S24: Unit 5 - QBank Review

All of the following statements regarding SEC filings are true EXCEPT A) 10-Q reports must be audited B) 10-K reports must be audited C) 13F reports are filed quarterly D) 10-K reports are filed annually

A) 10-Q reports must be audited Quarterly reports (10-Q) to the SEC are not audited but annual reports (10-K) must be audited. Most publicly traded companies are subject to these reporting requirements under the SEC Act of 1934.

Officers and directors of a publicly traded issuer are prohibited from doing which of the following?Shorting the issuer's stockShorting the issuer's stock against the boxTaking short swing profits on the issuer's stockWriting covered calls on the issuer's stock A) I and III B) II and IV C) III and IV D) I and II

A) I and III Insiders cannot short the issuer's stock nor can they take short swing profits. A short swing profit is a profit earned by buying and selling the issuer's stock in a 6-month period or less, and any short swing profit must be returned to the issuer. Insiders are permitted to short the issuer's stock against the box provided the position is closed out within 20 days. Writing calls against a long stock position is an acceptable income strategy.

Under SEC Rule 104, stabilization is permitted in which of the following offerings? I. Fixed-price offerings. II. At-the-market offerings. III. Firm commitment offerings. IV. Best effort offerings. A) I and III B) I and IV C) II and III D) II and IV

A) I and III Stabilization is only permitted for fixed price offerings underwritten on a firm commitment basis.

A well-known seasoned issuer, wishing to sell up to $300 million of convertible debt as market conditions permit, files a shelf registration statement with the SEC. Which of the following statements are true? I. The registration statement is effective immediately. II. The registration statement is effective upon completion of the cooling off period. III. The registration statement must be updated every 2 years. IV. The registration statement must be updated every 3 years. A) I and IV B) II and III C) I and III D) II and IV

A) I and IV For WKSIs, shelf registration statements (SEC Rule 415) are effective immediately, good for 3 years and may use free writing communication.

Tendering is permissible under which of the following conditions? I. The securities to be tendered are borrowed. II. A customer owns convertible securities and issues conversion instructions. III. A customer has a net long position in the stock that is the subject of the tender offer. IV. A customer has a long position in a call option on the subject stock. A) II and III B) II and IV C) I and IV D) I and III

A) II and III If a customer is long the stock, he can tender shares. A customer cannot borrow (short) stock and tender. If this were to occur and all shares were tendered, the outstanding short positions could never be covered.

Which of the following best describes a PIPE transaction? A) Restricted securities, once sold, are immediately registered for public resale B) An offering sold principally to non-US residents C) A self underwriting where issuer employees sell the issue D) An offering which complies with Rule 504 of Regulation D

A) Restricted securities, once sold, are immediately registered for public resale In a PIPE (Private Investment in Public Equity), investors purchase securities directly from a publicly traded issuer in a private placement. The securities are restricted and can not be immediately resold. After the closing of this transaction, the issuer immediately prepares and files a registration statement with the SEC for the securities issued in the PIPE. Once effective, public resale of the PIPE securities may begin.

Under Regulation M, passive market making is prohibited in all of the following situations EXCEPT A) additional offerings of Capital Market stocks B) best effort offerings C) at-the-market offerings D) during the time a stabilizing bid is in effect

A) additional offerings of Capital Market stocks Under Rule 103, passive market making is only permitted for fixed-price offerings underwritten on a firm commitment basis. At-the-market offerings and best effort offerings do not meet this requirement. Under Rule 104, if a stabilizing bid is in effect, there can be no passive market making. Passive market making is permitted for listed stocks and Nasdaq stocks.

An escrow account established in an all-or-none or any other contingency underwriting may invest in all of the following EXCEPT A) commercial paper B) cash C) T-bills D) a bank money market account

A) commercial paper An escrow account may invest in cash, a bank money market account (not a money market fund), or in any security guaranteed by the US government.

Before placing a stabilizing bid, SEC Rule 104 requires that the syndicate manager A) do all of these B) advise Nasdaq as to whether the syndicate will engage in any short covering C) provide Nasdaq with a copy of the cover page of the prospectus D) notify Nasdaq as to whether the bid will be a penalty bid or a penalty-free bid

A) do all of these Before placing a 1-sided stabilizing bid, the manager notifies Nasdaq of its intention to place the bid and provides the following information: whether the bid will be a penalty bid or a penalty-free bid; a copy of the cover page of the prospectus; and whether the syndicate will engage in any short covering (buying back in the secondary market to cover short sales made at the public offering price).

Under FINRA Rule 5121, all customer checks received to purchase newly issued shares of a member firm A) must be placed in an escrow account B) may be pledged to a bank to support member indebtedness C) must be placed in a reserve account under SEC Rule 15c3-3 D) may be immediately placed in a syndicate account of the member firm

A) must be placed in an escrow account When a member firm itself goes public, customer checks must be placed in an escrow account pending a net capital computation. If the firm's capital is below 120% of minimum or its AI-to-NC ratio exceeds 10:1, the offering is canceled, and the checks must be returned to the purchasers.

