Chapter 13 Custom Exam
A new issue of municipal bonds has an aggregate par value of $10,000,000. The syndicate received $5,000,000 in designated orders, $5,000,000 in group orders, and $5,000,000 in member orders. How will the issue be allocated? A $5 MM group and $5 MM designated B $5 MM group and $5 MM member C $5 MM designated, $2 1/2 MM group, and $2 1/2 MM member D $3 1/3 MM designated, $3 1/3 MM group, and $3 1/3 MM member
A $5 MM group and $5 MM designated When allocating bonds in a new municipal issue, presale orders normally have first priority. This is followed by group net, designated, and then member orders. The 5 MM in group orders and 5 MM in designated orders will be allocated. There are no bonds left for member orders.
A new municipal bond issue has a total par value of $80,000,000. A member of the underwriting syndicate has sold its entire commitment of $10,000,000. If the syndicate is organized as a divided (western) account and there is an unsold balance of $2,000,000, what is the member's remaining liability? A 0 B $250,000 C $1,250,000 D $2,000,000
A 0 In a divided account, a member is responsible for selling only its participation. The member's responsibility ends once the firm has sold its $10,000,000 commitment. In an undivided (eastern) account, a syndicate member retains liability for unsold bonds. Regardless of the amount of bonds sold, the member is still liable for an amount of bonds equal to its percentage participation.
Two types of stock that may contain a stock legend are: A Control stock and restricted stock B Book-entry and registered stock C Exempt and nonvoting stock D Cumulative and noncumulative preferred stock
A Control stock and restricted stock Control and restricted stock are both subject to transfer restrictions. The restriction stipulates when and how the securities may be lawfully sold. Clean stock, i.e., stock without a legend, may be obtained by getting an opinion letter from the issuer's legal counsel.
A firm that is planning an offering of common stock has not filed a registration statement. Which of the following actions on the part of a registered representative are NOT a violation of the Securities Act of 1933? A Having the registered representative contact an investment banker at the firm B Informing a customer that he may receive as many shares as he desires C Accepting orders for the shares to be offered D Attempting to obtain indications of interest for the shares to be offered
A Having the registered representative contact an investment banker at the firm There is no prohibition restricting an RR to contact an investment banker at the firm. The other actions listed are in violation of the Securities Act of 1933, if a registration statement has not been filed with the SEC. A registered representative may not inform a customer that the customer may receive as many shares as desired. Nor may the registered representative solicit buy orders or solicit indications of interest from the customer. A registration statement needs to be filed before indications of interest may be accepted, and only indications of interest will be acceptable at this time, not orders.
Mr. Brown is a 15% owner of SamCo, a company whose stock is listed on the New York Stock Exchange. His wife owns 4% of SamCo. If Mrs. Brown wishes to sell some of her SamCo shares, she: A Must do so according to Rule 144 B May only do so with the permission of her husband C May do so provided that her husband also sells shares D May sell the shares without restriction
A Must do so according to Rule 144 Rule 144 specifies procedures for the sale of restricted stock and control stock. Restricted stock is stock that is not registered and is acquired through a private placement. Control stock is stock acquired by affiliated persons. This includes officers, directors, owners of more than 10% of the stock of a corporation, and their immediate families. Since Mr. Brown owns 15% of SamCo, Mrs. Brown is selling her shares as an affiliated person.
The most detailed financial information regarding a municipal securities issuer is found in the: A Official statement B Prospectus C Notice of sale D Registration statement
A Official statement Municipal securities are exempt from the registration provisions of the SEC. Therefore, a registration statement and prospectus are not required. Municipal issuers voluntarily provide the same financial information that would be found in a prospectus. This detailed financial information is found in the official statement. The notice of sale contains information pertaining to a competitive offering of bonds such as the time, place, date of sale, and type of offering.
