SIE Chapter 1
QIBs initial purchases must equal...
$500,000 or more
QIBs is someone that owns and invests
100 million
The prospectus must be given to all purchasers of the new security for up to ?
90 days following the offering
A preliminary prospectus may be used when? A - after filing a registration statement B - before the effective date C - during a stop order D - after the effective date to solicit orders.
A + B
Which of the following is considered a municipal offering? A - 529 plans B - tax-free mutual fund C - bonds D - tax-free unit investment trust
A - 529 plans the MSRB oversees activities such as underwriting, trading and selling tax-exempt bonds, municipal securities, and 529 plans.
When the SEC has reviewed a prospectus, it means the SEC has: A - Checked the prospectus for required information B - Decided the stock is a good investment C - Stated firmly that all facts are accurately disclosed D - Passed on the quality and risk factors of the investment and decided that the investment is suitable for most people
A - Checked the prospectus for required information
an investor sells stock, which they have owned for 18 months, to another investor. This trade took place in A - secondary market B - additional primary offering C - initial public offering D - Primary market
A - secondary market
What is a prime broker?
A firm used by hedge funds to handle its complex needs
The sale of new securities by an issuer is called?
A primary offering / primary distribution takes place in the primary market
FDIC insures what?
Bank account deposits up to $250,000 per bank.
State securities laws are commonly referred as?
Blue Sky Laws
Book- entry settlement applies to
Book entry, which these securities are settled through a registered depository. Does not include a physical delivery of certificates
In a best efforts underwriting the UW acts as a?
Broker or agent for the sales
ABC BD is a market maker in XYZ industries. The stock is currently trading at $11.23 x $11.35. If ABC executes a buy order for a customer on a principal basis, what price will the investor pay for the stock. A - $11.23 plus a commission B - $11.23 plus a mark up C - $11.35 plus a mark up D - $11.35 plus a commission
C - $11.35 plus a mark up - Commissions are charged by firms acting as agents - Markups/downs are assessed by firms acting as principals.
A municipal bond is purchased regular way on Tuesday the 21st. When does the trade settle? A - 22nd B - 24th C - 23rd D - 21st
C - 23rd
Which of the following must be registered under the act '34 A - common stock IPO B - variable annuity subaccount C - Broker dealers D - universal life policy
C - Broker dealers
When the SEC reviews the prospectus of an investment company, its function is to: A - determine the suitability of the investment from a risk standpoint B - approve the security C - ensure that proper facts about the issue have been disclosed D - verify the accuracy of the information
C - ensure that proper facts about the issue have been disclosed The SEC DOES NOT APPROVE THE INVESTMENT
Which of the following terms is NOT associated with the secondary market? A - spread B - ask C - bid D - public offering price
D - public offering price The public offering price is the official retail price at which a new issue of securities is sold in the primary market
What is the primary role of the Designated Market Maker? A - aid in marking to the market B - buy securities at the highest ask C - trade securities out of their inventory D - match buyers and sellers
D -match buyers and sellers
What is regulation NMS?
a rule stating that customers must always get the best available price when buying or selling securities. Also called the trade through rule
What is the market out clause?
an agreement that releases the underwriting firm from the agreement if there are material adverse circumstances that affect the issuer
What is a free-writing prospectus?
any communication of an offer to sell or a solicitation to buy that does not meet the standards of a statutory prospectus. large public companies with a lot of information that is out in the market
What does the corporate charter do?
authorizes the corporation to enter into contracts, get sued, hire employees, borrow money etc.
First market (S) is where?
buying and selling securities occur on stock exchanges such like the NYSE. Auction markets for listed stock and options
NASDAQ capital market:
consists of stocks of smaller companies with less capitalization than required for the global market
The filing date of registration is the beginning of?
cooling off period
Exempt or non-exempt: bank issues?
Exempt
Exempt or non-exempt: common carrier issues?
Exempt
Exempt or non-exempt: insurance company issues, nonprofit or religious organization issues?
Exempt
Exempt or non-exempt: money market issues?
Exempt
The Leading SRO in the US is:
FINRA and it regulates BDs and RRs in the securities industry
Stabilization is only allowed in which type of UW agreement?
Firm commitment, entered at or below the POP, never above.
What is used to help the syndicate accurately price the offering?
Indications of interest
Rule 147 is:
Intrastate offerings 80% of the issuers everything is in one state. registered under blue sky laws
What is a tombstone advertisment?
