Series 7 Part 4 unit 19-20
What is the profit to a syndicate member if a syndicate is offering an 8.5% bond at 100, the syndicate manager is giving a 0.75 concession and a 1-point total takedown, and the syndicate member sells 1,000 bonds? A) $7,500 B) $10,000 C) $17,500 D) $1,000
B Explanation When a member of the syndicate sells a bond, the member is entitled to the total takedown. In this case, one point ($10) per bond (1,000 bonds sold × $10 per bond = $10,000 profit). Remember that the concession would only go to those who are not members of the syndicate but are part of the selling group instead.
Investment banks or bankers assist corporations in raising capital. assist municipalities in raising capital. accept deposits. make loans to individual customers. A) I and II B) II and IV C) II and III D) I and III
A Explanation Investment banks and bankers assist both corporate and municipal issuers in raising capital by issuing securities to the investing public. Unlike traditional banks, they do not accept deposits or issue loans.
Démodé Classic Investments (DCI) is planning a direct mail campaign to several thousand potential investors. The topic of the campaign deals with owning real estate through direct participation program limited partnerships. Under FINRA Rule 2210 on communications with the public, this is considered A) a retail communication and must be filed with FINRA within 10 business days of first use or publication. B) a retail communication that needs approval, but not filing, by a designated DCI principal. C) a retail communication and must be filed with FINRA at least 10 business days before first use or publication. D) correspondence and needs review, not approval, by a designated DCI principal.
A Explanation A direct mail communication to more than 25 existing and/or potential clients within a 30-day period is a retail communication. Unless an exception applies, a designated principal of the firm must approve all retail communications. DPPs are part of a group of securities (other common examples are investment companies and CMOs) where filing with FINRA within 10 business days of first use or publication is the rule.
Which of the following statements regarding the good faith deposit submitted by interested bidders are true? It is usually 1%-2% of the total par value of the bonds offered. It is usually 10% of the total par value of the bonds offered. If the bid is unsuccessful, it is returned to the underwriting syndicate. If the bid is unsuccessful, it is retained by the issuer. A) I and III B) II and III C) II and IV D) I and IV
A Explanation A good faith deposit is required when the syndicate places a bid on a competitive offering. It is generally 1%-2% of the par value of the bonds offered for sale. If the bid is unsuccessful, the deposit is returned by the issuer to the syndicate manager.
Which of the following characteristics describes a final prospectus? A) Complies with the full and fair disclosure requirements of the Securities Act of 1933 B) Used to solicit indications of interest in a new issue C) Filed with the SEC and not available to the general public D) Filed with the SEC semiannually
A Explanation A prospectus is a disclosure document meant for distribution to the public. It must constitute full and fair disclosure of all material facts about the issuer and the security.
In the case of an unsolicited order, a prospectus must be delivered to the purchaser of a unit investment trust A) with the purchase confirmation. B) before the purchase. C) before the month's end. D) between 45 days and 18 months following the initial deposit.
A Explanation A purchaser of newly issued securities must receive a prospectus no later than by receipt of the purchase confirmation. However, any solicitation must be preceded or accompanied by a prospectus.
Which of the following best describes how a syndicate determines the amount to bid for a new municipal issue? A) The average reoffering price minus the spread B) The average sales price divided by the interest cost C) The average reoffering price plus the takedown D) The gross spread minus the takedown
A Explanation A spread is analogous to the gross profit margin in other businesses. A syndicate's bid is based on the average reoffering price (the price the public will pay) less the syndicate's spread (the amount the syndicate will charge for bringing the issue to market).
A registered representative may never A) approve advertising. B) act as a buyer's agent. C) act as a broker. D) act as a sales agent.
A Explanation Advertising or sales pieces are considered to be a form of communication with the public. All such pieces must be approved by a principal of the member firm.
All of the following statements regarding municipal advertising are true except A) copies must be sent to the Municipal Securities Rulemaking Board (MSRB). B) it must be approved by a principal. C) copies must be kept for four years. D) it must not be misleading.
