Unit 1
The SEC has established rules regarding delivery of a prospectus when a secondary market transaction occurs after the effective date. Which of these is correctregarding the rules for initial public offerings (IPOs) and additional public offerings (APOs)?
An IPO of a stock to be listed on the NYSE requires delivery for a period of 25 days.
The prospectus delivery rules include the following:
IPO for listed or Nasdaq—25 days APO for listed or Nasdaq—none IPO for non-Nasdaq—90 days APO for non-Nasdaq—40 day
ABC Securities is a FINRA member broker-dealer that maintains an inventory in BigTech Computing stock. When transacting business in BigTech stock, ABC is most likely acting in what capacity?
Market maker. (When a BD acts as a dealer (or market maker), they are selling securities from the firm's inventory to a customer or buying a security from a customer for the dealer's inventory.)
Secondary market transactions would include all of the following except
sale of $10 million of corporate bond by a broker-dealer acting as an underwriter. (Market makers are broker-dealer who sell out of their own account in the secondary market. Underwriters are broker-dealers who help issuers bring their securities to market in the primary market.)
The first time an issuer distributes securities to the public, it is called an initial public offering (IPO). Because the issuer (the company) receives the proceeds from the investors who are investing in the company, all IPOs are primary issuer transactions.
(IPO).
An investor has her registered representative enter a sell stop limit order at 50. Following the order entry, trades occur at 52, 50, 49, 51, and 53. The investor would receive
51
Trading hours on the New York Stock Exchange are
9:30 am to 4:00 pm Eastern Time.
Institutional trading desks that choose to use dark pools are able to execute large block orders without impacting public quotes or price or revealing their investment strategy for any of their holdings. Additionally, orders can be placed anonymously so that the identity of the entity placing the order—along with the volume and price for the transaction—is unknown to the general investing public.
Dark pools of liquidity
Underwriters who are assisting an issuer in bringing securities to the investing public can do which of the following between the time the registration was filed with the Securities and Exchange Commission (SEC) and the effective date?
Distribute a preliminary prospectus to the investing public. While a preliminary prospectus and tombstone ad can be used, sales and advertising literature specific to the securities cannot be.
Under the Securities Act of 1933, which of the following is a nonexempt security?
Shares issued by a U.S. government bond fund
The broker-dealer____ at the bid and ____ at the ask. The customer ____ at the ask and _____ at the bid
The broker-dealer buys at the bid and sells at the ask. The customer buys at the ask and sells at the bid.
You quote ABC stock to a customer 67 bid for 1,000 shares, 700 offered at 67.10. Which of the following is true?
The quote's inside spread is 0.10. (67 bid for, offered at 67.10 is the quote. The spread is the difference between the bid and offer: 0.10. The bid (67) is the highest price any buyer is willing to pay, and the offer (67.10) is the lowest price any seller is willing to accept. The offer is also known as the ask price.)
cooling-off period
The time between the registration filing date with the SEC and the effective date.
Your customer places an order to buy 300 shares of Narcissus, Inc., (ticker: NCS) at $100 per share fill or kill (FOK). When the order is entered, there are 250 shares available at $100 per share. What happens to the order?
They won't buy anything; the order will be canceled and nothing will be done.
A customer placed an order to purchase 20 GHI Corp. subordinated bonds at 102. The broker-dealer sourced the bonds from another broker-dealer that maintains an inventory of the bonds. The customer's firm acted as
a broker. (In this example the customer's firm is acting as an agent (broker), a go-between that sources the bonds from a dealer.)
Having been told that a firm incorporates proprietary trading in its business model buying and selling securities into and out of its own inventory you would know that it is
a market maker. (Broker-dealers who incorporate proprietary trading into their business model are known as market makers. As a market maker the broker-dealer trades in their own account attempting to profit. A firm making markets may be a carrying firm or a fully disclosed firm. Commissionable transactions are those done by brokers for customer accounts, not proprietary trades.)
public offering and a private placement similarities
both allow securities to be sold to individual and institutional investors. both may utilize the services of investment bankers to facilitate the sale of securities. both are methods of offering securities for sale to investors.
