Regulations: Securities Act of 1933

Which statement is TRUE regarding the preliminary prospectus? A The preliminary prospectus may be sent to a potential customer prior to that customer expressing an indication of interest B The preliminary prospectus cannot be distributed at a road show for the offering C The preliminary prospectus constitutes an offer to sell the issue D The preliminary prospectus contains the public offering price

The best answer is A. A "red herring" preliminary prospectus may be sent to any prospective purchaser of that new issue once the issue has entered into the "20-day cooling off" period that commences upon filing of the registration statement with the SEC. It would not contain the POP since at this early juncture, the issue would not yet be priced. The use of the "preliminary prospectus" does not constitute an "offer" under the 1933 Act, and the red ink statement on the cover of the preliminary prospectus states this (hence the name "red herring"). The red herring is used to obtain non-binding indications of interest in the issue, and may be sent to anyone during the cooling off period, whether or not that person has previously expressed any interest in the issue. Part of the IPO marketing process is to schedule road shows during the 20-day cooling off period, attended by invited large institutional investors, portfolio managers and research analysts. These are informational only - not promotional. The officers of the company make presentations and the attendees get to have their questions answered. This process helps build investor interest in the offering. The red herring can be distributed at the road show.

Which of the following securities is required to be registered with the SEC? A American Depositary Receipts B Eurodollar Debt C Foreign Government Debt D Municipal Debt

The best answer is A. ADRs (American Depositary Receipts) are non-exempt securities and must be registered with the SEC under the Securities Act of 1933. ADRs are the way that most foreign corporate issues trade in the United States. The bank that structures the ADRs handles the registration. Municipal debt, U.S. Government debt and Foreign Government debt are all exempt. Eurodollar bonds are sold outside the U.S. and thus do not fall under the Act. Review

Which of the following is NOT exempt under the Securities Act of 1933? A Corporate Bonds B Municipal Bonds C U.S. Government Bonds D Small Business Investment Companies

The best answer is A. Government bonds, municipal bonds, and Small Business Investment Company issues are all exempt securities under the 1933 Act. Corporate bonds are non-exempt securities that must be registered with the SEC under the Securities Act of 1933.

All of the following are non-exempt issues under the Securities Act of 1933 EXCEPT: A Fixed annuity contracts B Variable annuity contracts C Listed option contracts D Listed common stock

The best answer is A. Insurance company offerings are exempt from the 1933 Act with the exception of variable annuity and variable life contracts. Thus, a fixed annuity offered by an insurance company is exempt from the 1933 Act. Listed stocks, and stock options are non-exempt issues that must be registered with the SEC.

Which of the following activities is allowed during the 20-day cooling off period after a registration statement for a new issue is filed with the SEC? A Sending a customer a "red herring" preliminary prospectus B Confirming that an indication of interest from the customer will be filled C Accepting a deposit from the customer D Accepting a firm order from the customer

The best answer is A. Once the registration statement is filed, the issue enters the 20-day cooling off period. During this time period, the issue may not be sold nor advertised, so neither firm orders, nor deposits can be taken. It is permitted to send a preliminary prospectus (red herring) to obtain indications of interest (but not to confirm them as filled) during the cooling off period, because legally, these are not offers to sell the security. Once the registration is effective, the final prospectus is used to offer and sell the issue.

Prior to the filing of a registration statement, which activity is permitted? A A member firm signing a syndicate agreement to become part of the underwriting group for the issue B A member firm distributing preliminary prospectuses for the issue to customers C A member firm taking indications of interest for the issue from customers D A member firm selling the issue to customers Review

The best answer is A. Prior to the filing of a registration statement, the issue cannot be promoted in any manner - so the use of a preliminary prospectus to take indications of interest is prohibited; as is selling the issue. Once the registration statement is filed, the issue enters the 20-day cooling off period. At this point, a preliminary prospectus can be used to take indications of interest, but the issue cannot be sold. Once the registration is effective, the issue can be sold with the prospectus. There is no prohibition on the underwriter joining the syndicate or selling group prior to the filing of the registration statement, since this does not involve offering the issue to the public.

Private placements offered under Regulation D are exempt from: A registration with the SEC B anti-fraud rules under the Securities Exchange Act of 1934 C anti-fraud rules of each state under the Uniform Securities Act D all of the above

The best answer is A. Private placements offered under Regulation D are not registered with the SEC (a big savings on time and money). They can only be sold to a maximum of 35 non-accredited investors and an unlimited number of accredited (wealthy) investors. Nothing is exempt from anti-fraud rules. A fraudulent offering of Treasury securities (an exempt security) is still fraud under the 1934 Act (meaning go to jail). A fraudulent private placement offering (an exempt transaction) is still fraud under the 1934 Act (meaning go to jail). Finally, states have their own anti-fraud rules under the Uniform Securities Act, and they can pursue anyone who commits securities fraud in the state - it makes no difference if the security involved is exempt or non-exempt.

Which statement is TRUE regarding Banker's Acceptances? A Banker's Acceptances may be sold without a prospectus B Banker's Acceptances must be sold with a prospectus C Banker's Acceptances must be sold with an Official Statement D Banker's Acceptances must be sold with an Offering Memorandum

The best answer is A. Since Bankers Acceptances are an exempt security under the Securities Act of 1933, they may be sold without a prospectus. The prospectus is the disclosure document for new issues that are not exempt from registration. The Official Statement is the disclosure document for municipal bonds (which are an exempt issue). An Offering Memorandum is the disclosure document for a private placement - which is a security sold in an exempt transaction.

Which of the following is TRUE? A The Securities Act of 1933 defines exempt issuers in the primary market B The Securities Exchange Act of 1934 defines exempt issuers in the primary market C The Securities Act of 1933 defines exempt transactions in the secondary market D The Securities Exchange Act of 1934 defines exempt transactions in the primary market

The best answer is A. The Securities Act of 1933 covers the new issue (primary market) and defines exempt issuers and exempt transactions. If an issuer is exempt or if a new non-exempt issue is sold in an exempt transaction, that new issue does not have to be registered under the Act. Otherwise, registration is required. The Securities Exchange of 1934 consists of a variety of rules covering the secondary (trading) market.

Which of the following is NOT required to sell "144" stock? A Buyer's representation letter B Issuer's representation letter C Broker's representation letter D Seller's representation letter

The best answer is A. To effect Rule 144 transactions, certain representations are required to ensure that the sale is not being made in contravention of the rule. The issuer must represent that the corporation is current with all required SEC filings because it is prohibited to use Rule 144 to sell if this is not the case. The seller must represent that the securities have been held fully paid for 6 months, otherwise Rule 144 cannot be used. Finally, the broker must represent that it did not solicit the transaction and that it acted as agent in executing the transaction. There is no representation required on the part of the buyer - when the restricted stock is sold through the rule, the buyer receives "clean" unrestricted shares from the transfer agent.