A primary offering of securities is being made for a company listed on the NYSE. Prospectuses must be delivered: A Only on purchases made at the public offering price B For 25 days after the deal has closed C For 40 days after the deal has closed D For 90 days after the deal has closed
A Only on purchases made at the public offering price A primary offering of securities for a company that is already exchange-listed requires that prospectuses be delivered only on purchases, at the public offering price (POP). There is no aftermarket delivery requirement.
Investors may receive disclosure and secondary market information concerning municipal securities: A Through the EMMA system B Through the TRACE system C Directly from the issuer D From the OATS system
A Through the EMMA system The MSRB has established the Electronic Municipal Market Access (EMMA) system as the primary market disclosure service for official statements, other related primary market documents, and information. The EMMA system also contains information related to the continuing disclosure requirements submitted by municipal issuers and secondary market transactions submitted by municipal securities dealers. EMMA receives transactional information from the MSRB's Real-Time Transaction Reporting System (RTRS).
An employee of a broker-dealer owns shares of XYZ in his personal account. His spouse is a director of XYZ Corporation. If XYZ is engaged in a secondary offering of stock, can shares be purchased in a joint account that's owned by the employee and his spouse? A Yes, because secondary offerings are permitted to be sold to restricted persons. B No, because both are considered associated persons of the firm. C Yes, but only in the personal account of the spouse who's not a director of the issuer. D No, unless there are unsold portions of the secondary offering.
A Yes, because secondary offerings are permitted to be sold to restricted persons. Only the sale of initial public offerings (IPOs) of equity securities are prohibited to restricted persons. Since secondary offerings are not considered new issues, they can be sold to associated persons of broker-dealers. Since the spouse is a director of the issuer, the sale would be permitted even if it was an IPO. (17066)
A company, which has investors with registration rights, has recently conducted an initial public offering. Typically, how long must these investors wait to sell their shares after the IPO? A One year B 180 days C Two years D Three years
B 180 days A lock-up agreement dictates the amount of time that pre-IPO investors, such as private placement buyers (private equity investors) and other insiders, typically must wait to sell their shares once the company has gone public. Although a lock-up agreement will generally expire six months (180 days) following the closing of the company's IPO, there's no statutory time limit. The lock-up is designed to prohibit management and venture capitalists that initially funded the company from immediately liquidating their shares once the issue goes public. The shares will then be sold under a Rule 144 exemption. Registration rights allow, but don't require, these holders to sell their shares along with the company when it conducts the IPO. (17063)
An equity security that is distributed under the provisions of Regulation S may be resold in U.S. markets: A Immediately B After a one-year waiting period is satisfied C After regulatory approval is obtained from an SRO D After a 40-day waiting period is satisfied
B After a one-year waiting period is satisfied Before a security that is sold under the provisions of Regulation S may be resold in the U.S., there is a distribution compliance period (waiting period) that must be satisfied. For debt securities, the waiting period is 40 days, but for equity securities (as referenced in this question), the waiting period is one year. However, if an overseas investor acquires securities through a Regulation S offering, she may immediately sell the securities overseas through a designated offshore securities market.
The type of securities distribution that would be completely cancelled if not fully subscribed to is a(n): A Stand-by B All-or-none C Best-efforts D Firm-commitment
B All-or-none There are several different methods that can be used to underwrite securities. In an all-or-none deal, if the entire issue is not sold, it will be returned to the issuer. An underwriting done on a best-efforts basis allows the underwriter to return to the issuer any unsold securities after the transaction takes place. In a firm-commitment underwriting, the broker-dealer is required to keep any unsold shares for itself.
