SIE Unit 7

During the 20-day cooling-off period, 1. solicitations of sales can be made. 2. solicitations of sales may not be made. 3. deficiency letters, if issued, are sent to the issuer. 4. deficiency letters, if issued, are sent to the underwriters. A) II and III B) I and III C) I and IV D) II and IV

A) II and III No solicitations of sales are permitted during the cooling-off period. If a deficiency letter is issued by the Securities and Exchange Commission (SEC) halting the review of the registration, it is sent to the issuer who is responsible for correcting the deficiency.

Six days into the cooling-off period, an issuer receives a deficiency letter from the Securities and Exchange Commission (SEC) requesting clarification and corrections. Once the issuer submits these, and assuming that they satisfy the deficiency, the cooling-off period will resume. With no other deficiencies arising, the issue should become effective in A)14 days. B)8 days. C)15 days. D)20 days.

A. 14 days When the issuer submits the corrections necessary to satisfy the deficiency letter, the 20-day cooling-off period picks up where it left off; in this case, from six days, which means that the issue should be effective 14 days later.

A private securities transaction 1. is nonexempt and must be register under the Act of 1933. 2. is exempt from registration under the Act of 1933. 3. can be sold to individual accredited investors. 4. can be sold to institutional investors only. A) 2 and 3 B) 1 and 4 C) 2 and 4 D) 1 and 3

A. 2 and 3 A private securities offering, sometimes called a private placement, is exempt from registration. While securities offered in a private securities transaction are generally sold to institutional investors, they can also be sold to small groups of wealthy individuals who meet net worth and income criteria, known as accredited investors.

Regarding primary and secondary offerings, which of the following are true? 1.An offering can only be either a primary or secondary. 2.An offering can be a combination of primary and secondary. 3.An initial public offering (IPO) is a secondary offering. 4.An additional primary offerings (APO) is a primary offering. A) 2 and 4 B) 2 and 3 C) 1 and 3 D) 1 and 4

A. 2 and 4 An offering can be a combination of primary and secondary. These are known as split offerings. Both IPOs and APOs are primary offerings, where the issuer receives the sale proceeds.

A corporation needs to build a new manufacturing facility costing several hundred million dollars. In which of the following markets could this new capital be raised? A) Secondary market B) Capital market C) Municipal bond market D) Government bond market

B. capital market Capital markets are a source of financing for corporations, municipalities, and governments. Capital can be raised by issuing equities or debt and offering the securities to investors in an initial public offering (IPO) or an additional public offering (APO). Note that bonds might be issued by a municipality or the federal government to raise money, but corporations (as noted in this question) do not issue government bonds, either federal or municipal.

Which of the following would be allowed during the cooling off period? A)Taking orders B)Allocating shares to investors C)Distributing a red herring D)Distributing a prospectus

C. distributing a red herring No selling or soliciting is allowed during the cooling off period. Distributing a red herring (a preliminary prospectus) is allowed.

An offering in which one or more stockholders in the corporation are selling all or a portion of their own shares to the investing public for the first time is known as A)an initial public offering. B)a subsequent offering. C)a primary offering. D)a secondary offering.

A. a second offering A secondary offering is one in which one or more stockholders in the corporation are selling all or some of their shares to the public. The sale proceeds for these shares are paid to the selling stockholders rather than to the corporation.

A tombstone advertisement would be expected to include all of the following information except A)an advisory that the advertisement is neither an offer to sell nor a solicitation of an offer for any of these securities. B)the price or price range at which the securities are expected to be offered. C)any inherent risks associated with the offering or the issuer offering the securities. D)the name of the issuer and underwriters if they are being used to assist in the offering.

C)any inherent risks associated with the offering or the issuer offering the securities. While any inherent risks associated with the issuer or the securities the issuer is offering would be expected to be shown in a prospectus, they would not be expected to be found nor is it required that they be shown in a tombstone advertisement. Each of the remaining answer choices shows information expected to be shown in these ads.

The statement "These securities have not been approved or disapproved nor have any representations been made about the accuracy or the adequacy of the information" is A)mandated by the Financial Industry Regulatory Authority (FINRA) to be placed in both the preliminary and final prospectus. B)placed by the issuer in the preliminary prospectus. C)mandated to be in the final prospectus by the Securities and Exchange Commission (SEC). D)is the disclaimer placed by the underwriters in a tombstone advertisement.