The President of PDQ Corporation buys PDQ shares in the open market. After holding them for 3 months fully paid, the President wishes to sell the shares. The shares can be sold: A immediately B after holding the securities for an additional 3 months C after holding the securities for an additional 6 months D after holding the securities for an additional 1 year

The best answer is A. "Control stock," which is registered stock of a company bought in the open market by an officer or director of that company, is subject to all Rule 144 requirements when the officer or director wishes to sell, except for the 6-month holding period. The 6-month holding period is required for restricted stock, but not for control stock. Review

The President of PDQ Corporation donates restricted PDQ shares to the United Way after holding them for 3 years fully paid. United Way can sell the stock without restriction: A immediately B after holding the securities for 90 days C after holding the securities for 2 years D after holding the securities for 3 years

The best answer is A. As long as the 6-month holding period requirement has been met on the restricted shares (the officer held them 3 years) when they are donated, the charity can sell them immediately. There is no requirement that another 6-month holding period be met.

Commercial paper is a(n): A Exempt Money Market Instrument B Exempt Capital Market Instrument C Non-Exempt Money Market Instrument D Non-Exempt Capital Market Instrument

The best answer is A. Commercial paper is a money market instrument issued by corporations. It is an exempt security under the Securities Act of 1933 as long as its maturity does not exceed 270 days and can be sold without a prospectus.

All of the following statements are true during the period that a non-exempt new issue is "in registration" EXCEPT: A the preliminary prospectus with the final public offering price is distributed B the offering participants perform due diligence on the offering C the SEC may issue a deficiency letter requesting additional information before allowing registration to become "effective" D no advertising or sale of the issue is permitted Review

The best answer is A. During the 20-day cooling off period, due diligence is performed by the parties involved in the offering. During this time, no advertising or sale of the issue is permitted because registration is not yet effective. If the SEC has problems with the filing, it will issue a deficiency letter requiring more information. A preliminary prospectus (red herring) may be distributed but it does not contain the final offering price because this is not known until the effective date

All of the following activities are prohibited during the "cooling off" period EXCEPT: A accepting an indication of interest from the customer for part of the issue B recommending the purchase of the issue to potential investors C selling the issue to an investor D advertising the issue to the public Review

The best answer is A. During the cooling off period, an offer or sale of the issue is prohibited, as are recommendations of the issue or the advertising of the issue. Sending a preliminary prospectus or accepting an indication of interest does not constitute an "offer" under the Securities Act of 1933 and thus is permitted.

The announcement appears in the Wall Street Journal. This offering is a(n): A registered primary distribution B registered secondary distribution C unregistered private placement D registered combined primary and secondary distribution Review question # 9-1-22-1 Regulations : Securities Act of 1933 : Effective Date : Tombstone Announcement Copyright 1989-2020 Pass Perfect, LLC All Rights Reserved

The best answer is A. For companies in which there is worldwide interest, it is common for underwriters to sell the issue in both the U.S. market and foreign markets. Since this is the first issue of these securities, this is a primary distribution. Since the shares being offered in the United States are being sold through a prospectus, this is an offering that is registered with the SEC. Secondary distributions are "managed offerings" of shares that are already issued and outstanding - such as the offer through underwriters of a large block of shares held by a founding stockholder. This cannot be a private placement, since the offering has been registered and is being sold under a prospectus.

Under Rule 144, no filing is required if the sale amount every 90 days is for no more than 5,000 shares, worth no more than: A $50,000 B $100,000 C $500,000 D $1,000,000

The best answer is A. Form 144 does not have to be filed to sell restricted or control stock if 5,000 shares or less, worth $50,000 or less, is sold during each 90 day period. Review

All of the following issues are exempt from registration under the Securities Act of 1933 EXCEPT: A Investment companies B Insurance companies C Agency issues D Municipal issues Review

The best answer is A. Governments, agencies and municipals are all exempt issues. Insurance company and bank issues are exempt as well. Investment company issues are non-exempt and must be registered and sold with a prospectus under the 1933 Act.

Which of the following securities is NOT exempt from the Securities Act of 1933? A Industrial Company issues B Benevolent Association issues C Small Business Investment Company issues D Common Carrier issues

The best answer is A. Industrial companies are not exempt from the Securities Act of 1933. Common carriers, small business investment companies, and benevolent associations are all exempt.

Intrastate offerings are exempt from: A Federal registration B State registration C FINRA regulation D All regulation

The best answer is A. Intrastate offerings are exempt from SEC registration, but are still subject to registration within the state where the offer is being made. In addition, the terms of the offering must be filed with FINRA and must comply with FINRA rules.

Which of the following are NOT exempt issues under the Securities Act of 1933? A Real Estate Investment Trusts B Savings and Loan Issues C U.S. Government Bonds D G.O. Bonds Review

The best answer is A. Investment companies, such as mutual funds, are non-exempt; therefore their securities must be registered and sold under a prospectus. Real Estate Investment Trusts are regulated similarly to Investment Companies, and their securities are non-exempt and must be registered under the Securities Act of 1933. U.S. Government issues, municipal debt, savings and loan issues, and municipal issues are exempt

Which statement is TRUE about private placements? A Private placements are exempt transactions B Private placements only available to institutional investors C To claim a private placement exemption, a Form 147 must be filed with the SEC D To claim a private placement exemption, no filing with the SEC is required

The best answer is A. Private placements are exempt transactions under the Securities Act of 1933. No registration is required. The issuer must file a Form D with the SEC within 15 days of the offering to claim the exemption. Form D (NOT Form 147) notifies the SEC that the issue is being offered in compliance with the exemption. Both institutions and wealthy individuals can be accredited.

Restricted shares subject to sale under Rule 144 are most commonly acquired through: A private placements B registered secondary distributions C tender offers D ESOPs (Employee Stock Ownership Plans)

The best answer is A. Restricted shares are normally acquired through private placements. If there is a public market for the stock at a later date, to sell the restricted shares in the market, they must either be registered or sold under a Rule 144 exemption.

Rule 144 allows the sale, every 90 days, of: A 1% of the outstanding shares B 10% of the outstanding shares C the daily average of the prior 4 weeks' trading volume D the weekly average of the prior 8 weeks' trading volume

The best answer is A. Rule 144 allows the sale, every 90 days, of the greater of 1% of the outstanding shares of that company; or the weekly average of the prior 4 week's trading volume. Review

Which statement is TRUE about the spouse of an owner of 10% of the outstanding shares of a company? A The spouse is considered to be an affiliated person subject to Rule 144 B The spouse is considered to be an affiliated person and may sell up to 1% is the issued shares every 90 days C The spouse can sell shares without filing Form 144 D The spouse must file Form 144 within 24 hours of selling shares

The best answer is A. Rule 144 is applicable to officers, directors, and "affiliated" persons - meaning someone whom they "control." A spouse is considered an affiliated person. To sell, a Form 144 must be filed. The rule allows the greater of 1% of the outstanding shares or the weekly trading average of the last 4 weeks to be sold under the filing. 4 filings are allowed per year. The Form must be filed by the seller at, or prior to, with the placement of the sell order.