Which of the following will not offer protection in the event of a municipal bond declining in value due to rising interest rates or financial difficulties of the issuer? A Put provisions B Call provisions C Bond insurance D Letters of credit
B Call provisions Bond insurance, letters of credit, or other credit enhancements can provide security in the event the issuer is at risk of defaulting on its municipal debt. If a bond declines in value due to rising interest rates, a put provision may be used by an investor to force the issuer to repurchase the bond at a predetermined price. Call provisions allow the issuer to retire the debt at a predetermined price, but this generally occurs when interest rates have fallen and bond prices have gone up. (17067)
On September 1, an underwriter offers stock that has been registered with the SEC. This is the first offering of stock made by the issuing company. The issue will be listed on the New York Stock Exchange. A dealer that subsequently sells the stock in the secondary market will be required to furnish a prospectus: A Only if the dealer was a member of the underwriting syndicate or selling group B For a period of 25 days following the initial offering C For a period of 40 days following the initial offering D For a period of 90 days following the initial offering
B For a period of 25 days following the initial offering When a new issue is sold to the public, a prospectus must be given to all potential purchasers. In addition, dealers who sell the security in the aftermarket, even if they were not involved in the original distribution, are required to provide a copy of the prospectus. This lasts for a period of 25 days following the initial offering for issues to be listed on an exchange (including Nasdaq). If the offer is an IPO and the securities are not listed on an exchange, the prospectus must be provided for 90 days. If the issue is not an IPO, and the securities will not be listed on an exchange, dealers must deliver prospectuses for 40 days after the offering date.
In an undivided (Eastern) municipal syndicate account, the remaining liability of an account member is computed: A From the number of the bonds he has sold B From the number of bonds that are unsold in the account C By dividing the number of bonds in a single maturity year by the total number of account members D By the syndicate manager who randomly selects a member to sell the remainder of the bonds
B From the number of bonds that are unsold in the account An Eastern account is undivided as to liability. As long as any bonds in the account are still unsold, each member of the account is liable for his proportionate share of the unsold amount. If the member has a 10% participation in a $10,000,000 issue, originally his liability is for $1,000,000 of those bonds. If there is a balance of bonds unsold by other members, he will still have a liability of 10%, whether he sold all or none of his bonds.
Which of the following new bond issues will MOST likely be purchased through competitive bidding? A Corporate bonds B General obligation bonds C High-yield bonds D Revenue bonds
B General obligation bonds Of the choices given, the issues that will most likely be purchased through competitive bidding are general obligation bonds. This is usually the method by which most general obligation bonds are sold. Corporate, revenue, and high-yield bonds are usually sold on a negotiated basis.
A purchaser representative must be: A An employee of the issuer B Knowledgeable and experienced in financial and business matters C A registered representative D A registered investment adviser (RIA)
B Knowledgeable and experienced in financial and business matters A purchaser representative must be knowledgeable and experienced in business and financial matters. His function is to assist a nonaccredited investor in evaluating the risks of the product. A purchaser representative may not be an affiliate or an employee of the issuer unless he is related to the client.
A syndicate is formed on an undivided (Eastern) account basis to sell $10 million of a new municipal bond issue. A dealer has committed to sell $1 million (10% of the issue). The dealer sells the $1,000,000 committed for, but $2 million of the issue remains unsold. The dealer is: A Not liable to sell the unsold bonds B Liable to sell 10% of the unsold bonds C Liable to sell $1,000,000 of the unsold bonds D Liable to sell all of the unsold bonds
B Liable to sell 10% of the unsold bonds In an Eastern (undivided) account, the dealer is responsible for a proportionate amount of the bonds in the account. If the dealer sells all the bonds committed for, and there are bonds left unsold in the account, the dealer is liable for bonds based on his original commitment. In this example, the dealer is also responsible to sell 10% of the unsold bonds.