Under SEC Rule 134, a tombstone advertisement includes all of the following EXCEPT A) net proceeds to the issuer B) number of shares to be sold C) the public offering price D) names of the syndicate members

A) net proceeds to the issuer Under SEC Rule 134, a tombstone advertisement may be placed by the syndicate manager (book-running managing underwriter) on or before the offering's effective date and is limited to the name of the issuer, type of security being offered, number of shares to be sold, public offering price, and names of the syndicate members. The tombstone may include ratings if they have been assigned, such as AAA/AA but not photographs of investment properties or descriptions of any tax benefits of investments.

All of the following restricted securities are subject to the minimum holding period under SEC Rule 144 EXCEPT A) securities held by the estate of a deceased person B) securities acquired by a pledge from a donor C) securities acquired by a trust from a beneficiary D) securities acquired as a gift

A) securities held by the estate of a deceased person The only exception to the holding period rule is for sales made by a deceased person's estate.

All of the following are subject to interpretation of fairness by FINRA EXCEPT A) the public offering price B) compensation of the underwriters C) reimbursement of expenses from issuer to underwriter D) the underwriting spread

A) the public offering price The Corporate Financing Department is responsible for determining whether the underwriter's compensation in an offering is fair and reasonable. Factors taken into account when making this determination include the size of the offering, the type of securities being issued, as well as the type of underwriting arrangement (i.e., firm commitment or best efforts). Factors not considered by the committee in determining the reasonableness of underwriter compensation include the public offering price, the current market conditions, and the current financial condition of the underwriter.

A corporation plans to issue stock to the public at $10 per share. If the manager's fee is $0.10 per share, the underwriting fee is $0.25 per share, the concession is $0.45 per share, and the re-allowance is $0.20 per share, the spread is A) $0.70 B) $0.80 C) $1.00 D) $0.90

B) $0.80 In a corporate offering, the spread has three components: the manager's fee, the underwriting fee, and the concession. The re-allowance is not a separate item; rather, it is part of the concession and represents a give-up if a member of the selling group sells to a nonmember.

In a Regulation A+ offering, the SEC will integrate the current offering with any securities offering of the issuer occurring within the prior A) 18 months B) 12 months C) 24 months D) 6 months

B) 12 months A Regulation A offering exemption allows issuers to sell up to $75 million of securities without going through a full-blown registration. A Regulation A offering is sometimes called the small offering exemption. The $75 million ceiling is measured over a 12-month period.

Under Sarbanes-Oxley, the statute of limitations for bringing a suit alleging fraud in connection with an offering of securities is A) 2 years B) 5 years C) 3 years D) 6 years

B) 5 years Suits alleging fraud in connection with any offering of securities must be brought within 2 years after the discovery of the violation but no later than 5 years after such violation.

XYZ, Inc. can purchase which of the following in the open market if they are making a tender offer for ABC? A) ABC convertible bond B) ABC straight debt C) ABC convertible preferred stock D) ABC common stock

B) ABC straight debt By law, when a company has an outstanding tender offer to acquire another firm's stock, neither the acquiring company nor any of its officers or directors may purchase an equity interest in the target or anything convertible or exercisable into stock. Straight debt is not convertible into equity; therefore, this purchase is in compliance.

To ensure the integrity of the public offering process members may not withhold securities for their own benefit. This applies principally to which type of securities offering? A) REITS B) Common stock C) Fixed income D) DPPs

B) Common stock FINRA Rules 5130 and 5131 apply to IPOs of common stock.

Mr. Smith is an independent insurance agent licensed with several insurance companies and a customer of DMF securities, a general securities broker/dealer. He has placed an order for shares of an IPO that is being underwritten by DMF. Which of the following is TRUE? A) He is prohibited from purchasing the new issue, his order must be cancelled, and funds returned. B) He may purchase the new issue without restriction because he is an independent insurance agent. C) He may purchase the new issue only if the order is small and conforms to his normal investment history. D) He may purchase the new issue only with prior written permission of his employer.

B) He may purchase the new issue without restriction because he is an independent insurance agent. Independent insurance agents are not subject to the restrictions placed upon FINRA members.

The letter of intent in a corporate underwriting is typically signed by which of the following parties? I. Issuer. II. Managing underwriter. III. Syndicate members. IV. Selling group members. A) III and IV B) I and II C) II and IV D) I and III

B) I and II The letter of intent initiates the underwriting process and is signed by the issuer and managing underwriter.