Which statement is TRUE regarding Rule 144A? A Rule 144A allows qualified institutional buyers to buy and trade between themselves large blocks of privately placed issues B Rule 144A limits the amount of restricted securities that can be sold in the public markets C Rule 144A permits issuers to sell tradeable private placement units to all institutional buyers D Rule 144A permits issuers to sell tradeable private placement units to very wealthy individual investors Review

The best answer is A. Rule 144A allows qualified institutional buyers ("QIBs") to buy and trade between themselves large blocks of privately placed issues. Thus, issuers can sell private placements to these QIBs, who can then trade the private placement issues among themselves. This market is not available to individuals. Do not confuse Rule 144A with Rule 144, which covers the sale of "restricted" and "control" stock in the open market.Not, not all institutional buyers are categorized as QIBs. A Qualified Institutional Buyer must be an institutional investor (not an individual) with at least $100 million of discretionary funds available for investment.

Under Rule 144, the Form 144 is filed: A by the seller of the restricted shares B by the issuer of the restricted shares C 10 business days prior of the placement of the order D within 24 hours of placing the order

The best answer is A. The Form 144 is simply a notification to the SEC that stock will be sold in compliance with the Rule - the SEC does not approve of the sale. The Form must be filed by the seller at, or prior to, with the placement of the sell order.

The final prospectus for a new registered securities issue: A contains the Public Offering Price and must be given to the customer at, or prior to, confirmation of sale B does not contain the Public Offering Price and must be given to the customer at, or prior to, confirmation of sale C contains the Public Offering Price must be given to the customer at, or prior to, settlement of the transaction D does not contain the Public Offering Price must be given to the customer at, or prior to, settlement of the transaction

The best answer is A. The final prospectus contains the Public Offering Price and the underwriter's spread on the front cover (this is not in the preliminary prospectus). Any purchaser of the new issue must be given the final prospectus, at, or prior to, confirmation of sale. Review

A customer who has his primary residence in Montana, has a vacation home in Colorado. An intrastate offering is being made in the state of Montana. Which statement is TRUE regarding the customer purchasing this securities offering? A The customer is permitted to buy these securities B The customer is prohibited from buying these securities C The customer can buy the securities if he spends at least 2 weeks per year in the state of Montana D The customer can buy the securities if he files an affidavit of domicile in the state of Montana

The best answer is A. To purchase an intrastate offering, the purchaser must be a primary resident of that state. Having a vacation home in another state does not invalidate that person's "primary residence."

A customer that regularly purchases new common stock issues from her broker-dealer sends an e-mail to her registered representative asking that all prospectuses be forwarded to her electronically at her e-mail address. Which statement is TRUE? A The registered representative can follow the customer's instructions by forwarding the request to the member firm's operations department B The registered representative must inform the customer that all prospectuses must be sent in hard-copy form to the customer's physical mailing address C The registered representative must advise the customer that the firm will charge an extra fee for this service D The registered representative must forward the e-mail to the branch manager for handling Review

The best answer is A. Under the "access equals delivery" rule, prospectuses can be delivered electronically to customers as long as the member firm knows that the customer has internet access. Since this customer made the request by e-mail, we know that the customer has internet access and the firm can follow the customer's instructions.

Under the Securities Act of 1933, new issues are not marginable until how many days have elapsed from the effective date? A 30 days B 45 days C 60 days D 90 days

The best answer is A. Under the Securities Act of 1933, new issues are not marginable until 30 days have elapsed from the issue (effective) date.

What type of registration allows the issuer to sell securities for the upcoming 3 years? A Primary registration B Shelf registration C Term registration D Extended Registration

The best answer is B. "Seasoned" issuers are permitted to use the shelf registration rule. A seasoned issuer is one that has already registered securities with the SEC and that has a minimum $75 million market capitalization. The issuer can file a blanket registration statement that goes on the SEC's "shelf" and then can sell anytime during the next 3 years. The issuer gives 2-day notice to the SEC in order to sell and does not need to use the full prospectus to sell. In contrast, for an IPO (an unseasoned issuer), a 20-day cooling off period must be completed and each purchaser must get a copy of the full prospectus "at or prior to confirmation of sale."

A PIPE transaction under Regulation D: A permits the flow through of both gain and loss to accredited investors under conduit tax treatment B is when an accredited investor makes a private Regulation D investment in a company that is publicly trading C is limited to a maximum of 35 non-accredited investors under Regulation D D is only available for issuers that intend to go public within the upcoming year

The best answer is B. A PIPE transaction (Private Investment in Public Equity) is a way for a company that is already public to raise additional capital quickly, without having to take the time and expense of registering securities with the SEC. Large institutional investors who are accredited agree to quickly make an investment and get discounted private placement stock of the company in return. The company agrees to file a shelf registration with the SEC for those shares, so the institutional investors can "cash out" anytime they want (and if they want) over the next 3 years (the life of the shelf registration). If the investor wishes to maintain its investment longer than 3 years (because the stock has been performing well), then the company will renew the shelf registration for another 3 years, and so on. The basic advantage for the company is that it gets a quick injection of money. The advantage for the accredited institutional investor is that it gets to invest at a discounted price and can "cash out" by selling those shares to the public at any time thereafter under the shelf registration.

Which of the following is subject to the registration requirements of the Securities Act of 1933? A Eurodollar Debt B American Depositary Receipts C Municipal Debt D Foreign Government Debt

The best answer is B. ADRs (American Depositary Receipts) are non-exempt securities and must be registered with the SEC under the Securities Act of 1933. ADRs are the way that most foreign corporate issues trade in the United States. The bank that structures the ADRs handles the registration. Municipal debt, U.S. Government debt and Foreign Government debt are all exempt. Eurodollar bonds are sold outside the U.S. and thus do not fall under the Act.

An "accredited investor questionnaire" is required when which type of offering is made to investors? A Rule 147 B Regulation D C Regulation A D Rule 144

The best answer is B. Private placements under Regulation D are typically only offered to "accredited investors." These are wealthy individuals and institutional investors. To document that the purchasers are, indeed, accredited, an "accredited investor questionnaire" must be completed and signed by the potential purchaser. This is retained by the broker-dealer or issuer selling the securities and is proof that the purchasers were accredited. Rule 147 is the intrastate exemption; Rule 144 is an exemption from SEC registration for the resale of private placement stock owned by an investor where the company subsequently went public; and Regulation A is an exemption from registration for the sale of a small dollar amount ($50 million or less).