A Explanation All municipal advertising must be approved, in writing, by an appropriate principal before the first use and kept on file for four years. It need not be filed with the MSRB because the MSRB has no enforcement authority.
The antifraud provisions of the Securities Exchange Act of 1934 apply to all of the following except A) commodities. B) municipal bonds. C) options. D) Nasdaq- and exchange-listed securities.
A Explanation All securities are subject to the antifraud provisions of federal securities laws. It should be recognized that commodities like wheat or oil are not securities.
A registered representative wants to place advertisements in his daughter's youth athletic league quarterly sponsorship booklet and in the weekly bulletin at his church describing that he specializes in retirement planning and 529 plans. Which of the following statements regarding these advertisements is true? A) Preapproval by a principal of the broker-dealer is required. B) The advertisement is considered institutional communication because it is placed in literature being distributed by organizations such as the youth athletic league and the church organization, and therefore, no principal preapproval is required. C) No approval is required because both the youth athletic league and the church would be recognized as bona fide nonprofit organizations by the IRS. D) The piece will be regulated as correspondence because it is only being forwarded to two organizations.
A Explanation Any piece promoting securities services and/or products intended to be received by more than 25 retail customers within any 30-calendar-day period must be preapproved by a principal before use. Given the intended placements of the piece, there is no way to determine the exact number of retail customers who will be exposed to it and within what time frames; therefore, it must be regulated as retail communication. It does not fit the definition of correspondence or institutional communication.
A registered representative has been doing some research on his own. He would like to share the information with some of his clients and sends an email to 15 of them. He also has some prospects he's been working on and sends the email to 12 of them during the same week. Under the FINRA rule on communications with the public, this would be considered A) retail communication. B) an electronic communication. C) exempt from the principal approval requirements. D) correspondence.
A Explanation FINRA defines a retail communication as "any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30-calendar-day period." It is important to understand that retail investors includes current and prospective customers. Because this report will be sent to 27 within the 30-calendar-day period, it fits the definition. Like virtually all retail communications, principal approval is necessary before it is used. Is this an electronic communication? Yes it is, but the exam will want the more specific response—retail communication.
Under the de minimis exemption, an initial public offering of common stock may be sold to an account where restricted persons have a beneficial interest, as long as their interest in the account does not exceed A) 10%. B) 5%. C) 25%. D) 20%.
A Explanation If the beneficial interests of restricted persons do not exceed 10% of an account, the account may purchase a new equity issue.
If another member broker-dealer has already received clearance from FINRA for a retail communication, filing the piece with FINRA so that your broker-dealer can now use it A) is not necessary if unaltered and used as originally intended. B) must be done 10 days before your broker-dealer can use it, even if unaltered. C) must be done within three days after use by your broker-dealer, even if unaltered. D) must be done before publication by your broker-dealer, whether it is altered or unaltered.
A Explanation If unaltered and used as it was originally intended, refiling with FINRA is not required. If the piece had been altered or was intended to be used in a manner inconsistent with how it had been originally intended to be used, filing with FINRA would be required.
Under FINRA's Rule 2210 on communications with the public, which of the following is excluded from the filing requirements? A) Correspondence with prospective clients that is delivered through electronic media B) Retail communications concerning public direct participation programs C) Retail communications that previously have been filed with FINRA and that are to be used with material change D) Retail communications concerning collateralized mortgage obligations registered under the Securities Act of 1933
A Explanation In most cases, retail communications must be filed with FINRA while correspondence, regardless of the method of delivery, is not. If the retail communication has previously been filed with FINRA and is being used without material change, it does not have to be refiled.
The manager will credit each syndicate member based on sales of that particular maturity allotted to the member, and such credits shall extinguish liability based only on such securities that are sold by the member. This statement describes an agreement among underwriters that is A) a divided account. B) an undivided account. C) a proportionate underwriting. D) an Eastern account.
A Explanation This is part of an agreement for a Western (divided) syndicate.
Bond trust indentures are required for A) corporate debt securities. B) municipal general obligation bonds. C) Treasury securities. D) municipal revenue bonds.
