Chapter 8 real exam
In general, the exemptions provided by Rule 147 and Regulation D accomplish which of the following? A) Enable issuers to sell securities to the public at less of an expense, if certain conditions are met. B) Permit issuers who sell securities to accredited investors only an exemption from registration with the SEC C) Enable small issuers to raise money through securities sales with reduced expense D) Provide guidance to non-domestic issuers on selling securities to U.S. citizens
A Enable issuers to sell securities to the public at less of an expense, if certain conditions are met. Explanation: As a general statement, Rule 147 and Reg D allow the sale of securities to the public without registration with the SEC.
Which of the following activities does not occur during the "pre-registration" period? A) IOIs are confirmed and shares allocated B) Prospectus is prepared C) Bake-off D) Due diligence is performed
A IOIs are confirmed and shares allocated Explanation: Indications of interest (IOI) are confirmed during the "post-effective" period, once the registration statement has been cleared by the SEC.
Which of the following is another name for the preliminary prospectus that is distributed to prospective investors before the effective date of a securities offering? A) Red herring B) Blue sky memorandum C) Tombstone D) Greenshoe
A Red herring Explanation: The red herring was so named because it usually included a legend, printed in red, on the first page, stating that no offering of the securities is permitted until the effective date. The red herring must contain substantially all required information except for timely details of the offering not yet established.
According to FINRA rules, IPOs may not be sold to A) Restricted persons B) Control persons C) Affiliated persons D) Qualified institutional buyers
A Restricted persons Explanation: Initial public offerings may not be sold to restricted persons. A broker-dealer is obligated to make a bona-fide offering to the general public with respect to these types of offerings.
the terms and conditions of the public offering and the agreement between the issuer and the underwriting manager are formalized in a contract known as the A) Underwriting Agreement. B) Syndicate Letter. C) Agreement Among Underwriters. D) Selected Dealer Agreement.
A Underwriting agreement The Underwriting Agreement defines the terms between the issuer and the underwriting manager in a public offering.
An underwriting firm takes on risk in all of the following underwriting types EXCEPT a(n) A) all-or-none B) standby C) competitive bid D) firm commitment
A all-or-none In an all-or-none underwriting, the underwriters are only responsible for the distribution if it is fully subscribed. If it isn't fully sold, the offering is canceled.
Rule 144 applies to which of the following? A) The conversion of private capital providers to Form 13D filers B) Corporate insiders owning more than 10% of the company's securities C) Registered sales of preferred stock D) Individuals seeking to gain control of a registrant's voting stock
B Corporate insiders owning more than 10% of the company's securities Rule 144 pertains to owners of securities that were not originally sold under SEC registration. Corporate insiders include officers or directors of the issuers, as well as any entity owning greater that 10% of the company's outstanding common stock.
A public offering of company stock that takes place after an IPO is called A) a rights offering B) a follow-on offering C) a green shoe D) a supplementary offering
B Follow on offering A public offering of stock after the IPO is called a follow-on or "add-on" offering. Follow-on offerings can help to raise capital, refinance debt, or cash out shares of early investors in the company.
The document that most comprehensively discloses municipal bond and issuer information to potential investors is the A) Bond indenture B) Official statement C) Statement of additional information D) Prospectus
B Official statement Explanation: Like a prospectus for corporate securities, an official statement provides detailed information about the issuer's financial and operating condition, and details of bond offering.
The underwriting spread is defined as the difference between the A) total takedown and the underwriting proceeds B) POP and the underwriting proceeds C) Underwriting fee and the manager's fee D) Manager's fee and the selling concession
B POP and the underwriting proceeds Explanation: The underwriting spread is the difference between the price paid to the issuer, known as the underwriting proceeds, and the public offering price, or POP. It is divided into the manager's fee, the underwriting fee and the selling concession.
The landmark federal law that protects investors by requiring the registration of securities offerings with the SEC is the A) Investment Company Act of 1940 B) Securities Act of 1933 C) Securities Exchange Act of 1934 D) Trust Indenture Act of 1939
B Securities Act of 1933 Explanation: The Securities Act of 1933 requires the registration of securities with the SEC. The Securities Exchange Act of 1934 contains provisions of law for continuous reporting by public companies and regulation of secondary market participants.
All of the following are permitted activities, EXCEPT A) overselling an IPO and subsequently repurchasing the shares in the secondary market, at a profit. B) short tendering stock. C) publishing favorable research on a company's bonds just prior to the effective date of an equity follow-on offering. D) stabilizing an IPO at a price at or below the public offering price.
B short tendering stock. Explanation: During a tender offer, an investor can tender only up to the amount of their net long position. An investor could not tender more than their net long position. Stabilizing, overselling a new issue and publishing research on unrelated products are all permitted activities.
