Chapter 1 Regulation of Securities Markets
A market maker will always display:
A bid price and the number of shares they are willing to buy An ask price and the number of shares they are willing to sell
The ask or offer price is the minimum price a seller is willing to accept for a security and is the higher of the two prices quoted which is 16.
ABC is quoted at 15-16. What is the ask? a.1 b.15 c. 15 1/2 d. 16
When outstanding securities trade between investors, these trades are executed in the secondary market and there is no benefit to the issuer. Initial public offerings and additional primary offerings are two types of offerings which take place in the primary market, where the issuer benefits by receiving the sales proceeds.
An investor owned a stock for 18 months before selling it to another investor. This trade took place in the: a. Primary market b. Secondary market c. Initial public offering d. Additional primary offering
Regular-way Settlement:
Corporates and municipals: T+2 Treasuries and options: T+1 Cash and cash equivalents: T+0 or T=S
A clearing broker-dealer is responsible for all paperwork associated with the execution of the transaction and maintaining custody of client assets and securities. The introducing broker-dealer introduces customer accounts to the clearing broker-dealer and does not maintain custody.
Following the execution of a trade, custody of client assets and securities are maintained by a(n): a. Introducing broker-dealer b. Clearing broker-dealer c. Market maker d. Investment banker
Control stock
Is registered and only subject to volume restrictions.
Restricted stock
Is unregistered and subject to both holding period and volume restrictions.
The underwriting spread compensates the following:
Managing underwriter Syndicate Selling group
Designated market maker (DMM)
The DMM cannot compete with public orders.
The FDIC protects bank deposits by insuring each depositor for up to $250,000 per bank. The Federal Reserve acts as the central bank of U.S. The Treasury Department is responsible for ensuring the financial security of the U.S.
The FDIC is associated with which of the following? a. Serving as the central bank of the U.S. b. Enforcing the blue-sky laws c. Protecting bank account deposits in U.S. banks from bankruptcy d. Ensuring the financial security of the United States
The SEC, or Securities and Exchange Commission, does not have jurisdiction over criminal activity, only civil activity. It is the ultimate enforcer of securities laws passed by congress that is responsible for creating and enforcing penalties for violations to protect investors in the United States.
The SEC is a federal government agency responsible for all of the following, EXCEPT: a. Prosecute violators of criminal activity b. Create and enforce penalties for the violation of federal securities laws c. Protect U.S. investors d. Require issuers to provide full and fair disclosure regarding their securities to investors
The cooling-off period is a minimum of 20 days.
The cooling-off period is a minimum of _______days. a.20 b.15 c.10 d.5
The main objectives of the Securities Act of 1933 were to provide investors with sufficient information to make informed investment decisions related to new issues through full and fair disclosure and to establish laws indented to prevent misrepresentation and fraudulent activities in the sale of securities.
The main objectives of the Securities Act of 1933 are to: a. Provide full and fair disclosures regarding new issues and to prevent misrepresentation and fraud in the sale of securities b. Create the SEC c. Create self-regulatory organizations (SROs) like FINRA and establish registration protocols for industry participants d. Define securities and establish common industry trade practices
Investors buy stock in a corporation to make a profit in the future when the share prices increase due to the corporation's success.
The primary reason investors buy stock in a corporation is to: a. Obtain shareholder discounts on products or services b. Acquire enough shares to take the company private c. Be able to receive tax deductions they otherwise would not be entitled to d. Financially benefit if the share price increases
Public offering price
The pubic offering price is determined by the underwriter and issuer and includes the total amount needed to compensate the underwriter in addition to the amount required by the issuer.
The net proceeds from a primary distribution are paid to the issuer to provide new capital.
When an issuer sells securities in a primary offering, the net proceeds are paid to the: a. Stockholders b. Broker-dealer c. Board of directors of the corporation d. Issuer
Common stockholders have the most junior claim on assets in case the corporation files for bankruptcy.
Which of the following has the lowest priority claim on assets if a corporation goes bankrupt? a. Employees and the IRS b. Bondholders c. Common stockholders d. Preferred stockholders
The auction market is trading of listed stocks on an exchange. Nasdaq is the largest electronic trading exchange in the United States and was granted exchange status by the SEC. The Pacific Exchange and the NYSE are exchanges that have physical locations. IPOs are new issues that are sold for the first time in the primary market, not the first market.
Which of the following is considered an electric trading exchange in the exchange market? a. Pacific Exchange b. NYSE c. Nasdaq d. IPO
A confirmation statement includes the trade date, name of the security, price traded at, quantity traded, and commission. Profit or loss is not disclosed on the confirmation.
Which of the following is not found on a confirmation statement? a. Name of the security b. Price at which the trade was executed at c. Quantity of securities traded d. Profit or loss on the security position traded
The Chicago Board Options Exchange (CBOE) is the SRO for broker-dealers engaging in the options market and is an exchange that trades in standardized option contracts.
Which of the following is the exchange for options trading and the SRO for broker-dealers engaging in the options market? a. FINRA b. SEC c. MSRB d. CBOE
The public offering price is the official retail price at which a new issue of securities is sold in the primary market and is not associated with the secondary market. In the secondary market, a dealer or market maker sells at its ask and buys at its bid. The difference between the bid and the ask is the spread.
Which of the following terms is NOT associated with the secondary market? a. Bid b. Ask c. Spread d. Public offering price
In a standby underwriting commitment, the underwriter will "standby" to purchase any unsold new shares , typically from a rights offer, for its own account.
Which of the following underwriting agreements allows an underwriter to step in, buy remaining shares, and then sell those shares to the public? a. All-or-none b. Best efforts c. Secondary commitment d. Standby
In a firm commitment underwriting, the underwriter purchases all the securities being sold by the issuer, and then resells them to investors at a slightly higher price. Any unsold shares are retained by the underwriter.
Which of the following underwriting agreements guarantees the issuer of an initial public offering (IPO) that all the shares will be purchased? a. All-or-none b. Best efforts c. Firm commitment d. Mini-maxi
The investors benefits from the sale of securities traded in the secondary market and receives the proceeds.
Who receives the net proceeds from securities that are sold in the secondary market? a. Broker-dealer b. Issuers c. Investment bankers d. Investors
.Follow-on offerings and IPOs
are purchased in the primary market and are termed primary distributions
Investors
buy at the ask and sell at the bid (buying at the higher price).
Market makers
buy at the bid and sell at the ask (buying at the lower price).
The difference
is in where the proceeds are going and who is doing the selling. Primary distributions are issuer transactions, and the proceeds go to the issuing corporation.
Secondary offerings
take place in the secondary market and are termed secondary distributions