A Explanation Municipal and government bonds are exempt from the trust indenture requirement of the Trust Indenture Act of 1939. Revenue bonds are frequently issued with a trust indenture, but no legal requirement to do so exists. The Trust Indenture Act of 1939 requires that corporate bond issues of $50 million or more sold interstate must be issued with a trust indenture.
Under Options Clearing Corporation (OCC) rules regarding options communications with the public, if an educational piece making no projected performance figures or recommendations is distributed to customers, it A) need not be preceded by an options disclosure document (ODD). B) need not be approved by a registered options principal (ROP). C) can only be distributed to institutional customers. D) can only be distributed to retail customers.
A Explanation OCC communications rules do not distinguish between retail and institutional customers. Therefore, their communications rules apply to all customers. All communications pieces must be approved by an ROP. If the educational piece makes no recommendations or performance projections, it need not be preceded by an ODD, but it must be accompanied by a notice containing a name and address where the ODD can be obtained.
An offering of securities in compliance with Rule 144A is sold primarily to A) qualified institutional buyers (QIBs). B) all of these. C) foreign individual investors. D) American individual investors.
A Explanation Rule 144A allows securities to be sold to QIBs without having to meet the holding period or volume requirements of Rule 144.
Underwriters that reserve the right to stabilize the price of securities distributed to the public under an SEC registration statement may do so A) only if notice is given in the prospectus. B) only if the securities being distributed will be immediately listed for trading on the NYSE or other exchange. C) under no circumstances. D) without restriction.
A Explanation Stabilizing transactions are permitted if the SEC is notified in the registration statement and the investing public is notified in the prospectus.
The Trust Indenture Act of 1939 covers all of the following securities transactions except A) a sale of an issue of $5 billion worth of Treasury bonds maturing in 2025. B) a corporate bond issue worth $55 million sold interstate. C) a public issue of debentures worth $60 million sold by a single member firm throughout the United States. D) a sale of an equipment trust bond issue worth $62 million.
A Explanation The Trust Indenture Act of 1939 requires all corporate debt issues of $50 million or more sold interstate to have a trust indenture. U.S. governments are exempt.
In a municipal underwriting, the scale is used by the syndicate to determine the bid on a new issue. a list of the yield or prices at which the bonds will be offered to the public. used by the syndicate to determine the allocation priority of orders. only used when underwriting term bonds. A) I and II B) I and IV C) II and III D) III and IV
A Explanation The scale, or reoffering scale, represents the prices and/or yields at which new issue securities are offered for sale to the public by the underwriter. The syndicate uses this scale to determine its bid on the issue.
In what order, from first to last, would a syndicate member allocate orders for a new municipal bond issue? Presale orders Designated orders Member orders Group net orders A) I, IV, II, III B) IV, II, I, III C) III, I, II, IV D) III, II, I, IV
A Explanation The standard order priority for municipal bond issue allocation as stated within the syndicate letter is as follows: presale, group, designated, and member. Orders that benefit all syndicate members have the highest priority.
An offering of a new issue is being made under the provisions of Regulation D of the Securities Act of 1933. The filing of a Form D must be made A) by the issuer no later than 15 calendar days after the date of first sale of securities in the offering. B) no later than 15 business days after the date of the first sale of securities in the offering. C) by the underwriter no later than 15 calendar days after the date of first sale of securities in the offering. D) by the purchaser no later than 15 calendar days after the date of purchase of securities in the offering.
A Explanation This is the form used by the issuer to report sales to the SEC of a transaction exempted under Regulation D. We doubt that you would have to choose between 15 calendar days and 15 business days, but you will have to know who does the filing.
A prospectus must be delivered to customers who purchase which of the following new issues? U.S. government bonds Corporate bonds Fixed annuities Unit investment trusts (UITs) A) II and IV B) I and IV C) II and III D) I and III
A Explanation U.S. government bonds are exempt securities under the Securities Act of 1933 and are not subject to the act's registration and prospectus delivery requirements. Fixed annuities are not considered securities, as the risk is borne by the insurance company issuer. Corporate bonds and UITs, however, are nonexempt securities and are subject to prospectus delivery requirements.