Rule 144A defines: A Accredited Investors B Qualified Institutional Buyers C Major Institutional Investors D Purchaser representatives

The best answer is B. Rule 144A states that issuers can sell "private placements" in large block sizes (typically $500,000 or more per unit) to QIBs - Qualified Institutional Buyers - without having to register them with the SEC. A QIB is an institution with at least $100 million available for investment. Rule 144A solves a problem with private placements for QIBs - the fact that they are illiquid. Rule 144A issues can be traded from QIB to QIB in the "PORTAL" market. This opens up the market for these securities to large institutional investors, who would not buy unless they knew they could sell the holding at will. Accredited Investors are defined under Regulation D - Private Placement offerings. A private placement can be sold to an unlimited number of accredited investors without SEC registration. The basic definition of an accredited investor is: Individual with $200,000 of annual income; Married Couple with $300,000 of annual income; Individual or Couple with a $1,000,000 net worth (excluding home); Institution with at least $5,000,000 available for investment; and Officers and directors of the issuer. Private placements can also be offered to up to 35 non-accredited investors, but these individuals must be sophisticated investors, able to judge the merits of the offering. If the individual is not sophisticated, then he or she can use a purchaser representative (typically the customer's lawyer) to review the offering. Major Institutional Investors (MIIs) are defined under SEC Rule 15a-6. It allows foreign broker dealers to solicit MIIs in the United States without having to register with the SEC and FINRA; and it allows then to accept unsolicited orders from anyone. Note that if a foreign broker-dealer were to solicit the general public in the U.S., then it would have to register.

If the SEC sends a deficiency letter to the issuer regarding an issue in registration, then: A it disapproves of registering the issue B disclosure is not considered to be adequate C the underwriters have failed to establish the Public Offering Price D due diligence has not been performed by the underwriters

The best answer is B. An SEC "deficiency letter" indicates that there is not adequate disclosure in the registration documents to allow investors to make an informed decision. The deficiency must be cured before the SEC will allow the registration to be effective.

An indication of interest for a new stock offering is normally taken: A before the 20 day cooling off period B during the 20 day cooling off period C after the 20 day cooling off period D either before, during, or after the 20 day cooling off period

The best answer is B. An indication of interest is taken during the 20 day cooling off period before a new issue's registration becomes effective. The underwriters use the indications collected as one of the determinants for pricing the issue (this happens at the very end of the cooling off period).

The President of PDQ Corporation donates restricted PDQ shares to the United Way after holding them for 3 months fully paid. United Way can sell the stock without restriction: A immediately B after holding the securities for 3 months C after holding the securities for 6 months D after holding the securities for 9 months

The best answer is B. As long as the 6-month holding period requirement has been met on the restricted shares, when they are donated, the charity can sell them immediately. In this case, the officer only held the shares for 3 months before they were donated, so that charity must complete the 6 month holding period requirement by holding the securities for another 3 months.

Common carrier issues are: A exempt from the Securities Act of 1933 but required to be sold with a prospectus B exempt from the Securities Act of 1933 and not required to be sold with a prospectus C subject to the Securities Act of 1933 but required to be sold with a prospectus D subject to the Securities Act of 1933 and not required to be sold with a prospectus

The best answer is B. Common carrier issues such as railway issues are exempt under the Securities Act of 1933 because they were regulated by the Interstate Commerce Commission (I.C.C.) before the Act was written; and Congress did not want to subject them to "double" regulation.

Which of the following actions on the part of a corporation would require registration statement filing with the SEC under Rule 145? A Stock dividend distribution B Merger with another publicly held company C 3 for 2 Stock split D 1 for 4 Reverse Stock split

The best answer is B. Corporate distributions that result in an issuer distributing the exact same class of security to existing shareholders do not require a registration statement filing with the SEC. Thus, a corporation distributing a stock dividend or splitting its stock would not require a registration statement filing. However, if a corporation spins off a subsidiary to its shareholders, the shareholders are receiving stock in a different company, so a registration statement must be filed for those shares. If a corporation merges with another publicly held company, a new corporation is being created, and a registration statement must be filed as well.

A registered representative has prepared a research report about a new stock issue that is currently in registration. The registered representative wishes to send the report to customers. Which statement is TRUE? A The report can be mailed without restriction B The report constitutes an "offer" under the 1933 Act and cannot be sent C The report can only be mailed if approved or prepared by a Supervisory Analyst D The report can only be sent if accompanied or preceded by a preliminary prospectus Review

The best answer is B. During the "cooling off" period, the only items that do not constitute an "offer" or "sale" are the sending of a preliminary prospectus and the acceptance of an indication of interest. Anything more, such as sending a research report, is considered to be an "offer," which is prohibited until the registration is effective.

To be defined as an "accredited investor" under Regulation D, a couple that wishes to jointly purchase a private placement offering must have an annual income of: A $200,000 B $300,000 C $400,000 D $1,000,000

The best answer is B. For a couple jointly purchasing a private placement unit to be accredited, they must have a combined income of at least $300,000. Note that this is a somewhat easier hurdle than that imposed on an individual to be accredited, which is $200,000 for that individual.

When the Securities and Exchange Commission sets the effective date for a new issue in registration, which statement is TRUE? A The SEC has certified that the offering documents give full and fair disclosure B The proper documents for registration have been filed with the SEC C The SEC has approved the offering for sale to the public D The SEC has established the final offering price

The best answer is B. If the SEC sets the "effective date" for an issue in registration, this means that all proper documents have been filed with the SEC. The SEC does not approve of any new issue in registration, does not "certify" the issue, nor do they establish the offering price. Think of the SEC as a big filing cabinet - once the proper documents relating to a new issue offering are filed, the issue may be offered and sold to the public. Review

To claim a private placement exemption: A a registration statement must be filed with the SEC B a Form D must be filed with the SEC C a Form 144 must be filed with the SEC D no filing is required with the SEC

The best answer is B. Private placements are exempt transactions under the Securities Act of 1933. No registration is required. The issuer must file a Form D with the SEC within 15 days of the offering to claim the exemption. The filing of Form D is not a registration. It simply notifies the SEC that the issue is being offered in compliance with the exemption.