C)mandated to be in the final prospectus by the Securities and Exchange Commission (SEC). Commonly known as the Securities and Exchange Commission's disclaimer, the SEC mandates that it be found in the final prospectus.

For primary and secondary markets, which of the following is true? A)In the primary market, securities are purchased from and sold to individual investors. B)In the secondary market, securities transactions cannot take place on an exchange. C)In the secondary market, all sales proceeds go to the issuer. D)In the primary market, securities are sold to the public and the issuer receives the sale proceeds.

D. In the primary market, securities are sold to the public and the issuer receives the sale proceeds In the primary market, the issuer of the securities receives the proceeds generated by the sale of the securities. In the secondary markets, such as an exchange or over-the-counter (OTC) securities trade between investors, one sells securities to another, and the issuer is not involved in the transaction.

All of the following are true of tombstone advertisements except A)they would be expected to show the number of shares to be offered. B)they can be placed by the underwriters. C)they are not an offer to sell or solicit sales for the securities. D)they are mandatory and must be placed during the cooling-off period.

D. They are mandatory and must be placed during cooling-off period Tombstone advertisements are not mandatory. They can be placed by the issuer or the underwriters and contain only bare bones facts about the new issue that is limited in scope and detail. However, expected information to be found there would include the name of the issuer and underwriters, type of security, number of shares to be offered, and the offering price or expected price range. All must have a disclosure or advisory that the ad is not an offer to sell or solicit sales for the shares.

Under the Securities Act of 1933, which of the following is a nonexempt security? A)Municipal bonds B)U.S. government bonds C)Commercial paper D)Shares issued by a U.S. government bond fund

D. shares issues by a US government bond fund This is a mutual fund. Mutual funds are not exempt securities under the Securities Act of 1933.

Indications of interest taken during the cooling-off period are 1.binding on the selling issuer and underwriters. 2.nonbinding on the issuer and underwriters. 3.binding on the investor. 4.nonbinding on the investor. A)1 and 3 B)2 and 4 C)1and 4 D)2 and 3

B. 2 and 4

For nonexempt securities being offered to the public for the first time by a corporate issuer, which of the following would be applicable? A)Securities Act of 1933 regulating issues that must be offered by prospectus B)Securities Act of 1934 regulating issues that must be offered by prospectus C)Securities Act of 1934 regulating securities that must be offered by prospectus D)Securities Act of 1933 regulating securities traded in the secondary market

A. Securities Act of 1933 regulating issues that must be offered by prospectus Nonexempt securities are those that must be registered with the Securities and Exchange Commission (SEC) under the Securities Act of 1933. The Securities Act of 1933 mandates that offerings of these securities must be made by prospectus.

Public offerings of securities are regulated under A)the Securities Act of 1933. B)Financial Industry Regulatory Authority (FINRA)'s communications with the public rules. C)the Consumer Protection Act. D)the Securities Act of 1934.

A. The Securities Act of 1933 In a public offering, securities are offered and sold to the investing public. Public offerings of securities are regulated under the Securities Act of 1933.

Regarding the issuance of new securities to the public, which of the following is true? A)The Securities Act of 1933 provides criminal penalties for fraud. B)Registrations become effective within 10 business days of Securities and Exchange Commission (SEC) filing. C)Underwriters are permitted to accept orders for securities during the Securities and Exchange Commission (SEC) review period. D)The Securities and Exchange Commission (SEC) review of a new issues filing must always be longer than 20 days.

A. The Securities Act of 1933 provides criminal penalties for fraud The Securities Act of 1933, which provides for criminal penalties for fraud in the issuance of new securities, ensures that investors are fully informed about a security and its issuer when the security is offered to the public. The SEC review or cooling-off period must last a minimum of 20 days before the SEC releases the securities for sale to the public (effective date). Solicitations and the acceptance of orders may never occur before the effective date.