Which of the following statements are TRUE regarding passive market makers? I. They are subject to the limit order display rule. II. They are not subject to the limit order display rule. III. They are subject to daily net purchase restrictions. IV. They are not subject to daily net purchase restrictions. A) II and IV B) I and III C) I and IV D) II and III

B) I and III All market makers, whether acting in a passive capacity or not, are subject to the limit order display rule. Rule 103 requires that passive bids can be no higher than the highest independent bid (a bid by a market maker not involved in the distribution). However, if the passive market maker receives a customer limit order to buy that is higher than the highest independent bid, it must be displayed. Further, passive market makers are subject to daily net purchase restrictions. Their net purchases (purchases minus sales) cannot exceed 30% of their average daily trading volume.

Which of the following statements are true regarding registration under the Act of 1933? I. Rights must be registered with the SEC prior to public sale. II. Rights need not be registered with the SEC prior to public sale. III. Warrants must be registered with the SEC prior to public sale. IV. Warrants need not be registered with the SEC prior to public sale. A) II and III B) I and III C) I and IV D) II and IV

B) I and III All non exempt securities must be registered with the SEC prior to public sale.

The SEC Rule 10b-18 safe harbor is available to issuers involved in stock repurchase programs provided there are no purchases in which of the following? I. The opening transaction. II. The first 30 minutes of trading. III. The closing transaction. IV. The last 30 minutes of trading. A) II and IV B) I and IV C) II and III D) I and III

B) I and IV Provided an issuer is not involved in the first transaction of the day or in any transaction during the last 30 minutes of trading, a safe harbor exists. The issuer must be in compliance with the rule prohibiting issuers from unduly influencing the price of their own stock. For issuers whose stock is actively traded, a safe harbor is available until ten minutes before market close.

Under FINRA Rule 5130, which of the following statements are true regarding restricted persons? I. Employees of limited business member firms may purchase an equity IPO II. Employees of limited business member firms may not purchase an equity IPO III. Limited business member firms may purchase an equity IPO IV. Limited business member firms may not purchase an equity IPO A) I and III B) I and IV C) II and III D) II and IV

B) I and IV There is an exemption under the rule for employees of limited business member firms. A limited business firm is one engaged solely in the purchase and sale of investment company securities and/or direct participation programs. The exemption only applies to employees of a limited business firm, not to the firm itself.

Registered Representative 1, employed by Member Firm 1, sells a new equity issue to Registered Representative 2, employed by Member Firm 2. Which of the following are responsible for violating FINRA Rule 5130?Registered Representative 1.Member Firm 1.Registered Representative 2.Member Firm 2. A) II and III B) I, II, III and IV C) II and IV D) I and III

B) I, II, III and IV All of the parties are responsible for violating FINRA Rule 5130. The member firms, as well as the designated supervisors, are included for failing to supervise.

At a social gathering, an officer of a publicly traded company confides to his neighbor, a registered representative, that his company will announce a major acquisition in the coming week. Which of the following statements regarding the SEC's insider trading rules is TRUE? A) The registered representative is in violation. B) Neither the officer nor the registered representative is in violation. C) Both the officer and the registered representative are in violation. D) The officer is in violation.

B) Neither the officer nor the registered representative is in violation. Simply giving someone material, nonpublic information (while imprudent) is not a violation. However, if the information is used to trade for profit or to avoid a loss, both the tipper and the tippee would have violated the law.

Underwriting agreements and related documentation covering which of the following types of public offerings need NOT be filed for review by FINRA's Corporate Financing Department? A) Regulation A offerings B) Offerings of open-end investment companies C) Intrastate offerings D) Offerings of closed-end investment companies

B) Offerings of open-end investment companies' The only issues that do not have to be filed with the Corporate Financing Department are mutual funds (open-end investment companies), variable annuities, straight debt issues rated BBB or better, municipal securities, and US government securities. Regulation D offerings are also exempt.

If a regulated investment company accumulates a more than five percent equity interest in a public issuer, it is required at a minimum to submit which of the following with the SEC? A) Schedule 13D B) Schedule 13G C) Schedule 13-E3 D) Schedule 13-E4

B) Schedule 13G If a RIC accumulates a greater than five percent interest in an issuer, it need not file the more burdensome Schedule 13D but rather the short form Schedule 13G with the Commission. Regulated investment companies under the Act of 1940 are prohibited from controlling or attempting to control an issuer. Schedule 13G must be filed within 45 days of the end of the calendar year in which the qualified institutional investor, such as a registered investment company, exceeds the 5% threshold.

The XYZ Company is looking to offer additional shares of its Class A common stock to the public. Which of the following laws enacted by Congress would have the most relevance to the issuance of these securities? A) The Trust Indenture Act of 1939 B) The Securities Act of 1933 C) The Securities Investors Protection Act of 1970 D) The Investment Company Act of 1940

B) The Securities Act of 1933 The Securities Act of 1933, also known as the Paper Act or Prospectus Act, is the bedrock of all modern securities law. It requires issuers looking to make a public offering of securities to provide full and fair disclosure of all material facts about the company and the securities being offered. The company does this by registering its securities with the U.S. Securities and Exchange Commission (SEC) often with the aid of accountancy firms, securities attorneys and underwriters. Part of the registration process for newly offered securities is the publishing of a prospectus which all prospective investors must receive at or prior to purchase. Those issues exempt from the Act include municipal securities, US government securities, bank issues, and nonprofit organization securities. No securities however are exempt from the anti-fraud provisions of the Act.