SEC Rule 144A applies to: A Institutional investors B Qualified institutional buyers (QIBs) C Insiders D Accredited investors
B Qualified institutional buyers (QIBs) Rule 144A allows restricted securities to be sold without being subject to the limitations that are imposed by Rule 144. The ability to avoid these restrictions is based on the fact that sales are only made to qualified institutional buyers (QIB). There's a three-part test to determine whether an entity is a QIB: (1) the investor must be an institution, (2) the buyer must be purchasing for its own account or for the account of another QIB, and (3) the buyer must own and invest at least $100 million of securities of issuers that are not affiliated with the buyer. (17064)
All of the following statements are TRUE concerning the underwriting of a new issue, EXCEPT: A Some underwriting agreements include a clause that relieves the underwriter of his obligation if certain circumstances are not met B The preliminary prospectus (red herring) will contain all the relevant information including the final price of the issue in order to obtain indications of interest C The underwriting syndicate may engage in stabilization D Members of the underwriting syndicate whose customers sell securities back to the manager of the syndicate during the underwriting period may be penalized
B The preliminary prospectus (red herring) will contain all the relevant information including the final price of the issue in order to obtain indications of interest All of the items listed are TRUE concerning the underwriting of a new issue except that the preliminary prospectus (red herring) will contain all the relevant information including the final price of the issue. The preliminary prospectus does not include the final price.
Which of the following choices makes a financial commitment in the distribution of a new issue of securities? A The selling group B The underwriting syndicate C A customer who provides an indication of interest D The exchange on which the security will be listed
B The underwriting syndicate The underwriting syndicate makes a commitment to the issuer to purchase the entire offering. If the syndicate cannot resell the offering at the public offering price, it may suffer a loss. Although the selling group also participates in the sale of the new issue, it does not run the risk of losses if the securities do not sell. A customer who provides an indication of interest has no obligation of any kind.
The purchase of a new issue prior to settlement with the issuer can BEST be described as a: A Subject or workout transaction B When-issued transaction C Seller's option contract D Violation of the Securities Act of 1933
B When-issued transaction The term when-issued covers the period of a new issue of municipal securities from the original date of sale by the issuer to the delivery of securities to the underwriter. The purchase or sale of new issue securities prior to registration may be a violation of the 1933 Act.
A corporation is issuing 5,000,000 shares of stock at a public offering price of $13 per share. The manager of the underwriting syndicate receives $0.15 per share. The syndicate members' compensation is $0.65 per share for each share they sell. The selling group's concession is $0.40 per share for each share they sell. The syndicate is allocated 4,000,000 shares and the selling group is allocated 1,000,000 shares. When the issue is completely sold, the managing underwriter's fee will total: A $150,000 B $600,000 C $750,000 D $2,600,000
C $750,000 The syndicate manager receives $0.15 for every share. The manager will receive, in total, $750,000 (5,000,000 shares x $0.15 per share).
Unless registration is delayed, the effective date of a registration statement is generally on the: A 10th day after the registration statement is filed B 10th business day after registration statement is filed C 20th day after the registration statement is filed D 20th business day after the registration statement is filed Explanation:
C 20th day after the registration statement is filed Although there are exceptions, unless registration is delayed, the registration statement is effective on the 20th day after filing.
A private placement conducted under Regulation D may be sold to a maximum of: A 15 nonaccredited investors B 5 accredited investors C 35 nonaccredited investors D 35 accredited investors
C 35 nonaccredited investors A Reg D offering may be sold to a maximum of 35 nonaccredited investors. There is no limit to the number of accredited investors. An individual is classified as an accredited investor if he has a net worth of $1,000,000 or has had income of $200,000 for the previous two years and anticipates that his earnings will continue at the same level.
An investor owns 12,000 shares of restricted stock. There are 1,000,000 shares outstanding and the stock's average weekly trading volume over the previous four weeks is 4,000 shares. After filing Form 144, if the client had sold 2,000 shares one month ago, how many shares could be sold today? A 2,000 B 4,000 C 8,000 D 10,000
C 8,000 After filing Form 144, an investor has 90 days to sell the greater of 1% of the outstanding shares or the average weekly trading volume over the previous four weeks. In this example, 1% of the 1,000,000 outstanding shares is 10,000 shares, which is greater than the average weekly trading volume for the past four weeks of 4,000 shares. As a result, the investor is able to sell an additional 8,000 shares after having sold 2,000 shares in the previous month. (17065)
The underwriter makes financial commitments in which of the following situations? A An all-or-none deal B A best-efforts deal C A firm-commitment deal DA mini-max deal
C A firm-commitment deal A financial commitment is a different way of saying a firm commitment. In a firm-commitment deal the underwriter puts its own capital at risk and acts as a principal. All-or-none and mini-max are types of best-efforts deals. In best-efforts deals, the underwriter acts as a simple agent who is not making a financial commitment since it is not placing its capital at risk.