A company's management team has agreed to issue additional shares of common stock in part to provide an employee stock ownership plan. It is agreed the issuance of the stock is not urgent and can wait until more favorable market conditions exist. What type of registration is most suitable under these conditions? A)An employee stock ownership plan (ESOP) registration B)An expansion registration C)A shadow registration D)A shelf registration

A. a shelf registration The Securities Act of 1933 permits issuers to quickly raise money in the capital markets when needed or when market conditions are just right. For example, if a company files a shelf registration statement with the Commission, there is no intention to immediately sell the securities. However, when the right time arrives—either interest rates are at a likely low point or funds are needed to complete a project—the company can in essence, take the securities from the shelf without the delay of registering with the Securities and Exchange Commission (SEC), as that has already been done. Shelf registration (shelf offering) is available for both primary and secondary offerings.

Which of the following will not be found in a final prospectus? A)Business plan and use of the proceeds B)Agreement among underwriters C)Effective date and offering price D)Statement that the Securities and Exchange Commission (SEC) neither approves nor disapproves of the issue

A. agreement among underwriters The agreement among underwriters is not a part of a prospectus.

If it finds that the registration statement needs revision, expansion, or to have corrections made, the Securities and Exchange Commission (SEC) may suspend the review of the new issue and issue a deficiency letter. Once the issuer submits a corrected registration statement, the 20-day cooling-off period A)resumes where it had left off. B)begins anew. C)is increased by 10 business days to accommodate review of the new information. D)considered over allowing the registration to be effective.

A. resumes where it had left off If the SEC issues a deficiency letter suspending its review of the new issue, the 20-day cooling-off period is halted and resumes where it had left off once the corrected registration statement is received.

Which of the following would not be expected to be found in a tombstone advertisement for a new issue? A)The intended purpose for which to use the sales proceeds B)The name of the issuer or those of the underwriters C)The type of security to be offered (equity or debt) D)The number of shares to be offered

A. the intended purpose for which to use the sales proceeds While the intended purpose for which to use the sales proceeds would be expected to be found in a prospectus, it would not be found in a tombstone advertisement permitted to offer only bare bones facts about the new issue.

The XYZ Company is looking to offer shares of its 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 Securities Investors Protection Act of 1970 B)The Securities Act of 1933 C)The Investment Company Act of 1940 D)The Trust Indenture Act of 1939

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

A company with previously issued shares outstanding wants to issue more shares to the public. These new shares are issued in what is known as A)a secondary market offering. B)An additional public offering (APO). C)a secondary registration. D)an initial public offering (IPO).

B. an additional public offering (APO) The first time that a company issues shares to the public, it engages in an IPO. Later offerings are known as subsequent primary offerings (SPOs) or APOs. The IPO and any SPO or APO are all issuer transactions and are, therefore, done in the primary market.

A corporation sells shares to the investing public in order to raise capital. This is known as A)a primary, or investor-to-investor, transaction. B)an issuer transaction. C)a secondary market transaction. D)an exchange market execution.

B. an issuer transaction The primary market is where securities are sold to the investing public by the issuer wishing to raise capital. These are known as primary market or issuer transactions.

A tombstone advertisement placed before the effective date can A)only be placed by the issuing company. B)be placed by the issuer directly or by the underwriters. C)always be deemed to be an offer to sell the securities. D)only be placed by those assisting the issuing company in the underwriting.

B. be place by the issuer directly or by the underwriters Tombstone advertisements can be placed by either the issuer or the underwriters and are the only ads that can be placed before the registration's effective date. They are not an offer or solicitation to sell the securities.

A corporation increases capitalization by selling shares of stock which can either come from a new issue or previously authorized but unissued shares. Total stock outstanding must A)always equal the number shares authorized. B)never exceed the number of shares authorized. C)always be greater than the number of shares issued. D)never equal the number of shares issued.

B. never exceed the number of shares authorized A corporation's bylaws state the maximum number of shares authorized to be issued. Therefore, issued shares, those in the hands of public shareholders (outstanding shares) can never exceed the number of shares that were authorized. While those outstanding shares can therefore never be greater than the number of shares issued they could equal the number of shares issued.

A member firm receives an order to purchase shares in a common stock initial public offering (IPO) from another broker-dealer for a customer. Regarding restricted persons, the member must A) obtain a list of all of the broker-dealer clients to determine eligibility. B) obtain a written representation that the buyer is not a restricted person. C) refuse to accept the order. D) obtain a statement witnessed by a notary representing that the buyer is not restricted.

B. obtain a written representation that the buyer in not a restricted person When receiving an order to buy a new equity issue, a member must obtain a written representation that purchasers are in compliance with rules regarding sales of new issues to restricted persons (i.e., they are not restricted persons).