Lists the number of shares in the offering and the name of the managing underwriter
A firm stands ready to buy and sell securities by maintaining a quote of buy and sell prices is a(n):
Market Maker
What is the spread and who gets the payment of it
Market Makers, its the difference between the bid and ask.
DMM primary role is to:
Match up buyers and sellers, can only trade if there is not active outstanding public orders
SROs are financed and operated by:
Member firms
What is the largest electronic trading exchange?
NASDAQ
Securities that trade in the first market are also called?
NMS securities ( national market system )
Are selling group members on a tombstone ad?
NO
Which is the largest exchange in the world?
NYSE
NASDAQ operates as what type of market?
Negotiated.
Regulation D defines an accredited investor as:
Net worth of 1 million or more Income of 200k for the past 2 years or 300k jointly investment advisers banks, investment companies
Who regulates and supervises all national banks
OCC
NASDAQ global market:
OTC stocks of companies from around the world
Securities in the second market (S) are:
OTCBB, OTC market groups, most corporate debt, and all government and municipal debt. NON-NMS securities
What fee is paid to the selling group?
Selling group concession. Based on the # of shares sold.
Rule 415 is?
Shelf registration and allows large public companies to keep a blanket registration on file for 3 years
Exempt or non-exempt: US govt and agency issues?
exempt
Exempt or non-exempt: municipal issues?
exempt
Who is responsible for the nations monetary supply
federal reserve board (FRB)
What is the " penalty bid"?
if the syndicate manager buys back too many shares from a particular syndicate, that member loses their concession of the shares
What type of prospectus is considered an offer to sell an IPO?
Statutory
What is control stock?
Stock held by an officer, director, 10% shareholder, or an affiliated person.
When a large offering needs help, the risk and compensation is shared with the?
Syndicate ( focuses on building an order book and allocating the stock)
What is the third market (s)?
is for exchange listed securities traded OTC.
Who does FINRA oversee?
its members, which can be broker-dealers or investment bankers.
When is the due diligence meeting held?
just prior to the end of the cooling off period.
What comes after the cooling off period
The SEC will set an effective date and the UW will determine the POP
What is the cost basis of a security?
The original purchase price plus any costs associated with that purchase. ( dividends affect this)
Another term for the Securities act of 1933 is?
The paper act, applies to the registration of new issues.
Underwriter fees and compensation are factored into what?
The public offering price
The group that has NO risk but is rewarded for helping the syndicate members is?
The selling group, no liability,
Who has the greatest risk exposure in an underwriting?
The syndicate
NASDAQ global select market:
most rigorous listing standards
The Securities Act of 1933 regulates:
new issues in the primary market
What does an omitting prospectus do?
states that. a security will soon be available for sale.
What is "best execution"?
the BD makes a reasonable effort to determine the best market in which to execute a customer order.
Under shelf registration there is no cooling off period, but a notice must be given to whom?
the SEC with a 2 day notice and a supplement prospectus
How do you calculate a corporations capitalization?
the amount of equity sold and the amount of debt issued. This will increase via retained earnings
Post registration period begins after:
the effective date, the syndicate and selling group members may complete sales
The FRB Regulation T regulates?
the extension of credit from the BD to customers for margin accounts. Also sets payment dates on corporate securities as trade date plus 4 business days
ECNs were developed for:
the fourth market and to handle trades on a 24 hour basis.
Private offerings are exempt from?
the registration process when offered to no more than 35 non accredited investors, no limit on accredited investors
Secondary market regulations comes under?
the securities exchange act of 1934, also called the people act.
The second market (S) is for:
trading OTC securities that are not listed on exchanges. Also a negotiated market
What are "Dark Pools"
where institutions can trade anonymously.
An investor sells stock, which they have owned for 18 months to another investor, what market did this take place in?
Secondary market
When large shareholders wish to offer their shares to the general public is called?
A secondary offering or secondary distribution, often used by corporate insiders to liquidate large portions of their holdings.
What type of market are securities exchanges?
Auction Markets
Mutual funds require?
Cash settlement ( T=S )
Tombstone ads can be used in the?
Cooling off period name of issuer security and the amount what type of business the price names of UWs
If the SEC feels that changes are needed they will issue a _________ during the cooling off period?
Deficiency letter, which restarts the cooling off period
What is the fourth market (S)?
Direct trading between institutions, also handled OTC.
What document do private placements use?
Offering memorandum ( disclosure documents)
Where is the SEC's "no approval" clause typically disclosed to a customer?