Which of the following municipal bonds requires a feasibility study to determine the issuer's ability to pay interest when due? A A special tax bond B A general obligation bond C A revenue bond D A revenue anticipation note
C A revenue bond A feasibility study is made by a qualified expert to determine if revenues of a project will be sufficient to pay interest when due. A revenue bond, which is backed by the earning power of a specific project, such as tolls from bridges, tunnels, or turnpikes, requires a feasibility study by qualified experts to determine if the revenue generated will be sufficient to pay the interest on the bonds. A special tax bond is secured by a special tax, such as a gasoline tax, and would not require a feasibility study. A general obligation bond is backed by the full faith, credit, and taxing power of the issuing municipality and would not require a feasibility study. A revenue anticipation note (short-term security) is considered a general obligation security.
In a new municipal issue, what is a group order? A An order placed by three or more members B An institution purchasing bonds from a syndicate C An order allowing all members to benefit DA dealer buying for a group of investors
C An order allowing all members to benefit There are four types of orders that can be placed with a syndicate. A presale order is any order placed before the syndicate that actually purchases the issue from the issuer A group order is a situation where all members of the syndicate share in the profit A designated order is usually placed by a large institution that designates two or more members to receive credit for the sale A member order is an order placed by members for their customers
Which of the following is NOT one of the "doing business" requirements that are established under Rule 147 or Rule 147A? A At least 80% of the net proceeds from the offering are intended to be used by the issuer, and are in fact used in connection with the operation of a business or of real property, the purchase of real property located in, or the rendering of services within the state or territory B At least 80% of the issuer's assets are located within the state or territory at the end of its most recent semiannual fiscal period prior to the first offer of securities under the exemption C At least 80% of the issuer's employees are based in one state D At least 80% of the issuer's gross revenues are derived from the operation of a business or of real property that is located in the state or territory or from the rendering of services within the state
C At least 80% of the issuer's employees are based in one state Companies that are selling new securities are typically required to register their securities with the SEC. However, under Rule 147 and Rule 147A, if a company is conducting an offering and only selling its securities to its state residents, the offering is exempt from registration. A condition of this exemption is that the issuer must meet at least one of the four doing business requirements that are listed below. At least 80% of its consolidated gross revenues are derived from the operation of a business or of real property that is located in the state or territory or from the rendering of services within the state or territory; At least 80% of its consolidated assets are located within the state or territory at the end of its most recent semiannual fiscal period prior to the first offer of securities under the exemption; At least 80% of the net proceeds from the offering are intended to be used by the issuer, and are in fact used in connection with the operation of a business or of real property, the purchase of real property located in, or the rendering of services within the state or territory; or A majority of the issuer's employees are based in the state or territory (this fourth requirement was not included in the original Rule 147) The choice "At least 80% of the issuer's employees are based in one state" is not a requirement since the threshold is for a majority of the issuer's employees to be based in the state, not at least 80% of them.
A registered representative has sent a preliminary prospectus to various clients who have indicated an interest in a new issue his firm is underwriting. The registered representative is notified that he has been allocated 500 shares of the new issue. The registered representative should: A Allocate the 500 shares to his most active client B Allocate 100 shares each to his best clients C Contact all clients who have received a prospectus asking them if they have made a decision to purchase the new issue that is now available D Keep the 500 shares for himself
C Contact all clients who have received a prospectus asking them if they have made a decision to purchase the new issue that is now available The most appropriate action for the registered representative to take is to contact all clients who have received a prospectus and ask them if they have made a decision to purchase the new issue that is now available.