If a syndicate is formed under a Western account arrangement, what is the treatment of any unsold securities? A) Each member is responsible for its unsold securities. B) All syndicate members will assist in the reallocation. C) Any unsold securities are returned to the issuer. D) The underwriting manager will take responsibility for the unsold securities.
A Explanation Western accounts are divided accounts. That means each member of the syndicate is responsible for any portion of its commitment that remains unsold. This is in contrast to the Eastern account, where the unsold portion is the responsibility of all the syndicate members in proportion to their original commitment. Because these are firm commitment underwritings, the issuer knows it will receive all of the funds.
If a broker-dealer is assisting in the registration of a stock issue, a registered representative of the firm may A) accept an indication of interest. B) accept an order. C) perform a private transaction for a customer. D) promise a specific number of shares.
A Explanation When an issue is in registration during the cooling-off period, sales may not take place. The registered representative may, however, distribute preliminary prospectuses and accept nonbinding indications of interest.
A provision permitting the syndicate members participating in a firm commitment offering to engage in short selling on an IPO is A) an exemption from the margin rules regarding IPOs. B) the green shoe option. C) the market-out clause. D) the stabilizing clause.
B Explanation A green shoe clause, negotiated with and agreed to by the issuer, allows the syndicate to sell up to 15% more shares than initially registered within 30 days of the IPO beginning to trade. Because the underwriters do not own those additional shares, they are, in reality, selling them short. However, because the issuer has agreed to issue the additional shares, the syndicate does not have the risk normally associated with selling short. In the case of a stock offering, when demand is considerably lower than supply for a new issue (the opposite of the conditions using the green shoe option), the price in the aftermarket is likely to fall. Under these circumstances, the underwriter can stabilize the security by bidding for shares in the open market. These bids may be placed at or just below the public offering price. The managing underwriter can enter or appoint a syndicate member to enter stabilizing bids for the security until the end of the offering period. In a firm commitment underwriting, the underwriter assumes substantial financial risk for the underwriting. To limit its risks, a market-out clause in the underwriting agreement specifies conditions under which the commitment is cancelable. An example of such an event would be the sudden death of the company president. **This question deals with material not covered in your LEM, but it relates to recent rule changes and/or student feedback.
Which of the following statements regarding a red herring is not true? A) A red herring is used to accept indications of interest from investors. B) An agent may accept funds to be placed in escrow until the effective date if the request to do so is made by a potential purchaser. C) The final offering price does not appear in a red herring. D) Additional information may be added to a red herring at a later date.
B Explanation An agent is not permitted to accept funds from potential purchasers of a new issue before the effective date.
When syndicate members agree to share financial responsibility for any unsold securities on an undivided basis, this contractual arrangement comprises what type of account? A) Selling group B) Eastern C) Western D) Best efforts
B Explanation An undivided account, which is a shared underwriting liability for unsold securities, is an Eastern account.
The syndicate manager in a firm commitment underwriting takes which of the following actions in a divided municipal syndicate account that does not sell out? A) Returns the bonds to the issuer B) Confirms the bonds to the member that did not sell its share C) Prorates the bonds according to syndicate participation D) Holds an auction
B Explanation Because this offer is a divided, or Western, syndicate, each member is responsible for selling a specific number of securities. If a member does not sell its share, it receives the bonds for its inventory.
The reoffering yield on a new municipal bond issue is A) the tax-equivalent yield of the new issue. B) the yield at which the bonds are offered to the public. C) the coupon rate on the new issue. D) the interest rate minus any premiums that underwriters are willing to pay.
B Explanation In a competitive bidding situation, each underwriter submits a sealed written bid. Once the bid has been awarded, the bonds are repriced to give the underwriters a profit when selling them to the public. The yield at which the bonds are sold is called the reoffering yield.