On the front cover of the prospectus
What type of offering is a follow-on offering?
Primary offering
In a firm commitment underwriting, the UW acts as a?
Principal or dealer since they purchase the securities for its own account
Good delivery of physical securities require?
Proper endorsement correct denomination CUSIP # good condition
What does Rule 144A allow
Qualified institutional buyers (QIBs) to trade unregistered securities with each other
The FRB Regulation U regulates?
Regulates the extension of credit from banks to broker-dealers.
Most private placements are sold under?
Regulation D
Rule 144 handles?
Restricted stock from public companies, cant be sold for 6 months. must use notice of intention to sell. 1% of outstanding, or weekly average of the 4 week trading volume, can only be done every 90 days.
Private placements sell what type of stock?
Restricted, for 6 months as well. Also called the letter stock
US govt securities and options have a settlement of
Trade date plus 1 business day
Syndicate members are liable for any shares that remain unsold at the end of the offering. True or False?
True
in reviewing prospectuses and registration statements, the SEC: A- does not approve securities registered with it and offered for sale B - Guarantees the accuracy of the disclosures made in a prospectus C - Passes on merits of the particular security covered by the registration statement D - Guarantees the adequacy of the disclosures made in a prospectus
A- does not approve securities registered with it and offered for sale
Investors in private placement offerings receive which of the following disclosure documents? A - an offering memorandum B - an omitting prospectus C - Private placements have no prospectus requirements D - A statutory prospectus
A - an offering memorandum
All the following are how an investor is "restricted" when it comes to reselling their restricted stock, except: A - cannot sell when the market is falling B - sales can only take place once every 3 months C - mandatory 6 month holding period D - the maximum sale is the greater of 1% of the outstanding shares or weekly average of the 4 week trading volume preceding filing of the "notice of intention to sell"
A - cannot sell when the market is falling restricted stock is unregistered stock, acquired through private offerings or employee incentive plans. Form 144 = " notice of intention to sell" must be filled at or before the sale date
All the following statements are true except; A - cash settlement is settlement that occurs on the same day as the confirmation date B - cash settlement is same day settlement C - mutual funds require cash settlement D - cash settlement is the same as the trade date
A - cash settlement is settlement that occurs on the same day as the confirmation date
When may a preliminary prospectus be used to sell securities? A - it may never be used to sell securities B - during the cooling-off period C - before the effective date D - after the effective date of registration
A - it may never be used to sell securities
Regular way trades of which securities will settle the next business day? A - listed options B - municipal bonds C - Mutual funds D - Listed Stock
A - listed options
How does an issuer ultimately determine which investment banker to proceed with? A - the issuer will select the one with the most advantageous underwriting agreement B - they will go with the one that they have done business with in the past C - they will go with the one that charges the least amount of fees D - the issuer will choose the one that offers the greatest amount of capital to be raised
A - the issuer will select the one with the most advantageous underwriting agreement
All of the following statements are true regarding the post-registration period, except? A - the period begins when the registration statement is filed B - the final prospectus is filed with the SEC C - underwriters set the price of the issues D - Active marketing and selling of securities begin
A - the period begins when the registration statement is filed
Which of the following is not true regarding a transfer agent? A - the transfer agent holds securities for safekeeping B - the transfer agent is usually a bank or a trust company C - the transfer agent may pay dividends and mail proxy materials on behalf of the issuer D - the transfer agent records who owns shares and in what form
A - the transfer agent holds securities for safekeeping they may also act like the paying agent, distributing dividends and capital gains to investors.
What is the job of the DOE?
A branch of the SEC that investigates and takes civil action against those violating federal securities law. Criminal enforcement is under the DOJ
What is a clearing broker-dealer?
A firm that handles trades, both buy and sell. Responsible for all the paperwork that is associate and custodian services
What is an introducing Broker-dealer?
A firm that introduces customer accounts to a clearing broker-dealer through a clearing agreement
What did the Maloney Act of 1938 do?
Amended the SEA of 34' and authorized the creations of SROs which later then created FINRA
The fourth market is where? A - Exchanges listed securities are traded OTC B - Trading is conducted between institutions C - IPO is offered D - OTC securities are traded on the exchange
B - Trading is conducted between institutions
Private placement offerings under Regulation D can be offered no more than to : A - 10 accredited investors in a 12 month period B - 35 non-accredited investors C - 10 non-accredited investors D - 35 accredited investors
B - 35 non-accredited investors - offerings that are not made public are known as private offerings and are EXEMPT from the registration process. Private placement is sold under Regulation D, no more than 35 non-accredited investors and do not exceed $5 million.