An unregistered hedge fund creates a website and uses it to promote itself to investors. Potential investors are invited to enter a password-protected area where they can get details about the fund's investment strategy and performance. Which statement is TRUE? A This is prohibited under SEC rules B This is permitted under SEC rules as long as the potential viewer completes and signs an accredited investor questionnaire before being given the password to enter C This is permitted under SEC rules as long as the potential viewer completes and signs an arbitration agreement before being given the password to enter D This is permitted without restriction Review

The best answer is B. Private placements are typically only offered to "accredited investors." These are wealthy individuals and institutional investors. The SEC encourages the use of the internet and permits private placements under Regulation D to be offered via the web. However, the offerer must set up a password-protected website and can only allow access to accredited investors. To document that the purchasers are, indeed, accredited, an "accredited investor questionnaire" must be completed and signed by the potential purchaser. This is submitted to the offerer through the website, who then can give access to the potential investor. Review

Under Regulation D regarding private placements, how many non-accredited investors are allowed to invest in the offering? A 10 B 35 C 50 D An unlimited number Review

The best answer is B. Regulation D permits a private placement to be sold to a maximum of 35 non-accredited investors and an unlimited number of accredited (wealthy and institutional) investors.

A director of a publicly held company wants to sell 5,000 registered shares of that company's stock at $8 per share that she has held for 3 months. Does the Form 144 filing requirement apply to this sale? A Yes, because any sale of shares by a director requires the filing of a Form 144 B No, because the shares are being sold under a "de minimis" exemption C Yes, because she has not held the shares for 6 months D No, because the shares are not restricted Review

The best answer is B. Rule 144 includes a "de minimis" exemption, permitting the sale every 3 months of 5,000 shares or less, worth $50,000 or less, without having to file a Form 144. The transfer agent is authorized by the SEC to transfer the shares without a copy of the Form 144. Because this sale is 5,000 shares @ $8 = $40,000, it can be done under this exemption. Rule 144 applies to the public resale of restricted (unregistered private placement) stock and to the sale of registered control shares. Control shares are registered shares owned by a key officer or director. These do not have to complete the 6 month holding period requirement because they are registered, but to sell them, the officer must file a Form 144 Notice of Sale and is subject to the rule's volume restrictions.

"Qualified Institutional Buyers" are permitted to buy and trade large blocks of unregistered securities among themselves under: A Rule 144 B Rule 144A C Rule 147 D Rule 415

The best answer is B. Rule 144A should not be confused with SEC Rule 144. Rule 144A allows qualified institutional buyers ("QIBs") to buy and trade between themselves large blocks of privately placed issues. Thus, issuers can sell private placements to these QIBs, who can then trade the private placement issues among themselves. This market is not available to individuals. Do not confuse Rule 144A with Rule 144, which covers the sale of "restricted" and "control" stock in the open market. Review

Which statement is TRUE regarding intrastate offerings under Rule 147? A Resale of the securities is permitted within that state and outside the state immediately following the initial offering B Resale of the securities is permitted within that state immediately following the offering but resale outside the state is prohibited for the 6 month period following the initial offering C Resale of the securities is prohibited within that state for 6 months following the offering but resale outside the state is permitted immediately D Resale of the securities is prohibited within that state and outside the state for the 6 month period following the initial offering

The best answer is B. Securities that are sold under a Rule 147 exemption (intrastate exemption) cannot be resold outside that state for 6 months following the initial offering. There is no restriction on resales within that state. Note, however, that because these securities were never registered with the SEC, they cannot be publicly traded. The only way to resell them is in a "private transaction." Review

Which of the following is an exempt security under the Securities Act of 1933? A Unit Investment Trust B Small Business Investment Company C Open-End Investment Company D Closed-End Investment Company Review

The best answer is B. Small business investment companies are an exempt security under the Securities Act of 1933. Other investment companies - whether they be open-end or closed-end management companies; or unit investment trusts; are non-exempt and must be registered with the SEC. Review

Under Rule 144, a customer wishing to sell must file the 144 "Notice of Sale" with the SEC: A 10 business days prior to the placement of the sell order B at, or prior to, the placement of the sell order C 10 business days after the placement of the sell order D 90 days after the placement of the sell order

The best answer is B. The Form 144 is simply a notification to the SEC that stock will be sold in compliance with the Rule - the SEC does not approve of the sale. The Form must be filed by the seller at, or prior to, with the placement of the sell order.

Under Regulation D, purchasers of private placement offerings must be given full disclosure through a(n): A Prospectus B Offering memorandum C Registration statement D Form D

The best answer is B. Under Regulation D, purchasers of private placements must be given full disclosure about the issue, even though no prospectus is required (the issue is exempt). Disclosure is accomplished by providing the purchaser with a copy of an "Offering Circular," which for smaller private placements is called the "Offering Memorandum." There is no registration statement for private placements because they are exempt - the exemption is claimed by filing a Form D with the SEC.

U.S. Government agency securities: A trades settle the same day B are guaranteed by the U.S. Government C are exempt securities under the Securities Act of 1933 D are sold through competitive bid at the weekly Treasury Auction Review

The best answer is C. Agency bond trade settlement depends of the type of agency security traded, is complicated, and is not tested. Trades of U.S. Government securities settle regular way the next business day, but this is often not the case for agency issues. Under the 1933 Act, agency securities are exempt and are not required to be registered with the SEC, nor are they required to be sold with a prospectus. Agencies, such as Fannie Mae are not guaranteed by the U.S. Government (with the sole exception of Ginnie Mae). Agency issues are not sold through competitive bid. They are sold though selling groups on a negotiated basis.

Who is subject to Rule 144? A Buyer of restricted stock B Buyer of unrestricted stock C Seller of restricted stock D Seller of unrestricted stock

The best answer is C. Rule 144 under the Securities Act of 1933 most often applies to the public resale of restricted stock granted to officers and directors of privately held companies. These are typically start-up companies that don't have the funds to pay large salaries, so to attract quality people, they give these officers stock instead. Because the company is still private, these are restricted private placement shares that cannot be sold in the public market, unless the company goes public. Assuming that the company does go public later on, these officers can now "cash out" their holdings under Rule 144. By using the rule, the officers can sell metered amounts of the stock into the public market over each 90-day time window (and they can get very wealthy in the process!). The rule authorizes the registration of the stock with the SEC, so the buyer in the market gets clean registered shares. Review question # 9-1-45-5 Regulations : Securities Act of 1933 : Rule 144 : Summary Copyright 1989-2020 Pass Perfect, LLC All Rights Reserved

A company has filed a registration statement with the SEC that uses a method that is only available to seasoned issuers. This registration statement is good for: A 1 year B 2 years C 3 years D 4 years

The best answer is C. SEC Rule 415, the "shelf registration rule" allows "seasoned issuers" to file a blanket registration statement with the SEC, covering a period of 3 years, for any securities that the issuer may wish to sell. It is only available to "seasoned" companies that already have completed a registered IPO, that have been registered for 1 year, and that have a minimum market captialization of $75 million. If the seasoned issuer wishes to sell any securities during this 3 year period, it simply files a notification with the SEC that it is selling under that registration statement. This procedure avoids the "20-day cooling" off period, and allows seasoned issuers to enter the market quickly (such as when interest rates have dipped) to sell their securities. Review

What type of securities offering is NOT exempted from registration with the SEC? A Regulation S B Rule 147 C Shelf offering D Regulation D

The best answer is C. Shelf offerings under Rule 415 allow seasoned issuers to file a blanket registration statement that goes on the SEC's "shelf," good for 3 years. The issuer simply gives 2 day notice to the SEC and can sell. This is a simplified registration process. Regulation S states that if a U.S. company sets up a non-U.S. subsidiary, and offers securities only to non-U.S. residents, then it is exempted from having to register those securities with the SEC (because the offering is not being made in the U.S.). Rule 147 is an intrastate exemption. If an issue is only sold within 1 state, then federal law does not apply (the transaction must cross state lines for federal law to apply). Only that state's blue sky registration laws apply. Rule 147 says that if 100% of the issue is offered and sold to residents of a single state, then there is no federal registration with the SEC.