Which TWO of the following conditions apply and would permit the sale of securities outside the U.S., without registration with the SEC? Any offer or sale is permitted to be made only to qualified institutional buyers Any offer or sale must be made through an offshore transaction No direct selling effort may occur in the U.S. The issuer must be a publicly traded company headquartered outside the U.S. A I and III B I and IV C II and III D II and IV
C II and III Regulation S provides companies with certain guidelines through which securities may be sold outside the U.S., without SEC registration. There are two general conditions that must be met in order for this safe harbor to apply. Any offer, sale, or resale is made in an offshore transaction. No direct selling effort may be made in the U.S. in connection with the transaction.
A customer owns shares of restricted stock and now intends to sell them. If the proper forms are filed with the SEC, the customer may sell these shares: A At any time B Over a 35-day period C Over a 90-day period D Over a 180-day period
C Over a 90-day period Under Rule 144, an investor who intends to sell either restricted or control stock must notify the SEC by filing Form 144 at the time the sell order is placed. Once the filing is made, the customer may sell these shares within 90 days.
A Regulation A+ exemption is allowed for an issuer that's offering: A 500,000 shares or less B Securities with a value not exceeding $10,000,000 C Securities with a value not exceeding $50,000,000 D Securities being sold to only residents of one specific state
C Securities with a value not exceeding $50,000,000 A Regulation A+ offering is exempt from the registration and prospectus requirements under the Securities Act of 1933. The offering is limited to the issuance of $50,000,000 worth of securities during a 12-month period.
When an issuer is raising additional capital and conducts a rights offering, it may enter into an arrangement whereby a syndicate agrees to purchase all of the shares that the issuing corporation may not be able to sell. This is referred to as a(n): A Firm-commitment underwriting arrangement B Best-efforts underwriting arrangement C Standby underwriting arrangement D All-or-none underwriting arrangement
C Standby underwriting arrangement When an issuer conducts a rights offering in an attempt to raise additional capital and enters into an arrangement whereby an underwriting syndicate agrees to buy all of the shares that remain unsubscribed after the rights offering, it is referred to as a standby underwriting. The term syndicate refers to a group of underwriters that is formed for the purpose of buying securities from an issuer and selling them to investors. In a rights offering, the issuing corporation realizes that many of its existing shareholders may choose not participate, which will leave a large number of shares remaining unsold. If that is the case, the corporation will not receive the money for the shares that remain unsubscribed. A standby underwriter will actually standby to await the results of the rights offering and then purchase all of the unsubscribed shares at a slight discount. This type of an arrangement assures the issuing corporation that it will be able to raise the amount of capital it requires.
Bull Traders is a syndicate member for the IPO of Global Transport Ltd. The firm intends to distribute some of its allocated shares through a selling group comprised of smaller broker-dealers. How will Bull Traders determine the amount to be paid to selling group members? A The syndicate member determines, on a case-by-case basis, the amount of compensation that will be paid for each share sold B Bull may pay up to 5% of the offering price as a selling concession C The compensation paid to selling group members is established in the selling group agreement D The compensation paid per share to selling group members is determined based on the total number of shares sold by the member
C The compensation paid to selling group members is established in the selling group agreement Under industry rules, syndicate and selling group agreements set the price at which the securities are to be sold to the public, or the formula to determine the price. The agreements must also state the amount and under what circumstances concessions are permitted.
In which of the following documents are bid limitations for a new municipal bond issue found? A The official statement B The indenture C The notice of sale D The syndicate agreement
C The notice of sale The notice of sale is published by the issuer. It announces the issuer's intention to sell an issue and invites securities firms to compete for the issue. All information pertaining to the bidding would be contained in the notice of sale.