The syndicate manager enters a stabilizing bid in the trading market in an attempt to stop the price from falling. The stabilizing bid can be placed at a price: A - Predetermined and stated in the prospectus B - At or below the POP C - Just above the POP D - Approved by FINRA
B - At or below the POP
A trade confirmation must be provided to the customer: A - 2 biz days after the settlement date B - On or before the settlement date C - one biz day before the trade date D - On the trade date
B - On or before the settlement date
Which of the following actions would be mainly governed by the Securities Act of 1933? A - XYZ corporations CEO wants to increase his position in XYZ by buying shares in the open market B - XYZ corp, decided to raise more capital by selling another 500,000 shares to the public C - XYZ corp, decides to apply to have its shares listed on the NYSE D - XYZ corp decides to solicit proxies from shareholders
B - XYZ corp, decided to raise more capital by selling another 500,000 shares to the public
A dealer purchases a security at its? A - spread B - bid C - public offering price D - ask
B - bid A dealer buys at the bid and sells at the ask. NEW ISSUES INCLUDING MUTUAL FUND SHARES ARE SOLD AT THE PUBLIC OFFERING PRICE BY PROSPECTUS
All the following are Rule 144A restrictions except: A - these securities can never be publicly traded unless registered B - initial purchases by QIB must equal to 1 million or more C- these securities trade on a separate platform called PORTAL D - once purchased, the securities can be traded without restriction between QIBs
B - initial purchases by QIB must equal to 1 million or more Note: 500k or more
A firm that represents customer accounts to a clearing broker-dealer through a clearing agreement, which dictates each party's responsibilities and does not maintain custody of client assets and securities is: A - market maker B - introducing broker-dealer C - underwriting broker dealer D - Prime broker
B - introducing broker-dealer
Which term refers to an existing public corporation issuing a large block of new shares to expand or modernize? A - Refinancing or refunding B - primary distribution C - secondary distribution D - initial public offering
B - primary distribution if the corporation wants to later issues additional shares secondary distribution involves previously issued shares. refinancing pertains to bonds.
Which of the following is false regarding the SEC disclaimer printed on each prospectus A - Any representation contrary to the disclaimer is false and a criminal offense B - the SEC has not looked over the registration statement C - the SEC does not approve the specific security D - The SEC does not guarantee the information is correct
B - the SEC has not looked over the registration statement All the SEC does is they review and attempts to ensure that the registration statement has the required information but makes no judgement on its correctness
A prospectus that does not contain the effective date of a security, the UW discount or the offering price is known as: A - a due diligence prospectus B - statement of adtl. information C - red heering D - summary prospectus
C - red heering this is a preliminary prospectus; summary prospectus is used by mutual funds to provide investors information about its offering prior to or at the time of sale.
The IRC primarily covers rules concerning all the following taxes except: A - Federal estate B - federal income C - state property and income D - federal gift
C - state property and income
all the following statements are true regarding the filing date, except: A - the filing date is the date the registration statement is filed with the SEC B - the end of the pre-registration period is the filing date C - the filing date is the date the registration becomes effective D - the filing date is the beginning of the cooling-off period
C - the filing date is the date the registration becomes effective the post-effective period is the period after the registration statement has become effective
All the following are requirements for good delivery of physical securities except? A - stock certificates must be delivered in multiples of 100 shares and bonds must be delivered in multiples of $1000 B - the correct id or CUSIP number C - the market value must be the same as when the offer was accepted D - All required signatures must be included on the back of the certificate
C - the market value must be the same as when the offer was accepted
The securities exchange act of 1934 did what?
Created the SEC and regulated trading of existing securities in the secondary market
What would be considered illegal? A - sending notices to customers after the registration has been filed but before its effective, giving the basic facts of the new issue B - using a final prospectus to solicit orders after the registration is effective C - sending a preliminary prospectus to solicit interest to customers after the registration has been filed but before it is effective D - Contacting potential customers regarding a new issue before the registration statement has been filed
D - Contacting potential customers regarding a new issue before the registration statement has been filed
Who is the primary audience for a prospectus? A - Broker-dealers B - the SEC C - investment advisers D - Investors
D - Investors
what type of prospectus is considered and offer to sell an IPO? A - omitting B - free writting C - Red Herring D - Statutory
D - Statutory
Which of the following securities are not traded in the secondary market? A - NASDAQ listed stocks B - OTC stocks C - NYSE listed stocks D - UITs
D - UITs They are redeemable with the trust and they do not trade. ALL STOCKS TRADE IN THE SECONDARY MARKET
Which is the correct definition of a dealer? A - an entity who trades for accounts of clients B - an entity who matches a buyer and seller C - an entity acting on an agency basis D - an entity who trade on its own account
D - an entity who trade on its own account the other 3 are brokers, they earn a commission for matching buyers and sellers.