Who is an accredited investor? A A working married couple with $250,000 of annual income B A natural person with a liquid net worth of $800,000 C An employee benefits plan with assets of $7 million D An individual who purchases $500,000 of the issue in a single transaction

The best answer is C. Under Regulation D, a private placement can be sold to an unlimited number of accredited investors. These are: An individual with an annual income of $200,000 or a married couple with an annual income of $300,000; A natural person (individual) with a net worth of $1,000,000 exclusive of home; A bank, insurance company or registered investment company; Employee benefits plan, corporation or investment partnership with at least $5 million of assets; or Officer or director of the issuer (with no dollar threshold). Note that there is no accreditation based on the amount purchased.

"Access equals delivery" means that any purchaser of a new securities issue offered by prospectus: A must be delivered a paper copy of the prospectus, at or prior to confirmation of sale B must be delivered an electronic copy of the prospectus, at or prior to confirmation of sale C can be delivered an electronic copy of the prospectus in lieu of a paper copy if the member firm knows that the customer has internet access D can be delivered a paper copy of the prospectus in lieu of an electronic copy if the member firm knows that the customer has internet access

The best answer is C. "Access equals delivery" allows a broker-dealer to deliver an electronic copy of a prospectus to a purchaser of a new issue rather than a paper copy. However, the rule only permits such electronic delivery if the broker-dealer knows that the customer has internet access - which basically means that the broker-dealer has an e-mail address for the customer. If the broker-dealer does not know that the customer has internet access, then a paper prospectus is still required. Review

An officer of a company has acquired shares of that issuer in the open market. If the officer wishes to sell the shares: A a 6 month holding period must be completed B a 90 day holding period is required since the shares are already registered C a Form 144 must be filed with the SEC D there is no requirement to file a Form 144 with the SEC Review

The best answer is C. "Control stock," which is registered stock of a company bought in the open market by an officer or director of that company, is subject to all Rule 144 requirements when the officer or director wishes to sell, except for the 6 month holding period (there is no holding period on control stock). The 6 month holding period is required for restricted stock, but not for control stock. Review

An officer of a company has acquired shares of that issuer in the open market. If the officer wishes to sell the shares, the officer must meet all of the following requirements EXCEPT: A filing of the Form 144 with the SEC B a maximum of 4 sales per year are permitted C the stock must be held for 6 months, fully paid D each sale is limited to the greater of 1% of the outstanding shares; or the weekly average of the prior 4 weeks' trading volume

The best answer is C. "Control stock," which is registered stock of a company bought in the open market by an officer or director of that company, is subject to all Rule 144 requirements when the officer or director wishes to sell, except for the 6-month holding period. The 6-month holding period is required for restricted stock, but not for control stock. Review

The maximum maturity on a banker's acceptance is: A 30 days, because a longer maturity would cause the issue to be non-exempt B 90 days, because a longer maturity would cause the issue to be non-exempt C 270 days, because a longer maturity would cause the issue to be non-exempt D 360 days, because a longer maturity would cause the issue to be non-exempt

The best answer is C. Banker's acceptances issued by banks are an exempt security under the Securities Act of 1933, as long as the maturity does not exceed 270 days. Review

Banker's Acceptances are: A money market instruments subject to the Securities Act of 1933 B capital market instruments subject to the Securities Act of 1933 C money market instruments exempt from the Securities Act of 1933 D capital market instruments exempt from the Securities Act of 1933

The best answer is C. Bankers Acceptances are a money market instrument used to finance imports and exports. They are an exempt security under the Securities Act of 1933 and can be sold without a prospectus. Review

During the period that a non-exempt new issue is "in registration," all of the following statements are correct EXCEPT: A No advertising or sale of the issue is permitted B The SEC may issue a deficiency letter requesting additional information before allowing registration to become "effective" C The preliminary prospectus with the final price is distributed D The offering participants perform due diligence on the offering Review

The best answer is C. During the 20-day cooling off period, no advertising or sale of the issue is permitted because registration is not yet effective. If the SEC has problems with the filing, it will issue a deficiency letter requiring more information. During the cooling off period, due diligence is performed by the parties involved in the offering. A preliminary prospectus (red herring) may be distributed, but it does not contain the final offering price because this is not known until the effective date.

When the Securities and Exchange Commission sets the effective date for a new issue in registration, this means that the: A SEC has approved the offering for sale to the public B SEC has certified that the offering documents give full and fair disclosure C proper documents for registration have been filed with the SEC D effective cost to potential purchasers has been established by the SEC

The best answer is C. If the SEC sets the "effective date" for an issue in registration, this means that all proper documents have been filed with the SEC. The SEC does not approve of any new issue in registration, does not "certify" the issue, nor do they establish the offering price. Think of the SEC as a big filing cabinet - once the proper documents relating to a new issue offering are filed, the issue may be offered and sold to the public.

Which statement is TRUE about credit on new issues? A New issues are marginable as long as the offer is made with a prospectus B New issues are not marginable until the effective date C New issues are not marginable until 30 days from the completion of the offering D New issues are not marginable until 60 days from the completion of the offering Review

The best answer is C. New issues are not eligible for margin until 30 days have elapsed from the completion of the offering. Review

Permitted purchasers of Rule 144A issues are: A Accredited Investors B Financial Institutions C Qualified Institutional Buyers D Major Institutional Investors

The best answer is C. Rule 144A is not to be confused with Rule 144. Rule 144A allows issuers to sell large blocks of private placements without SEC registration to "QIBs" - Qualified Institutional Buyers. Basically, a QIB is an institutional investor with at least $100MM of assets available for investment. The issue with private placements is that they are illiquid. They cannot be sold in the public markets. Rule 144A "fixes" this problem by allowing 144A issues to be traded from QIB to QIB. The market for this is "PORTAL" - an electronic trading market only for 144A issues. PORTAL is owned by a consortium consisting of NASDAQ and the larger broker-dealers who cater to institutional clients.

