SIE Prep- Chapter 5

Functions which may be performed by the investment banking department of a broker-dealer include: I. Providing a secondary market for a security after issuance. II. Advising an issuer. III. Acting as an agent in the resale of an issue. IV. Acting as a syndicate manager in the distribution of an issue.

[B] II and IV EXPLANATION The investment banking department of a broker-dealer will advise issuers about what type of new issue to distribute and can act as a syndicate manager in the distribution of a new issue. Providing a secondary market or resale market is not done by the investment banking department, that would be done by the trading and market making department.

All of the following are required to be included in a preliminary prospectus according to the 1933 Act EXCEPT:

[B] The final offering price EXPLANATION The Final Offering price will be in the final prospectus but would not be in the preliminary prospectus because it has not yet been determined at the time the preliminary prospectus is distributed.

Under the FINRA rules, all of the following would be considered "Restricted Persons" when an initial public offering is taking place except? [A] A Registered Representative's Brother [B] A Registered Representative's Mother [C] A Registered Representative's Grandmother [D] A Registered Representative's Father-in-law

[C] A Registered Representative's Grandmother EXPLANATION Restricted Persons include a Registered Representative's immediate Family Members. Immediate family members include the RR's parents, mother-in-law, father-in-law, spouse, brother or sister, sister-in-law, daughter-in-law, and children and any other individual to whom the person provides material support (Does not include Aunts, Uncles, and Grandparents).

Stabilizing bids may be placed: I. At the offering price II. Above the offering price III. Below the offering price

[C] I and III EXPLANATION Stabilizing bids may only be placed at or below the public offering price.

An offering of a new issue of securities purchased from the issuer and offered to the public is a:

[C] Primary distribution EXPLANATION "Primary" always means NEW issue.

Which of the following persons is generally permitted to participate in initial public offerings?

[C] The cousin of a supervisor at a member firm EXPLANATION Employees of member firms as well as their immediate families are generally prohibited from participating in initial public offerings. This would include the analyst at the member firm, the husband of an RR, and the sister of an OP. Cousins of associated persons are not considered "immediate family" and would generally be permitted to participate in initial public offerings.

When a syndicate is formed on an IPO of common stock there is a 20-day cooling period after the registration statement is filed with the SEC. During the cooling period, which of the following would a syndicate member be allowed to do?

[C] send out a preliminary prospectus to clients that request them EXPLANATION During the cooling period the syndicate members would only be allowed to send out a preliminary prospectus to customers that request them or have given an indication of interest on the new issue but syndicate members are never allowed to accept money with indications of interest, send out research reports or take actual pre-sale orders (pre-sale orders are only allowed on municipal bond offerings).

Which of the following are types of underwriting contracts? I. Firm II. Best Efforts III. All or None IV. Standby

[D] All of the above EXPLANATION All four choices offered represent types of underwriting contracts that syndicates may enter into with an issuer in the distribution of a new issue

Which of the following would NOT be considered a "Restricted Person" in relation to an Initial Public Offering (IPO)? [A] The CEO of a broker/dealer firm involved in the underwriting [B] A professor of finance at a local community college [C] An accountant who provides their services to the company issuing stock [D] An immediate family member of an agent involved in the underwriting

[B] A professor of finance at a local community college EXPLANATION Restricted persons are those who are not permitted to participate in buying shares during an IPO. Unless employed in some other capacity by the issuer or a member firm, the professor of finance would NOT be considered a restricted person. Each of the other people listed would be considered restricted, either because of their relationship with a member or issuer, or an immediate family member's relationship with a member or issuer.

Which of the following bids may be considered stabilizing bids? I. Bids at the public offering price II. Bids just above the public offering price III. Bids just below the public offering price

[B] I and III EXPLANATION Stabilization in new issue underwriting is the intervention in the market by the managing underwriter's firm to keep the market price from falling during the offering period. The managing underwriter places bids to buy at or below the public offering price.