Which of the following statements is not true regarding an issuer? A - an issuer can be a municipality B - an issuer can be a corporation C - an issuer offers securities to the public to raise capital D - an issuer can be a natural person
D - an issuer can be a natural person
What is the name given to the entity that assists issuers in the process of UW and registering security offerings with the SEC, as required under the act '33? A - syndicate member B - RR C - selling group member D - investment banker
D - investment banker the IB may also be the BD.
A corporation's capital does not include: A - preferred stock B - common stock C - Bonds D - options
D - options
How does a corporation increase its capitalization over time? A - only through additional stock offerings B - through paying dividends and interest on securities outstanding C - only through additional bond offerings D - through retained earnings
D - through retained earnings
Who works with financial institutions to encourage economic growth and promote the stability of the broader US financial system
Department of Treasury
What is the DTCC?
Depository Trust and Clearing Corporation, is a trade financial services company providing institutional trade processing, clearing and settlement services
What is the second market for?
For OTC securities, not listed on an exchange , negotiated market. govt debt
what entity makes security transactions on a large scale for their own accounts or for insurance or investment companies, trusts, broker-dealers and bank clients?
Institutional investor
What type of market are OTC markets?
Negotiated markets where unlisted securities trade
What offering document may be distributed to a customer during the cooling-off period?
Red herring
What is regulation U?
Regulates the extension of credit from banks to broker dealers
What type of investor is considered apart of the "general public"
Retail investors
When a large shareholder ( like an institutional investor or a cofounder of the company) sells a large number of shares on the secondary market, it is called;
Secondary Offering - if a company decides to sell additional shares to the public after the IPO, it is called a follow-on offering - if the company ISSUES and SELLS new securities to the public, it is called a primary offering
US govt debt and listed options have a settlement date of?
T + 1
Listed stock and municipal bonds have a regular way settlement of ?
T + 2
Mutual funds have a cash settlement where?
T = S
Regular way settlements for municipal securities is....
T+2
The federal agency that oversees the US securities markets is
THE SEC
Who is power to ensure the financial security of the United States?
The Department of Treasury
Who acts as the central bank of the united states
The FED, federal reserver
Who is in charge for creating, updating and maintaining the state licensing exams?
The NASAA
When the SEC has reviewed a prospectus it means that
The SEC has checked the prospectus for required information
What is cost basis?
The original purchase price plus any transaction costs. - this is used for calculating taxable gains or losses associated with the sale of a security
Muni bond was purchased regular way on Tuesday Jan 21, when does the trade settle?
Thursday Jan 23
What is the purpose of ECNs ( electronic communication networks)
To handle trades on a 24 hour basis in the fourth market
Who is responsible for ensuring the financial security of the united states?
Treasury department
What is the first market?
Where buying and listing securities go on stock exchanges. Auction markets
what is the fourth market?
Where institutions trade with each other. ECNs for 24 hours a day
What are due diligence meetings for?
are held to make sure that the information in the registration statement is complete and not misleading. The public can attend these meetings.
what is the third market used for?
is for exchange listed securities traded OTC. a better price may be avalible and poeple get sent here
What is regulation T?
regulates the extension of credit from the BD to customers for margin accounts. Sets payments dates on corporate securities as trade date plus 4 business days
The SEC no-approval clause states that
that the new offering has been reviewed by the SEC, does not mean they approve of the offering or vouches for the truthfulness of the registration statement.
What is firm commitment underwriting?
the UW purchases all securities being sold by the issuer, and then resells them to investors at a slightly higher price.
What is best efforts underwriting?
the UW will agree to sell as many shares to investors as it can, and then return unsold shares back to the issuer.
What is standby underwriting?
the UW will standby to purchase any unsold new shares for its own account and then attempt to sell those shares to the public
"Good delivery" refers to?
the delivery of stock certificates or other securities in good physical condition in the correct denomination with the right signatures
Who is responsible for the nations monetary policy?
the federal reserve board