described as being engaged in
a 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
A person who looks to provide advice to a city government concerning the issuance of municipal debt securities would best be described as
a municipal advisor 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 Securities Act of 1933 requires that
a new issue, unless specifically exempted from the Act, be registered with the Securities and Exchange Commission (SEC) before public sale 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 new registered representative receives a memo discussing the distribution of a red herring. The registered representative knows that the memo is referencing
a preliminary prospectus The term red herring is derived from the disclaimer printed in red on the cover page of a preliminary prospectus. Some key information that would be found in a final prospectus, such as price, is not found in the preliminary prospectus
A company is looking to raise additional capital to fund an expansion plan. The company's senior management chooses to issue additional bonds to the general public. The best expression to explain this type of offering would be
a primary offering A primary offering is one in which the proceeds raised go to the issuing corporation, municipality, or government. The corporation in this case looks to increase its liquid capital by offering bonds. Primary offerings of bonds may be made by an issuer publicly, as is the case, or privately. This question points to an additional public offering (APO) of securities, not an initial public offering
Securities sold in an issuer-related transaction would best be described as
a primary offering 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
During the cooling-off period of a new registration filed with the Securities and Exchange Commission (SEC)
a red herring may be given to prospective investors During the minimum 20-day cooling-off period, tombstone ads may be published, and a preliminary prospectus, also known as a red herring, may be distributed to prospective investors. Sales literature may not be distributed and indications of interest are not binding on either the investor or broker-dealer
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
A select pair or group of companies organized to underwrite corporate or municipal securities is best known as
a syndicate 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
Each of the following provides for an exemption from the registration requirement of the Securities Act of 1933 except
access equals delivery rule Securities offerings may qualify for exemption from the registration statement and prospectus requirements of the Securities Act of 1933 under Regulation A+, Regulation D, Rule 147 and Regulation S
Sales for new issues of securities may be solicited
after the cooling-off period Sales can only be solicited after the cooling-off period (upon the effective date). Solicitations of all sales must be done with a final prospectus
A corporate issuer of common stock has decided that it wants an agreement that its underwriter must either raise all of the capital needed or cancel the underwriting. To best accommodate this the underwriting should be
an all or none (AON) In an AON underwriting, the issuing company has determined that it wants the underwriter to sell all of the shares required to raise all of the capital needed or cancel the underwriting. Because of the uncertainty over the outcome of an AON offering, any funds collected from investors during the offering period must be held in escrow pending final disposition of the underwriting
Rules regarding restricted persons state that each of the following is considered immediate family except
an aunt or an uncle Rules regarding restricted persons define immediate family as spouses, parents, siblings, in-laws, and children. Aunts and uncles and grandparents are excluded (not considered immediate family)
An indication of interest given by an investor during the cooling-off period is
an investor's declaration of potential interest in purchasing some of the issue after the security comes out of registration An indication of interest given by an investor during the cooling-off period is the investor's declaration of a nonbinding potential interest to purchase some of the issue after the security comes out of registration (after the effective date)
A corporation sells shares to the investing public in order to raise capital. This is known as
an issuer transaction The primary market is where securities are sold to the investing public by the issuer wishing to raise capital. These are known as primary market or issuer transactions
A tombstone advertisement would be expected to include all of the following information except
any inherent risks associated with the offering or the issuer offering the securities While any inherent risks associated with the issuer or the securities the issuer is offering would be expected to be shown in a prospectus, they would not be expected to be found nor is it required that they be shown in a tombstone advertisement. Each of the remaining answer choices shows information expected to be shown in these ads
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 (SEC) 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
A tombstone advertisement placed before the effective date can
be placed by the issuer directly or by the underwriters 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
A registered representative provides financial support and housing at her home for her grandfather. Regarding the purchase of new issues,
both persons are considered restricted Working for a broker-dealer, the registered representative is considered restricted. While grandparents of restricted persons are generally not considered restricted, anyone being provided financial support and/or living under the same roof as a restricted person (as is the case here) is also restricted
An offering is defined as the sale of a security. Regarding offerings, all of the following are true except
corporate securities can only be offered in public securities offerings 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
During the cooling-off period, underwriters may not
distribute sales literature or advertising material During the cooling-off period, underwriters may not distribute sales or advertising literature regarding the securities to be offered. However, they may distribute a preliminary prospectus intended to gather indications of interest and place tombstone ads
A preliminary prospectus is used to solicit
indications of interest before the effective date 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 of the following are restricted persons except
individual owning 5% of a member firm Rules prohibit member firms from selling public offering stock in equities to any account in which restricted persons are beneficial owners. Restricted persons include Financial Industry Regulatory Authority (FINRA) members, employees of member firms, finders and fiduciaries acting on behalf of the underwriters, portfolio managers, and any person owning 10% or more of a member firm. Also included are the immediate family members of any restricted persons
A private securities transaction - is nonexempt and must be register under the Act of 1933 - is exempt from registration under the Act of 1933 - can be sold to individual accredited investors - can be sold to institutional investors only
is exempt from registration under the Act of 1933 can be sold to individual accredited investors 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
Mrs. Jones is an employee of a member firm and as such is a restricted person regarding the purchase of new issues. She belongs to an investment club and has a 1% interest in the club's brokerage account. The investment club