During the cooling-off period, underwriters of new securities may 1. accept orders to purchase shares. 2. not accept orders to purchase shares. 3. not accept indications of interest regarding potential purchases of shares. 4. accept indications of interest regarding potential purchases of shares. A) 1 and 3 B) 1 and 4 C) 2 and 4 D) 2and 3

C. 2 and 4 Orders for shares may never be taken before the effective date; therefore, no orders to purchase shares may be taken during the cooling-off period. Indications of interest, however, are allowed to be taken but are not binding on either party.

Issuance and trading of securities are regulated at more than one governmental level. These would include regulations at which of the following? 1.County level 2.City level 3.Federal level 4.State level A) 1 and 2 B) 1 and 4 C) 3 and 4 D) 2 and 3

C. 3 and 4 Issuance and trading of securities are regulated at the federal level by the Securities and Exchange Commission (SEC) and the various self-regulatory organizations (SROs) in the securities industry. They are also regulated at the state level through the Uniform Securities Act and state laws regulating securities.

All of the following names describe the Securities Act of 1933 except A)The Truth in Securities Act. B)The Prospectus Act. C)The Exchange Act. D)The Full and Fair Disclosure Act.

C. The Exchange Act The Exchange Act is the Securities Exchange Act of 1934 and covers the secondary markets. The Securities Act of 1933 covers the primary market and requires full and fair disclosure on new issues by providing a prospectus to the investor.

A new registered representative receives a memo discussing the distribution of a red herring. The registered representative knows that the memo is referencing A) a final prospectus. B) a tombstone advertisement. C) a preliminary prospectus. D) a registration statement.

C. a preliminary prospectus The term red herring is derived from the disclaimer printed in red on the cover page of a preliminary prospectus. Some key information that would be found in a final prospectus, such as price, is not found in the preliminary prospectus.

Rules regarding restricted persons state that each of the following is considered immediate family except A)a mother-in-law or a father-in-law. B)parents. C)an aunt or an uncle. D)a brother or a sister.

C. an aunt of uncle Rules regarding restricted persons define immediate family as spouses, parents, siblings, in-laws, and children. Aunts and uncles and grandparents are excluded (not considered immediate family).

Mrs. Jones is an employee of a member firm and as such is a restricted person regarding the purchase of new issues. She belongs to an investment club and has a 1% interest in the club's brokerage account. The investment club A)is a restricted account but will be allowed to purchase equity shares of an IPO. B)is a restricted account and will not be allowed to purchase equity shares of an IPO. C)is not a restricted account and will be allowed to purchase equity shares of an initial public offering (IPO). D)is not a restricted account but will not be allowed to purchase equity shares of an IPO.

C. is not a restricted account and will be allowed to purchase equity shares of an initial public offering (IPO) Because the restricted person's interest in the club's brokerage account does not exceed 10%, the investment club account is not considered a restricted account. If not restricted, the club can purchase shares of an equity issue at the public offering price if it chooses to.

The Securities Act of 1933 requires that A)all new issues be exempted from registration with the Securities and Exchange Commission (SEC) so that they may be sold to the public. B)registration with the Securities and Exchange Commission (SEC) before public sale can be made be an option for all new issues. C) both exempt and nonexempt new issues be registered with the Securities and Exchange Commission (SEC) before public sale. D)a new issue, unless specifically exempted from the Act, be registered with the Securities and Exchange Commission (SEC) before public sale.

D)a new issue, unless specifically exempted from the Act, be registered with the Securities and Exchange Commission (SEC) before public sale. While some new issues can be exempt from registration, the Securities Act of 1933 requires that a new issue, unless it is specifically exempted from the act, be registered with SEC before public sales can be made.

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? A)Mail sales literature to those who have expressed an interest in purchasing the securities. B)Make a binding offer to sell the securities. C)Distribute a preliminary prospectus to the investing public. D)Solicit orders from investors to purchase the securities.

Distribute a prelimary prospectus to the investing public The time between the registration filing date with the SEC and the effective date is known as the cooling-off period. During this time, a preliminary prospectus may be distributed to gauge investor interest but no offers to sell the securities can be made and no orders to purchase the securities can be taken. While a preliminary prospectus and tombstone ad can be used, sales and advertising literature specific to the securities cannot be.