A safe harbor from a published report being deemed an offer, is available for underwriters of a non-shell, reporting company's securities offering when distributing a report on the company if each of the following conditions are satisfied EXCEPT: A) The broker-dealer publishes research reports in the regular course of its business and, at the time of the publication of the research report, is including similar information about the issuer in similar reports. B) The shares offered by the issuer at the later of the time of filing its most recent Form S-3 must meet the definition of a penny stock within the most recent three years. C) The research report includes similar information concerning a substantial number of issuers in the issuer's industry or contains a comprehensive list of securities currently recommended by the broker or dealer. D) The analysis regarding the issuer or its securities receives no materially greater prominence in the publication than that given to other issuers or securities.

B) The shares offered by the issuer at the later of the time of filing its most recent Form S-3 must meet the definition of a penny stock within the most recent three years. For the safe harbor to be effective, the firm's securities may not be deemed a penny stock (under $5.00 per share and not listed on an exchange) during the past three years.

In determining the number of purchasers under Rule 506(b) of Regulation D, each of the following is omitted from the count EXCEPT A) a trust or estate in which a purchaser owns 100% of the beneficial interest B) a limited partnership formed for the express purpose of acquiring the securities C) a purchaser's relative whose home address is the same as the purchaser's D) a person whose net worth exceeds $1 million exclusive of primary residence

B) a limited partnership formed for the express purpose of acquiring the securities Rule 506(b) limits the number of nonaccredited investors to 35. Excluded from the count are the relatives of an investor who share the same household with the investor, trusts or estates owned 50% or more by the investor and anyone classified as an accredited investor. In addition, a business entity or partnership where the investor owns 50% or more of the equity is excluded from the count unless it was formed solely for the purpose of purchasing the offering's securities. Rule 506(c) prohibits nonaccredited investors.

According to the Insider Trading and Securities Fraud Enforcement Act, contemporaneous traders are all of the following EXCEPT A) persons granted the right to sue inside traders for damages under the act B) corporate employees C) noninsiders D) persons who make trades at approximately the same time as inside traders

B) corporate employees According to the Insider Trading and Securities Fraud Enforcement Act of 1988, contemporaneous traders are corporate outsiders who make trades at about the same time as insiders. They are granted the right to sue inside traders for damages sustained.

A security purchased under the provisions of Regulation S may be resold A) in the US after being held for 2 years B) immediately in any SEC-designated offshore securities market C) only after regulatory approval from the SFA D) in any non-US jurisdiction after being held for 180 days

B) immediately in any SEC-designated offshore securities market There is a one-year holding period before an equity security may be distributed in the US under Regulation S (only 6 months if the issuer is a reporting company). However, the equity security may be resold immediately in any SEC-designated offshore securities market.

The Sarbanes-Oxley Act of 2002 requires publicly traded companies to do all of the following EXCEPT A) publish information concerning the adequacy of their internal accounting controls B) review the collateral underlying all loans made by the company to officers C) require that newly appointed officers file Form 3 with the SEC D) disclose all material off-balance sheet liabilities

B) review the collateral underlying all loans made by the company to officers Section 402 of SOX prohibits personal loans made to officers by the company. All of the other statements are true.

An offering in which an underwriter unconditionally agrees to purchase all shares NOT subscribed to by shareholders in a rights distribution is termed a(n) A) shelf underwriting B) standby underwriting C) secondary offering D) all-or-none underwriting

B) standby underwriting A standby offering is one in which the underwriter stands by and awaits the outcome of a rights distribution. If all of the rights are not exercised, the underwriter, on a firm commitment basis, will purchase those shares not subscribed to by shareholders.

Under FINRA Rule 5150, a fairness opinion must include all of the following disclosures EXCEPT A) if any information that formed a basis for the opinion was supplied by the party requesting the opinion B) the qualifications of the persons involved in forming the opinion C) whether any material relationships existed during the past 2 years with any party involved in the transaction D) if the member will receive compensation contingent on the successful completion of the transaction

B) the qualifications of the persons involved in forming the opinion In a fairness opinion, a member is required to disclose the following: whether the firm has acted as a financial adviser with respect to the transaction; whether the firm will receive compensation contingent on the successful completion of the transaction; whether the firm has had during the past two years, or will have, any material relationship with any party involved in the transaction and whether any compensation was or will be received as a result; if any information that formed a basis for the opinion was supplied to the firm by the party requesting the opinion, and whether this information was verified; and whether the opinion was approved or issued by a fairness committee.