To participate in a private placement under Regulation D as an "accredited investor," a married couple must have total assets above $1 million or combined annual income above A) $500,000 in each of the two most recent years B) $300,000 in each of the two most recent years C) $250,000 in each of the two most recent years D) $200,000 in each of the two most recent years
B) $300,000 in each of the two most recent years Explanation: Individuals must meet either an asset test or an income test to qualify as accredited investors. The asset test is $1 million and the income test is $200,000 for a single person or $300,000 for married couples in each of the two most recent years.
Which of the following would be classified as a QIB? A) An investment management company with assets under management of $50 million B) A high net worth individual with annual income of at least $5 million C) A $1 billion hedge fund D) A $25 million not-for-profit organization
C) A $1 billion hedge fund A hedge fund with assets under management of $1 billion would be a qualified institutional buyer as the threshold is assets under management of at least $100 million.
Which of the following events does not raise capital for an issuer? A) Follow-on offering B) Shelf registration C) IPO D) Rule 144 sale
D Rule 144 Sale A Rule 144 sale does not raise capital for an issuer. The rule is used by insiders and affiliates who are seeking to liquidate a portion of their holdings.
Prior to an Initial Public Offering, a company enters a period when it is prohibited from releasing new material information to the public without amending its registration and prospectus. This time frame is known as A) the restricted period. B) the cone of silence. C) the quiet period. D) the blackout period.
D the quiet period. Explanation: The SEC mandates a quiet period to keep companies from building hype surrounding public offerings of securities, beyond information they disclose in public filings. Violating quiet-period requirements can result in disciplinary action, and it also can cause delays in the offering.
According to Federal law and industry regulations, a firm must deliver a prospectus A) no later than with the confirmation of sale of newly issued securities. B) only for sales of mutual funds or other continuous primary offering securities. C) at or before a trade is entered for newly issued securities. D) prior to offering new securities for sale.
A no later than with the confirmation of sale of newly issued securities. Explanation: The Securities Act of 1933 requires that a prospectus is given to all purchasers of new securities no later than with the confirmation of sale.
What is the maximum number of accredited investors allowed in a private placement offering? A) 35 B) There is no limit C) 300 D) 50
B There is no limit Explanation: There is no limit on the number of accredited investors in a private placement.
In an IPO, what does a secondary offering refer to? A) A late-stage cyclical offering B) Existing shareholders selling shares to the public C) A company selling new shares to the public D) A follow-on equity offering to the public
B) Existing shareholders selling shares to the public A secondary offering is when one or more major stockholders in a company sell all or a large portion of their holdings. The proceeds of this sale are paid to the stockholders that sell their shares, rather than to the company.
Accredited investors include all of the following EXCEPT A) a natural person with income exceeding $200,000 in each of the two most recent years B) a natural person who has individual net worth of $500,000 at the time of purchase C) a charitable organization, corporation, or partnership with assets exceeding $5 million D) a registered investment company
B) a natural person who has individual net worth of $500,000 at the time of purchase Explanation: Under Regulation D, a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase is an accredited investor.
What is the minimum cooling-off period for a public securities offering? A) 10 days B) 30 days C) 60 days D) 20 days
D 20 days Explanation: The cooling-off period begins with the filing of a registration (S-1) with the SEC. It then lasts at least 20 days but in any case until the SEC has approved the registration.
Which of the following statements is true regarding the underwriting syndicate? A) The underwriting agreement specifies the terms by which all members of the syndicate are to abide B) All firms within the syndicate must be FINRA members C) All members of the underwriting syndicate act in an agent capacity D) It is a temporary group that is formed to distribute an offering
D) It is a temporary group that is formed to distribute an offering The underwriting syndicate is formed to distribute an offering, and disbands after the distribution. The agreement that specifies the terms is the agreement among the underwriters. Members of the syndicate frequently act in a principal capacity as they purchase a share of the offering for their inventories. In corporate underwritings, syndicate members must be FINRA members, but in offering of exempt securities, FINRA membership is not required.
Which of the following events is not covered by SEC Rule 145? A) Mergers & acquisitions B) Transfers of assets C) Reclassifications of ownership structure D) The declaration of a cash or stock dividend
D) The declaration of a cash or stock dividend Previous SEC Rule 145 does not address corporate dividend procedures.
An investor who purchased Rule 147 securities can sell the securities A) after a 12-month holding period to non-state residents. B) immediately after purchase to any potential buyer. C) after a 9-month holding period to state residents only. D) immediately after purchase to state residents.
D) immediately after purchase to state residents. Previous Explanation: Investors who purchase securities under Rule 147 are required to hold them for 6 months before the securities can be sold to non-state residents. They may be sold to other state residents immediately after purchase.
Commercial paper that is exempt from registration requirements has a maximum maturity of how many days? A) 90 B) 270 C) 360 D) 180
b 270 days Explanation: Commercial paper with a maximum maturity of 270 days is exempt from registration. Municipal bonds, government bonds, and domestic bank securities are also exempt from registration.