is not a restricted account and will be allowed to purchase equity shares of an initial public offering (IPO) Because the restricted person's interest in the club's brokerage account does not exceed 10%, the investment club account is not considered a restricted account. If not restricted, the club can purchase shares of an equity issue at the public offering price if it chooses to
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
Assets offered and traded in the securities markets can include all of the following except
life insurance. Equities (stocks), bonds, currencies, and derivative products like options can be offered and traded in the financial markets. Insurance is not an asset that can be traded in the financial markets
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
Rules to protect the investing public during the public offering process include all of the following except
limiting the number of shares of an initial public offering (IPO) that may be purchased by the issuing company's employees No rule limits the number of shares that an issuer can direct to persons who are employees of the issuer
A preliminary prospectus (red herring)
may be used to gather indications of interest The preliminary prospectus (red herring) can be used as a prospecting tool, allowing issuers and underwriters to gather nonbinding indications of interest. It must be made available and is intended to be distributed to any customer who expresses interest in the securities during the cooling-off period. There is no final price shown in a preliminary prospectus
A corporation increases capitalization by selling shares of stock which can either come from a new issue or previously authorized but unissued shares. Total stock outstanding must
never exceed the number of shares authorized A corporation's bylaws state the maximum number of shares authorized to be issued. Therefore, issued shares, those in the hands of public shareholders (outstanding shares) can never exceed the number of shares that were authorized. While those outstanding shares can therefore never be greater than the number of shares issued they could equal the number of shares issued
In a combination (or split) offering,
new shares are issued from the corporation and existing shares are sold by shareholders In a split offering, shares are issued to the public. These shares come from both the corporation and existing shareholders—hence the split
Indications of interest taken during the cooling-off period are - binding on the selling issuer and underwriters - nonbinding on the issuer and underwriters - binding on the investor - nonbinding on the investor
nonbinding on the issuer and underwriters nonbinding on the investor Indications of interest are binding on neither buyers nor sellers
During the cooling-off period, underwriters of new securities may - accept orders to purchase shares - not accept orders to purchase shares - not accept indications of interest regarding potential purchases of shares - accept indications of interest regarding potential purchases of shares
not accept orders to purchase shares accept indications of interest regarding potential purchases of shares Orders for shares may never be taken before the effective date; therefore, no orders to purchase shares may be taken during the cooling-off period. Indications of interest, however, are allowed to be taken but are not binding on either party
Regarding the purchase of new equity issues (IPOs), restricted persons may
not purchase shares of a new issue Persons characterized as restricted persons are prohibited from purchasing shares of new issues in any quantity. If one is already restricted, working for a bank or a broker-dealer does not exempt them from the rule
A member firm receives an order to purchase shares in a common stock initial public offering (IPO) from another broker-dealer for a customer. Regarding restricted persons, the member must
obtain a written representation that the buyer is not a restricted person When receiving an order to buy a new equity issue, a member must obtain a written representation that purchasers are in compliance with rules regarding sales of new issues to restricted persons (i.e., they are not restricted persons)
State registration is not required if the transaction is exempt. An example of an exempt transaction would be
one that is unsolicited Purchases and sales that are unsolicited (unsolicited transactions) are exempt under the blue-sky (state securities) laws. Municipal bonds and U.S. government bonds are examples of exempt securities, not transactions
Regarding the purchase of a new equity issue, an account where a restricted person has a beneficial interest would be allowed to purchase the new shares at the public offering price
only if the interest does not exceed 10% Restricted persons will be able to have an interest in an account (one that is not wholly their own) that purchases new equity issues as long as no more than 10% of the account's beneficial owners are restricted persons
The primary purpose of the Securities Act of 1933 is to
require full and fair disclosure in connection with the sale of securities to the public The primary purpose of the Securities Act of 1933 is to require full and fair disclosure in connection with the sale of securities to the public
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
The requirement for a supplemental prospectus to be filed before each sale is applicable to
shelf registration sales Through a shelf offering, an issuer who is already a publically traded company can register new securities without selling any of the shares until later or waiting to sell a portion of the shares. For securities offered via a shelf registration, a supplemental prospectus must be filed with the Securities and Exchange Commission (SEC) before each sale
During the 20-day cooling-off period, - solicitations of sales can be made - solicitations of sales may not be made - deficiency letters, if issued, are sent to the issuer - deficiency letters, if issued, are sent to the underwriters
solicitations of sales may not be made deficiency letters, if issued, are sent to the issuer 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
During the cooling off period, underwriters would be allowed to do all of the following except
take orders During the cooling off period, sales are not allowed
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
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
Raising funds is generally accomplished by corporations through the issuance of stock (equity) or bonds (debt). This is done in
the capital market The issuance of stock or bonds by corporations to raise new funds takes place in the capital market
The prospectus delivery requirement, access equals delivery, is satisfied when
the final prospectus has been filed with the Securities and Exchange Commission (SEC) and is available on the SEC's website for investors to see Beyond physical delivery of a paper prospectus, access equals delivery is the industry standard for meeting the final prospectus delivery requirements. It is deemed to be satisfied when the final prospectus has been filed with the SEC and is therefore available on the SEC's website for investors to log in and see. This standard does not apply to delivery of a preliminary prospectus before the effective date
Restricted persons are not allowed to purchase an IPO of common stock. All of the following are restricted persons except
the grandparent of a restricted person Immediate family to a restricted person is a restricted person. This includes parents, in-laws, spouses, siblings, children, or any other individual to whom the person provides material support. Aunts and uncles as well as grandparents are not considered immediate family. If, however, one of these individuals lives in the same household as a restricted person, that individual would be a restricted person
Capital markets can be characterized by all of the following except
they are utilized by the public sector only 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