Under SEC rules, Form 8-K must be filed A) promptly B) within 4 business days of the event C) within 10 business days of the event D) within 15 business days of the event

B) within 4 business days of the event Form 8-K is used to report newsworthy events to the SEC. The reporting time limit is 4 business days.

Under Rule 103, application for acting as a passive market maker must be made A) 2 business days before the restricted period B) 3 business days before the restricted period C) 1 business day before the restricted period D) on or before the restricted period

C) 1 business day before the restricted period Market makers who are also syndicate members in additional issue offerings must advise Nasdaq 1 business day prior to the beginning of the restricted period as to whether they elect to seek an excused withdrawal or to function as passive market makers.

Each of the following expressions is applicable to Regulation A+ EXCEPT A) access equals delivery B) 12-month period C) 80% of the issuer's assets located in the state of incorporation D) Form 8-A

C) 80% of the issuer's assets located in the state of incorporation The notion of at least 80% of the issuer's assets having to be located in the state of incorporation is applicable to Rule 147, not Regulation A.

Which of the following could qualify as a purchaser under Rule 147? A) An institutional investor whose primary office is in a different state B) A nonresident property owner within the state C) A state resident owning no property within the state D) None of these

C) A state resident owning no property within the state Rule 147 has to do with intrastate offerings. If an offering qualifies as an intrastate offering, registration with the Securities and Exchange Commission is not required. To qualify, 100% of the offering must be sold to residents of the state in which the offering is conducted. It is not necessary for an individual to own property in a state to be a resident of that state. Similarly, simply owning property in a state does not make an individual a resident of that state. A business entity (corporation, partnership, institutional investor) is deemed a resident for purposes of Rule 147 if the principal office of the business is located in the state in which the offering is made.

The "access equals delivery" rule of the SEC applies to the electronic delivery of which of the following? A) Mutual fund prospectuses B) Variable annuity prospectuses C) Final prospectuses D) Preliminary prospectuses

C) Final prospectuses The SEC allows a final prospectus to be delivered electronically rather than in print form. Customers are given a Web address from which a final prospectus can be viewed and/or printed.

Which of the following regarding forward looking statements are TRUE? I. They may be used in preliminary prospectuses. II. They may not be used in preliminary prospectuses. III. They may be used in final prospectuses. IV. They may not be used in final prospectuses. A) I and IV B) II and III C) I and III D) II and IV

C) I and III Under Section 21E of the Act of 1934, The SEC allows issuers to use forward looking statements in annual reports to shareholders as well as in prospectuses and proxy material.

In order to preserve its exemptive status, securities sold under the provisions of Regulation S may NOT be purchased by I. US residents II. US citizens residing abroad III. a foreign branch of a US bank IV. a US bank A) II and III B) II and IV C) I and IV D) I and III

C) I and IV To be an offshore transaction, sales cannot be made to any person or entity in the US However, US citizens residing outside the US could purchase these securities.

Which of the following statements are TRUE regarding a Green Shoe clause? I. It must be disclosed in the registration statement only. II. It must be disclosed in both the registration statement and the prospectus. III. It allows the syndicate to sell up to 10% more shares than initially registered. IV. It allows the syndicate to sell up to 15% more shares than initially registered. A) I and IV B) I and III C) II and IV D) II and III

C) II and IV A Green Shoe clause in the underwriting agreement, which must be agreed to by the issuer, allows the underwriters to sell up to 15% more shares than registered with the SEC. To be effective, a Green Shoe clause must be disclosed in both the registration statement and the prospectus.

Which of the following statements regarding delivery of a final prospectus is NOT true? A) It must be delivered at or before confirmation of sale. B) It must be delivered under separate cover. C) It may be delivered with other materials of the firm. D) Delivery may be satisfied electronically.

C) It may be delivered with other materials of the firm. A final prospectus must be delivered under separate cover.

A broker-dealer participating in an underwriting of nonconvertible debt securities may create and distribute a research report on the up-to-date reporting company's common stock as part of the broker-dealer's regular course of business under which of the following SEC safe harbor rules? A) Rule 139 B) Rule 137 C) Rule 138 D) Rule 144

C) Rule 138 Certain safe harbors allow a broker-dealer to publish research reports about an issuer without that publication being an offer. There are two safe harbor rules available for broker-dealers participating in a public offering that permits them to publish research reports regarding an issuer that has filed or is looking to submit a registration statement. Rule 138 concerns research reports on a class of securities separate from the class being offered. Rule 139 relates to research reports released in the ordinary course of the broker-dealer's business, either concerning issuers that satisfy certain criteria or reports that conform to prior practice. The safe harbor Rule 138 applies to research reports on reporting companies that meet size and related eligibility requirements. Assuming that the eligibility requirements are met, if the company is issuing nonconvertible debt securities (or nonconvertible, nonparticipating preferred stock), this rule permits broker-dealers to publish research reports relating to the company's common stock or debt convertible to common stock or preferred stock convertible to common stock. It is also true that if the company is issuing common stock, debt convertible to common stock or preferred stock convertible to common stock, Rule 138 permits broker-dealers to publish research reports relating to the company's nonconvertible debt or nonconvertible, nonparticipating preferred stock. The idea is that the publication of research reports on one class of security is unlikely to have a market impact on a distinctly different class of security being offered.