Which statement describes trading of Rule 144A issues? A Rule 144A issues are NMS securities that are listed and trade on the NYSE, AMEX and NASDAQ B Rule 144A issues are not listed and trade in the OTCBB or Pink Sheets C Rule 144A issues trade in the PORTAL market from QIB to QIB D Rule 144A issues cannot be traded in the public markets

The best answer is C. Rule 144A issues are private placement securities sold in minimum $500,000 blocks only to QIBs - Qualified Institutional Buyers (institutions with at least $100MM of assets available for investment). Whereas normal private placements cannot be traded, these can be traded from QIB to QIB. The market for this is PORTAL, but trading activity is thin in this market, especially as compared to the market for publicly traded securities. Review

Under Regulation D, issuers must provide which of the following to investors to obtain a private placement exemption? A Copy of the Prospectus B Copy of the Official Notice of Sale C Copy of the Offering Circular or Private Placement Memorandum D Copy of the Official Statement

The best answer is C. Under Regulation D, purchasers of private placements must be given full disclosure about the issue, even though no prospectus is required (the issue is exempt). Disclosure is accomplished by providing the purchaser with a copy of an "Offering Circular," which for smaller private placements is called the "Offering Memorandum." Review

Under Regulation D, which statement is TRUE? A A Prospectus is used to provide disclosure B An Official Statement is used to provide disclosure C An Offering Circular is used to provide disclosure D No disclosure is normally provided to investors since each is accredited

The best answer is C. Under Regulation D, purchasers of private placements must be given full disclosure about the issue, even though no prospectus is required (the issue is exempt). Disclosure is accomplished by providing the purchaser with a copy of an "Offering Circular," which for smaller private placements is called the "Offering Memorandum." An Official Statement is a disclosure document used for municipal issues.

Which of the following is NOT subject to the registration requirements of the Securities Act of 1933? A American Depositary Receipts B American Depositary Shares C American Style Options D Foreign Currency Contracts

The best answer is D. ADRs (American Depositary Receipts) are non-exempt securities and must be registered with the SEC under the Securities Act of 1933. ADRs are the way that most foreign corporate issues trade in the United States. The bank that structures the ADRs handles the registration. Another name for an ADR is an American Depositary Share. Listed option contracts are registered with the SEC, as are investment company issues. These securities are "continuously issued" and the prospectus delivery requirement is met by giving the customer an Options Disclosure Document (which used to be called the Options Clearing Prospectus); or a fund prospectus. Foreign currency contracts are not securities, and hence are not subject to the 1933 Act (though foreign currency option contracts traded on the Philadelphia Stock Exchange are subject to the Act).

All of the following are exempt issues under Federal Securities Acts EXCEPT: A Government Bonds B Small Business Investment Companies C State Chartered Bank Issues D Municipal Bond Funds

The best answer is D. Government bonds, municipal bonds, state chartered bank issues (regulated by state banking laws) and small business investment companies (regulated by other federal legislation that created the SBA - Small Business Administration) are all exempt issues under the '33 Act. Note that when any of these securities are placed inside of an investment company, the investment company is a non-exempt issue that must be registered and sold with a prospectus. Review

An officer of an issuer has received restricted stock as part of her compensation package. If she wishes to sell some of the stock under Rule 144, which statement is TRUE? A The officer can sell the stock immediately without restriction B The officer can sell the stock within 90 days of purchase C The officer can sell the stock within 6 months of purchase D The officer can sell the stock within 90 days and 6 months of purchase

The best answer is D. In order to sell restricted stock under Rule 144, the stock must have been held fully paid, at risk, for at least 6 months. Once the 6 month holding period is cleared, a Form 144 can be filed, specifying the amount that can be sold over the next 90 days.

Which of the following activities may a Registered Representative do prior to the filing of a registration statement for a new issue securities offering? A Solicit potential buyers and collect indications of interest B Solicit customer to place order to buy the issue C Send a preliminary prospectus to interested customers D Read background material on the industry

The best answer is D. Prior to the filing of a registration statement for a new issue, nothing can be done with customers. Of course, Registered Representatives are allowed to educate themselves on the industry the issuer is involved in. Once the registration statement is filed, a preliminary prospectus can be sent; indications of interest can be accepted; and a "tombstone" announcement can be published. Once the registration is effective, orders can be accepted if customers receive the final prospectus, at or prior to, confirmation of sale.

What securities offering must be registered with the SEC? A Rule 144A B Regulation S C Regulation D D Regulation A

The best answer is D. Regulation D is the private placement exemption from registration. It basically states that private placements that are not offered to the general public are exempt from registration. Rule 506 (the major rule under Regulation D) states that if an offering is made to a maximum of 35 non-accredited investors and to an unlimited number of accredited (wealthy) investors, then it is exempt from SEC registration. Regulation S states that if a U.S. company sets up a non-U.S. subsidiary, and offers securities only to non-U.S. residents, then it is exempted from having to register those securities with the SEC (because the offering is not being made in the U.S.). Rule 144A states that issuers can sell "private placements" in large block sizes (typically $500,000 or more per unit) to QIBs - Qualified Institutional Buyers - without having to register them with the SEC. A QIB is an institution with at least $100 million available for investment. Rule 144A solves a problem with private placements for QIBs - the fact that they are illiquid. Rule 144A issues can be traded from QIB to QIB in the "PORTAL" market. This opens up the market for these securities to large institutional investors, who would not buy unless they knew they could sell the holding at will. Regulation A is an "EZ" registration rule that applies to issues up to $50 million. It makes it simpler for smaller companies to raise capital. Instead of filing a full registration statement with the SEC, the company files an "abbreviated" simplified registration. Instead of going through a 20 day "quiet period," the company goes through a 20 day "review period," where the issue can be marketed to "test the waters" (this is not allowed for regular registered issues). Once registration is effective, the issue is sold with an Offering Circular rather than a Prospectus. Regulation A issues, because they are registered and the company must report to the SEC, can be listed on exchanges and traded there.

What securities offering must be registered with the SEC? A Rule 144 B Rule 144A C Rule 506 D Rule 415

The best answer is D. Shelf offerings under Rule 415 allow seasoned issuers to file a blanket registration statement that goes on the SEC's "shelf," good for 3 years. The issuer simply gives 2 day notice to the SEC and can sell. This is a simplified registration process. Regulation D is the private placement exemption from registration. It basically states that private placements that are not offered to the general public are exempt from registration. Rule 506 (the major rule under Regulation D) states that if an offering is made to a maximum of 35 non-accredited investors and to an unlimited number of accredited (wealthy) investors, then it is exempt from SEC registration. Rule 144 allows holders of restricted private placement stock to sell the shares in the market, as long as the company has gone public. If the provisions of the rule are followed, the SEC allows the transfer agent to register the shares, and they become freely tradable in the market. No registration statement is required to do this. Rule 144A states that issuers can sell "private placements" in large block sizes (typically $500,000 or more per unit) to QIBs - Qualified Institutional Buyers - without having to register them with the SEC. A QIB is an institution with at least $100 million available for investment. Rule 144A solves a problem with private placements for QIBs - the fact that they are illiquid. Rule 144A issues can be traded from QIB to QIB in the "PORTAL" market. This opens up the market for these securities to large institutional investors, who would not buy unless they knew they could sell the holding at will.