Securities purchased under a Rule 147 exemption may be sold to an out-of-state resident: A Immediately B After 30 days C After three months D After six months
D After six months SEC Rule 147 and Rule 147A of the Securities Act of 1933 provides an exemption from registration for securities being sold on an intrastate basis. If securities are sold only to residents of a state by an issuer that is also a resident of the same state, the securities are exempt from both the registration and prospectus requirements of the Act. A resident of a state who acquires securities under Rule 147 is not allowed to sell the securities to a nonresident of the state for a period of six months following the last date of sale by the issuer. If an individual intends to sell the securities prior to six months, he may do so only to a resident of the same state.
Which of the following issuers could seek a registration exemption under Regulation A+? A An issuer that is offering an aggregate of $16 million of common stock which includes $7.5 million being sold on behalf of existing shareholders B An issuer that is offering an aggregate of $19 million of common stock which includes $6.75 million being sold on behalf of existing shareholders C An issuer that is offering an aggregate of $50 million of common stock which includes $16 million being sold on behalf of existing shareholders D An issuer that is offering an aggregate of $45 million of common stock which includes $12.5 million being sold on behalf of existing shareholders
D An issuer that is offering an aggregate of $45 million of common stock which includes $12.5 million being sold on behalf of existing shareholders Under a Regulation A+ exemption, the maximum offering size is either an aggregate offering of $20 million, which includes no more than $6 million of the offering being sold on behalf of existing shareholders (Tier 1), or an aggregate offering of $50 million, which includes no more than $15 million of the offering being sold on behalf of existing shareholders (Tier 2). In addition, no more than 30% of the aggregate offering may be sold by selling shareholders. Only the $45 million offering does not exceed the 30% threshold ($12.5 million/$45 million = 27.78%).
On a when-issued municipal bond transaction, the interim confirmation will show the: A Settlement date B Final money amount C Accrued interest amount D Capacity in which the broker-dealer acted
D Capacity in which the broker-dealer acted A bond trades when-issued (WI) when a final settlement date has not been established. The term when-issued covers the period of a new issue of municipal securities from the original date of sale by the issuer to the delivery of securities to the underwriter. Without a settlement date, accrued interest cannot be calculated and, therefore, the final money amount cannot be calculated. The broker-dealer must disclose the capacity (principal or agent) in which it acted.
An offering of convertible securities is sold as a private placement. Which TWO of the following considerations would be required of a married couple to be classified as an accredited investor? $2,000,000 net worth $1,000,000 net worth $200,000 annual income $300,000 annual income A I or III B I or IV C II or III D II or IV
D II or IV To qualify as an accredited investor, an individual must have $1,000,000 net worth or $200,000 annual income ($300,000 for a married couple) in each of the last two years, with the anticipation that income will continue at that level. The type of security offered is not relevant to the classification of accredited investor. 501(c)(3) organizations, charities, and trusts are required to have at least $5,000,000 of total assets to be considered an accredited investor.
An issuing company has hired an investment banking firm to act as an agent in its initial public offering. Subject to certain terms and conditions, the investment banking firm has agreed to sell a minimum of 3,000,000 shares up to a maximum of 4,000,000 shares on a best-efforts basis. Which of the following statements is TRUE? A The offering proceeds will go directly to the investment banking firm B The offering proceeds will go directly to the issuing company C If the investment banking firm has not received subscriptions for a minimum of 4,000,000 shares, the firm will promptly return all of the funds placed in the escrow account back to the subscribers D If the investment banking firm has not received subscriptions for a minimum of 3,000,000 shares, the firm will promptly return all of the funds placed in the escrow account back to the subscribers
D If the investment banking firm has not received subscriptions for a minimum of 3,000,000 shares, the firm will promptly return all of the funds placed in the escrow account back to the subscribers A broker-dealer that manages any offering being sold on a contingency basis (e.g., all-or-none or mini-maxi) must promptly deposit the funds in a separate bank account. In contingency underwritings, the payment of sales commissions and underwriting expenses occur after the deal closes. Any release of funds to the underwriters earlier than the closing date of the offering is a violation of SEC rules. These rules were created to ensure that investors are refunded their entire subscription funds in the event the offering is unsuccessful. In this example, the investment banking firm needs to receive subscriptions (sales) based on the minimum of 3,000,000 shares, but may sell up to a maximum of 4,000,000 shares.