Which of the following would ordinarily not be included in a company's preliminary prospectus of a proposed offering of common stock? A) The intended purposes for the funds being raised. B) A statement printed in red that the prospectus is subject to amendment and that a final prospectus is expected to be issued. C) The offering price. D) Financial and forward-looking statements of the company.

C) The offering price. A preliminary prospectus (red herring) is printed and distributed prior to the pricing of the offering. The red herring may include a projected price range that is subject to change.

The limitation on resales of stock sold under a Rule 147 intrastate offering to only residents within the state in which the issuer is resident, must be for A) a period of three months from the date of the sale by the issuer of a security B) a period of two years from the date of the sale by the issuer of a security C) a period of six months from the date of the sale by the issuer of a security D) a period of twelve months from the date of the sale by the issuer of a security

C) a period of six months from the date of the sale by the issuer of a security SEC Rule 147 requires that a limitation on resales be set for a period of six months from the date of the sale by the issuer of a security. Any resale of the security must be made only to those residents within the state in which the issuer was resident at the time of the sale of the security by the issuer.

The term offering at the market refers to a distribution in which the price to the public on the offering date is set A) no more than 3 times during the day B) once during the day C) more than once during the day D) based on the DJIA or other index price during the day

C) more than once during the day An offering at the market occurs when the offering price is not fixed, meaning that it can change many times daily. This public offering pricing technique applies only to additional issue offerings, in which case the open market price for existing stock (which will fluctuate during the day) is used to price the new stock on the offering date.

A member that participates in a public offering is required to file the registration statement and documents relevant to underwriting terms and arrangements with FINRA A) no later than 10 business days before any documents are filed with or submitted to the SEC. B) no later than 5 business days after any documents are filed with or submitted to the SEC. C) no later than 3 business days after any documents are filed with or submitted to the SEC. D) no later than 5 business days after any documents are filed with or submitted to the state of issuance.

C) no later than 3 business days after any documents are filed with or submitted to the SEC. Members are required to make a timely filing as underwriters to FINRA's Public Offering System (any state securities commission or other similar U.S. regulatory authority) no later than three business days after any documents are filed with the SEC. If documents are not filed with the SEC, then at least 15 business days before the commencement of sales. The documents required to be filed include the registration statement, documents relevant to the underwriting terms and arrangements, agreement among underwriters, escrow agreement, etc.

Your firm is the managing underwriter for a new public issue of XYZX common stock. Certain information relating to the terms of the offering must be filed with FINRA A) no later than within 5 business days of filing a registration statement with the SEC or state securities commission. B) no later than within 7 business days of filing a registration statement with the SEC or state securities commission. C) no later than within 3 business days of filing a registration statement with the SEC or state securities commission. D) no later than within 10 business days of filing a registration statement with the SEC or state securities commission.

C) no later than within 3 business days of filing a registration statement with the SEC or state securities commission. In order to allow FINRA to determine the fairness and reasonableness of the compensation to be received by the underwriters, the syndicate manager, no later than within three business days of filing a registration statement with the SEC, must file information on the terms of the offering with FINRA.

The responsibility for filing the required information with the Corporate Financing Department rests with the A) issuer B) legal counsel for the syndicate C) syndicate manager D) legal counsel for the issuer

C) syndicate manager Information to be filed with the Corporate Financing Department is filed by the syndicate manager on or about the date the registration statement is filed with the SEC.

All of the following offerings must be filed with the Corporate Financing Department EXCEPT A) rights offerings B) direct participation programs C) unit trusts D) offerings where a member firm is going public

C) unit trusts Nonconvertible debt and nonconvertible preferred stock offerings are exempt if they are rated as investment grade. Also exempt are Regulation D offerings, US government and agency securities, municipal securities, mutual funds, and unit trusts.

Changes in stock ownership by insiders must be reported to the SEC A) by the 10th day of the following month B) by the 15th day of the following month C) within 2 business days of the change D) within 10 calendar days of the change

C) within 2 business days of the change Insiders are required to report changes in their holdings to the SEC on Form 4 within 2 business days of the change.

A mutual fund has exceeded a 5% interest in the voting stock of a public issuer of securities. Under SEC rules, the fund company must submit Schedule13G with the issuer, the exchanges where the security principally trades, and the SEC within A) 2 business days of reaching the 5% ownership level B) 10 calendar days of reaching the 5% ownership level C) 30 calendar days of reaching the 5% ownership level D) 45 calendar days after the end of each calendar year during which the position is held

D) 45 calendar days after the end of each calendar year during which the position is held Because the Investment Company Act of 1940 prohibits investment companies from attempting to control any issuer of securities, there is no need for immediate reporting. The position must be reported on Schedule 13G within 45 calendar days after the end of the year.