Regarding a public offering and a private placement, all of the following are true except
both are subject to the registration requirements found in the Securities Act of 1933.
A broker-dealer that accepts the risk of holding a particular security in its account to facilitate trading and provide liquidity in that security is best described as
market maker
Underwriters for an IPO of Seabird Airlines stock have been taking indications of interest for shares of an upcoming new issue. These indications of interest are
nonbinding on all parties. (Indications of interest are not binding on either buyers (investors) or sellers (underwriters). There are no binding indications of interest.)
A preliminary prospectus is also known
red herring. The red herring does not include key information about the issue such as price and the number of shares offered. The term is derived from the disclaimer printed in red on the cover page.
Securities regulations that are called blue-sky laws refer to those at
the state level.
Your client is purchasing XYZ corporate bonds and wants to know when regular way settlement is. You should tell her
trade date plus 2 business days. (Regular way settlement is T + 2 for everything except treasuries, money market securities, and options.)
The bid price represents:
- the price the BROKER-DEALER is willing to PAY when BUYING a security - the price a CUSTOMER will RECEIVE when SELLING a security
Which of the following issues are exempt from registration under the Securities Act of 1933?
ABC Corporation commercial paper (Commercial paper and other securities with maturities of 270 days or less are exempt from registration.)
All of the following issuers are exempt issuers except
ABC Railroad Power Systems, Inc. (The hint that leads to the correct response is "Inc." A for-profit corporation is not likely to be an exempt issuer. Common carriers (railroad), charities, and S&Ls are exempt issuers.)
All of the following are securities that are exempt from registration except
BigCity National Bank Holding Company, Inc., common stock. (Common stock of a corporation is not exempt from registration. Securities with maturities of 270 days or less are exempt. The Treasury is an exempt issuer.)
Seacoast Securities, a member firm, filled a customer's sell order for BigTech Computers common stock and did not charge a commission. The firm most likely acted in what capacity?
Dealer. (When a broker-dealer acts as a principal (market maker, dealer), they are filling the trade through the firm's inventory. The firm profits on the difference between what the firm paid for the security and what the customer pays, which is called the spread (or mark-up). There is no commission when a firm acts in a principal capacity.)
When choosing to issue additional bonds to the general public in order to raise more capital, a corporate issuer is engaging in
a primary offering. (A primary corporate offering is one in which the proceeds raised go to the issuing corporation. Primary offerings of bonds may be made by an issuer to the general public as an initial public offering (IPO) or, as is the case here, in an additional public offering (APO). Both are primary offerings.)
Sales for new issues of securities may be solicited
after the cooling-off period. (Sales can only be solicited after the cooling-off period (upon the effective date). Solicitations of all sales must be done with a final prospectus.)
A small company, in order to raise capital for expansion, wants to sell shares of stock to investors. The company has never offered ownership outside the founding partners to new investors before. This offering is known as
an initial public offering (IPO).
The Mod Family Foundation is a $500,000,000 charitable foundation headed by Clarence Mod. The foundation is seeking to purchase a large block of WeariTech, Inc., a Nasdaq listed company, for the foundation's portfolio. Seacoast Securities is assisting with this secondary market transaction. In this example, the Mod Family Foundation is
an institutional investor. (With half a billion in assets, the foundation is an institutional investor. We know that they are not acting as a venture capitalist because the company is already trading, and these shares are to be purchased in the secondary markets.)
An investor enters a sell stop limit order at 60. Following the order entry, trades occur at 62, 60, 59, 61, and 63. The investor will most likely receive
61 (This is really two orders. The first is to stop at 60. That is, once the stock trades at 60 or lower, the order is elected (triggered) and becomes a live working order. That order is to sell at 60 or better. Therefore, the first time the stock hits 60 (or less), is the trade at 60. That triggers the sell limit order to sell at 60 or better. The next trade is at 59 and that is not an acceptable price given the limit order set at 60. The following price, however, at 61, is the next acceptable price after the order is triggered and that is where the order would most likely be executed.)