In a large private placement, an investment banking firm has purchased securities directly from an oil and gas company based in Houston, Texas. These securities may be resold immediately to: A Any type of investor B Only accredited investors C Only institutional accredited investors D Only qualified institutional buyers (QIBs)
D Only qualified institutional buyers (QIBs) This is an example of a Rule 144 A transaction. These transactions are usually structured as a private placement between an issuer and an investment banking firm(s) and are exempt from SEC registration. Due to the exemption provided under SEC Rule 144A, after acquiring the securities, the firm may then immediately reoffer them exclusively to a purchaser that is a QIB. Securities offered under Regulation D may be sold to accredited investors, but a holding period applies. An institutional accredited investor is defined as a non-individual (e.g., a bank, trust, a pension or mutual fund). However, an institutional accredited investor is only defined as a QIB if its portfolio is worth at least $100 million.
Which of the following parties states that a municipality may legally issue bonds? A FINRA B The MSRB C The SEC D The issuer's bond counsel
D The issuer's bond counsel The issuer's bond counsel writes the legal opinion. It states that the interest is exempt from federal taxation and that the issue is valid and legal. Prior to giving an opinion as to the validity and tax exemption of the issue, the issuer's bond counsel examines all federal, state, and local legislation to be sure that the issue meets all requirements. Neither the MSRB, the SEC, nor any other regulatory agency states that a municipality may legally issue bonds.
Volume and holding-period restrictions do NOT apply to the resale of private placements when: A Purchasers' representatives assist investors B Both parties are accredited investors C The transaction is initiated by a registered principal D The purchaser is a qualified institutional buyer
D The purchaser is a qualified institutional buyer Under Rule 144A of the Securities Act of 1933, the owner of securities obtained through a private placement may resell those securities to a qualified institutional buyer (QIB) without the volume and holding-period restrictions of Rule 144. Qualified institutional buyers must have at least $100 million dollars of investable assets.
A bond counsel will issue an unqualified legal opinion for a municipal bond issue to state that: A The issuer has defaulted on previous issues of bonds B The official statement has not been filed with the SEC C The bonds are very risky and are not a qualified investment for some investors D There are no limitations or pending lawsuits that hinder the issuance of the bonds
D There are no limitations or pending lawsuits that hinder the issuance of the bonds A bond counsel renders an unqualified legal opinion if there are no situations in existence that could adversely affect the legality of the issue.
For a new municipal issue, which of the following choices is the responsibility of the underwriting syndicate? A To file the official statement with the SEC B To submit the final official statement to FINRA C To hire the bond counsel that provides the legal opinion D To submit the official statement to the MSRB's EMMA system
D To submit the official statement to the MSRB's EMMA system Municipal securities are exempt from the registration and filing requirements of the SEC. However, the underwriting syndicate must submit the official statement to the MSRB's Electronic Municipal Market Access (EMMA) system and must also provide the official statement to customers. It is the responsibility of the issuer to hire the bond counsel.
A broker-dealer that is an MSRB member firm sells bonds to one of its customers. If the broker-dealer is a member of the syndicate, the firm is entitled to the: A Takedown less the concession B Additional takedown plus the management fee C Total takedown less the management fee D Total takedown
D Total takedown A member of the syndicate is entitled to the additional takedown plus the concession, which is also known as the total takedown. Only the syndicate manager is entitled to the management fee. A broker-dealer that is not a member of the syndicate selling part of a new issue of municipal bonds is entitled to the concession.
The largest portion of the underwriting spread in a new municipal securities issue is the: A Commission B Additional takedown C Concession D Total takedown
D Total takedown The largest portion of the underwriting spread in a municipal securities issue is the total takedown, which is made up of the additional takedown plus the concession.