Who may act as an escrow agent in an all-or-none offering? A) The attorney for a carrying broker/dealer or for the issuer B) A federal savings and loan association member of FSLIC C) The issuer or a non-carrying broker/dealer D) A qualified financial institution

D) A qualified financial institution In an all-or-none underwriting, either the entire amount of securities offered are sold or the whole underwriting is cancelled. Until it is verified that the entire issue has been sold, funds received from customers wishing to purchase the securities are held in escrow at a QFI. To prevent any conflicts of interest, the escrow agent must not be affiliated with the issuer of the securities. In addition, SEC rules prohibit attorneys, savings and loan associations, and non-carrying broker/dealers from acting as escrow agents in all-or-none underwritings.

Which of the following private placement Rule 506(c) promotions by a non-reporting company is permitted? A) No retail communication of any kind is permitted B) Free-writing prospectus approved by the Agent-for-the-Issuer within ten days of initial use C) General distribution of reprints of a favorable news article D) Announcement of an investment seminar target-mailed to a group of accredited investors

D) Announcement of an investment seminar target-mailed to a group of accredited investors Advertisements for private placements are only allowed if the advertising is limited to potential qualified investors, in this case an investment seminar open only to accredited investors.

Which of the following statements is TRUE regarding New Regulation A (Regulation A+)? A) Offering circulars may not be entered on EDGAR B) Tier 2 offerings are open to only accredited investors C) Issuers may raise up to $700 million D) General solicitation is permitted on television

D) General solicitation is permitted on television General public solicitation is permitted on television, social media, etc.

Which of the following statements are TRUE regarding representation letters required by FINRA Rule 5130?Initial verification must be in the form of a positive affirmation letter.Initial verification may be in the form of a negative consent letter.Annual verification must be in the form of a positive affirmation letter.Annual verification may be in the form of a negative consent letter. A) II and III B) II and IV C) I and III D) I and IV

D) I and IV The initial verification that a customer is not a restricted person must be in the form of a positive affirmation letter. Subsequent verification, which must be done annually, may be in the form of a negative consent letter.

What is the highest price at which a stabilizing bid can be placed? A) No higher than the lowest independent bid in the security's principal market. B) No higher than the lowest independent bid in any marketplace. C) No higher than the highest independent bid in any marketplace. D) No higher than the highest independent bid in the security's principal market.

D) No higher than the highest independent bid in the security's principal market. A stabilizing bid can be no higher than the highest current independent bid in the security's principal market.

Reimbursement by the issuer of which of the following expenses borne by the underwriter would be considered compensation by the Corporate Financing Department? A) Blue-sky fees B) Printing costs C) Legal fees D) Solicitation costs

D) Solicitation costs Reimbursement from issuer to underwriter is commonplace and is not considered compensation if the expense is normally borne by the issuer. Blue-sky fees, legal fees, and printing costs are expenses normally paid by the issuer. Therefore, if paid by the underwriters and subsequently reimbursed, this is not considered compensation. However, the underwriters generally pay solicitation costs. If the underwriters are reimbursed for these expenses, the Corporate Financing Department will consider the reimbursement to be compensation.

A member firm wishes to engage in an online offering of a private placement. Which of the following statements best describes the firm's compliance responsibilities in this matter? A) The firm may not place the offering documents on its Website because doing so would violate the rule prohibiting general solicitation. B) The firm may place the offering documents on its Website and qualify prospective purchasers once interest is expressed. C) In addition to meeting the requirements of Regulation D, the firm must receive the written permission of FINRA to engage in an online offering. D) The firm must prequalify prospective investors before giving them access to the offering documents on a password-protected Website.

D) The firm must prequalify prospective investors before giving them access to the offering documents on a password-protected Website. Prospective investors must be prequalified as accredited or sophisticated. Once qualified, they may view the offering documents online on a password-protected Website.

Offers and sales made outside the United States by both U.S. and foreign issuers are excluded from the registration provisions of the Securities Act of 1933 for what reason? A) Issuers have a total capitalization of $75 million or greater B) The issuers are registered with an internationally recognized regulatory body acceptable to the Securities and Exchange Commission C) Only representatives qualified by training and examination to execute cross border trades make offers and sales D) The offer and sale must be made in an offshore transaction; there can be no directed selling efforts in the United States

D) The offer and sale must be made in an offshore transaction; there can be no directed selling efforts in the United States To avoid registration under Regulation S, offers and sales made outside the United States by both U.S. and foreign issuers are excluded from the registration provisions of the Securities Act of 1933. Because securities distributed offshore by issuers need not be registered with the SEC, they are therefore restricted for the purposes of Rule 144. To avoid registration under Regulation S the offer and sale must be made in an offshore transaction; and there can be no directed selling efforts in the United States in connection with the offering. To be an offshore transaction, offers and sales cannot be made to any person or entity in the United States. However, U.S. citizens residing outside the United States could purchase these securities.