What is found in the final prospectus for a registered offering that is not in the preliminary prospectus? A Names of the underwriters B Use of the proceeds of the offering C Audited financial statements D Public offering price Review

The best answer is D. The Public Offering Price (POP) for a registered offering is not set until the very end of the 20-day cooling off period. The preliminary prospectus (red herring) is distributed to interested buyers during the 20-day cooling off period to determine the level of investor interest. If there is high demand, the final POP will be set higher; if there is low demand, it will be lowered. Thus, the preliminary prospectus does not have the POP. Instead, it may have an estimated price range, or it may not even show a price. The names of the underwriters, the use of the proceeds of the offering and the company's audited financial statements are found in both the preliminary prospectus and the final prospectus. Review

All of the following securities are exempt from registration under the Securities Act of 1933 EXCEPT: A Insurance company issues B Bank issues C Savings and loan issues D Junk bonds

The best answer is D. When the Securities Act of 1933 was written, issuers that were already regulated under other laws were generally exempted from the provisions of the Act. Insurance companies were already regulated under state insurance laws; banks and savings and loans were regulated by both state and federal banking laws. Junk bonds are high-yield corporate securities and as corporate issues, are subject to the Securities Act of 1933.

These securities are: A subject to the Securities Act of 1933 B a form of municipal transportation debt C offered with a prospectus D offered without a prospectus

The best answer is D. Notice that the announcement does not include the legend that "this is not an offer to sell these securities. The securities can only be sold under the Prospectus." This legend is required for non-exempt offerings. It is not required for exempts. Common carrier issues such as railway issues are exempt under the Securities Act of 1933 because they were already regulated by the Interstate Commerce Commission (I.C.C.) before the Act was written; and Congress did not want to subject them to "double" regulation. Review

To offer a private placement, which statement is TRUE? A A registration statement must be filed with FINRA prior to sale B A registration statement must be filed with the SEC prior to sale C A registration statement must be approved by the principal of the firm prior to sale D The offering is exempt, so no registration is required

The best answer is D. Private placements are exempt transactions under the Securities Act of 1933. No registration is required. The issuer must file a Form D with the SEC within 15 days of the offering to claim the exemption. The filing of Form D is not a registration. It simply notifies the SEC that the issue has been offered in compliance with the exemption. Review

A seller who has filed Form 144 can sell 1% of the outstanding shares or the weekly average of the last 4 weeks' trading volume whichever is greater. This amount can be sold how many times a year? A 1 B 2 C 3 D 4

The best answer is D. Rule 144 allows the sale of 1% of the issuer's outstanding shares or the weekly average of the preceding 4 weeks' trading volume (whichever is greater). This amount can be sold every 90 days (every 3 months), so a sale can occur 4 times per year.

Rule 144 applies to: A purchases of control stock only B purchases of restricted stock only C sales of control stock only D sales of both control and restricted stock

The best answer is D. Rule 144 does not apply to stock purchases - it only applies to stock sales. It applies limits to sales of restricted (private placement) stock in the open market and sales of registered stock being sold by control persons. Review

A registered representative has prepared a research report about a new issue that is "in registration." Which statement is TRUE? A The research report may be sent to any customer expressing an "indication of interest" B The research report may be sent to any customer if it is accompanied by a preliminary prospectus C The research report may only be sent to customers who have bought new issues within the preceding 12 months D The research report may not be sent

The best answer is D. Since this issue is "in registration," it is in the 20-day cooling off period. The only permitted written communications during this period are the red herring preliminary prospectus, and a tombstone announcement (which, in reality, is not published until the effective date). This research report cannot be sent, since it would be considered to be a prohibited "offer to sell" the securities.

Electronic delivery of a prospectus is NOT permitted for: A common stock issues B preferred stock issues C corporate debt issues D investment company issues

The best answer is D. The "access equals delivery" rule that permits electronic delivery of a prospectus (instead of paper) to those customers that have internet access is permitted for all securities offerings with the exception of investment company issues. For example, the purchaser of a mutual fund must still get a paper prospectus.

A registered representative who handles the accounts of wealthy clients is told the following by one of her customers: "I made a "seed" money investment of $8,000,000 in a venture capital financing of a start-up tech company and received unregistered stock. Now I want to sell $4,000,000 of that company's shares." In order to handle the sale, the registered representative makes several disclosures to the client. Which of the following "due diligence" disclosures is INCORRECT? A The company must have registered shares with the SEC and must be current in its SEC filings B The customer must have held the stock fully paid, for at least 6 months C The customer must intend to make a bona fide public offering of the shares D If more than one filing is required due to the large size of the holding, the customer must wait 30 days to sell the next tranche.

The best answer is D. These are unregistered shares that are "restricted" as to resale. A public resale can be made under the provisions of Rule 144, and by selling via the rule, this will register the shares. In order to use the rule: The company must have gone public and must be current in its SEC filings. The customer must have held the stock fully paid, at risk for at least 6 months. The customer must intend to make a bona fide offer of the shares in the public trading markets. The customer must file a Form 144 with the SEC (notice of sale), that details the maximum permitted sale (the greater of 1% of the outstanding shares or the weekly average of the prior 4 weeks' trading volume). This amount can be sold every 3 months under Rule 144. Filing windows are every 90 days, not every month.

A brokerage research department has been following the common stock of Acme Corporation and has prepared a favorable research report on the company. The brokerage firm is a member of a syndicate handling an issue of Acme common stock that is currently in registration. A registered representative wishes to send the research report to all of his customers. Which statement is TRUE? A The report can be sent only if it has been approved by a supervisory analyst B The report can be sent only if it is accompanied, or preceded by, a preliminary prospectus C The report can be sent only if it has been approved by the branch office manager D The report cannot be sent until registration is effective

The best answer is D. When an issue is "in registration," meaning it is in the 20 day cooling off period, nothing can be sent to a customer that can be considered to be an "offer" of the securities. Under the Securities Act of 1933, no offer can be made unless a final prospectus accompanies the offer. Since no final prospectus is available, the research report cannot be sent to customers since it would constitute an "offer." Furthermore, because the member firm is in the syndicate underwriting the issue, the research report cannot be issued for 10 days following the effective date (this is for an add-on offering; if this were an IPO, a research report could not be issued for 40 days following the effective date).