Under which of the following circumstances may a member firm sell a new equity issue to one of its non-registered employees? A) Transaction is consistent with the employee's normal investment practice. B) Amount purchased is small and not disproportionate to the size of the issue. C) Permission of a principal is obtained. D) Under no circumstances.

D) Under no circumstances. Member firms and employees of members (registered and non-registered) are prohibited from buying a new equity issue at the public offering price.

A deficiency letter issued by the SEC indicates that A) a final prospectus needs to be modified B) the issuer has not paid the required filing fees C) the price range specified in its registration statement is unrealistic D) a preliminary prospectus needs to be modified

D) a preliminary prospectus needs to be modified If a registration statement, which is the base document for preparing a preliminary prospectus, is found by the SEC to be deficient, the SEC will issue a deficiency letter to the issuer. Until the deficiencies are corrected, the 20-day cooling-off period is halted.

Under SEC rules, a selling group is formed A) at the same time the registration statement is filed B) after syndicate formation, but before the filing of the registration statement C) at the same time the syndicate is formed D) after the filing of the registration statement

D) after the filing of the registration statement Under SEC rules, a selling group cannot be formed until after the registration statement is filed with the SEC.

The Corporate Financing Department would consider all of the following underwriting compensation to be unreasonable EXCEPT A) a small amount of freely transferable stock B) options or warrants exercisable below the public offering price C) a right of first refusal for future offerings that has a duration of more than 3 years from the effective date D) an overallotment option allowing the underwriters to purchase, from the issuer, up to 15% more shares than the planned offering

D) an overallotment option allowing the underwriters to purchase, from the issuer, up to 15% more shares than the planned offering The Corporate Financing Department considers the following to be unreasonable compensation: options or warrants exercisable below the POP; options or warrants with a life of more than 5 years; any freely transferable stock (any stock received as compensation must be locked up for 180 days); any right of first refusal for future offerings that has a duration of more than 3 years from the effective date; any over-allotment option (Green Shoe) allowing the underwriter to purchase from the issuer more than 15% of the stock being offered to the public; and shares received or to be received through the exercise of options and warrants exceeding 10% of the shares being offered.

Under Regulation D, Rule 504 offerings provide a safe harbor for the sales of securities A) not exceeding $50 million B) not exceeding $20 million C) without regard to dollar amount D) not exceeding $10 million in a 12-month period

D) not exceeding $10 million in a 12-month period Regulation D offerings are exempt transactions under the Act of 1933. Rule 504 provides a safe harbor from full registration for private placements in which the dollar amount to be sold is $10 million or less. By comparison Rule 506 has no ceiling on the dollar amount offered.

A research analyst issues a strong buy recommendation on Petro-World common stock. Two weeks after issuance, the analyst is A) permitted to buy or sell the stock B) prohibited from buying but permitted to sell the stock C) prohibited from buying or selling the stock D) permitted to buy the stock but prohibited from selling the stock

D) permitted to buy the stock but prohibited from selling the stock Under the research analyst conflict of interest rules, an analyst is prohibited from investing in Petro-World 30 days before and five days after the issuance of a research report on the company. Any existing holdings must be disclosed in the report. Therefore, the analyst would be permitted to buy Petro-World 2 weeks after issuance. However, the rules also prohibit an analyst from trading against his most recent recommendation. Therefore, the analyst would be prohibited from selling any existing holdings in Petro-World common stock.

A member firm that engages in investment banking services must file with FINRA a written report describing each internal investigation A) upon request B) monthly C) annually D) quarterly

D) quarterly FINRA Rule 3110(d) states that within ten business days of the end of each calendar quarter, a written report describing each internal investigation initiated in the previous calendar quarter by the member firm must be submitted to FINRA on its investment banking activities.

In a fairness opinion, a member discloses that some information it used to form an opinion was supplied by the party requesting the opinion. Under FINRA rules, the member must also disclose all of the following EXCEPT A) whether this information was independently verified B) a description of the information verified C) whether the opinion was approved or issued by a fairness committee D) the name(s) of the person(s) who verified the information

D) the name(s) of the person(s) who verified the information The rules do not require that the name or names of persons involved in the independent verification be disclosed nor do they require independent verification. When no information has been verified, a blanket statement to this effect is sufficient.

Regulation FD covers A) certifications required of research analysts who make public appearances B) standardization of financial reporting to the SEC C) customer notification requirements regarding a firm's privacy policies D) the selective disclosure of material nonpublic information by issuers

D) the selective disclosure of material nonpublic information by issuers Regulation FD was enacted to curb the selective disclosure of material nonpublic information by issuers to financial analysts and institutional investors.