The underwriting manager of a Western underwriting syndicate has committed to sell $250,000 worth of bonds out of a total offering of $1 million. There are 10 underwriters of this new issue. The firm sells its entire share, but $100,000 worth of the total bonds remains unsold. What is the manager's remaining liability? A) $10,000 B) $0 C) $100,000 D) $25,000
B Explanation In a divided (Western) syndicate, each syndicate member is responsible only for its own underwriting obligation. Because the underwriting manager sold its share, it is not liable for the unsold bonds. Rather, the manager will confirm the bonds to each member that did not sell its participation.
All of the following are considered insiders under the Securities Exchange Act of 1934 except A) corporate officers. B) owners of 10% or more of the corporation's debt securities. C) owners of 10% or more of the corporation's equity securities. D) nonaffiliated directors.
B Explanation It is equity, not debt securities that makes one an insider. Officers, directors, and major shareholders (equity owners) are insiders.
Under which of the following circumstances may a member firm sell a new equity issue to one of its nonregistered employees? A) Amount purchased is small and not disproportionate to the size of the issue B) Under no circumstances C) Permission of a principal is obtained D) Transaction is consistent with the employee's normal investment practice
B Explanation Member firms and employees of members (registered and nonregistered) are prohibited from buying a new equity issue at the public offering price.
If a company has filed a registration statement for an initial public offering of its common stock with the SEC, as a registered representative you may take which of the following actions? Send out a research report on the company to your customers Take indications of interest from your customers Send a preliminary prospectus to each of your customers Take orders for the stock from customers in cash accounts only A) II and IV B) II and III C) I and IV D) I and III
B Explanation New issues may be sold only by prospectus. Indications of interest may be taken when the issue is in registration. During the registration period, only the preliminary prospectus may be sent to clients. Sales literature, such as research reports, may not be distributed while the IPO is in registration, nor may orders be taken.
Your firm is interested in submitting a bid on a forthcoming general obligation municipal bond issue. Your firm could obtain the appropriate bid worksheets through a service provided by A) Standard & Poor's. B) The Bond Buyer. C) the Municipal Securities Rulemaking Board. D) The Wall Street Journal.
B Explanation Official notices of sale announcing the offering of municipal issues to competitive bidders are published in The Bond Buyer, which offers a service to subscribers called the New Issue Worksheet and Record Service, which summarizes each notice. It provides information about new issues put up for bid and worksheets for underwriters to determine yields and prices when bidding.
Stabilizing bids may be entered at A) any reasonable price necessary to support the public offering price. B) a price no higher than the public offering price. C) whatever stabilizing price is stated in the prospectus. D) a price not exceeding 5% above the public offering price.
B Explanation Stabilizing bids cannot be used to raise the market price of an issue. Stabilization may only be used to support a new issue security at or below the public offering price.
Where must the SEC's no-approval clause appear in a prospectus? A) Though not mandatory, but if used, on the first page B) On the cover C) Anywhere as long as it is conspicuous D) On the last page, under the name of the fund
B Explanation The SEC wants investors to know that it does not approve or disapprove new issues. The disclaimer statement must appear on the cover of all prospectuses.
All of the following may be included in an advertisement for a collateralized mortgage obligation (CMO) issue except A) a disclosure that payment assumptions may or may not be met. B) a statement that the CMO is guaranteed by the U.S. government. C) a generic description of the CMO tranche. D) a disclosure of the CMO's coupon rate and final maturity date.
B Explanation The U.S. government does not issue or back CMOs. It is also misleading to state or imply that a CMO's anticipated yield or average life is guaranteed. CMOs must include the coupon rate and the final maturity date, a generic description of the CMO tranche, and disclosure that payment assumptions may or may not be met.
ABC Corporation has just completed an IPO raising $100 million. The investment bankers handling the offering made total commissions of $4 million. It is most likely that this was A) an all or none underwriting. B) a best efforts underwriting. C) a firm commitment underwriting. D) a standby underwriting.
B Explanation The key to the question is commissions. In a best efforts underwriting, the investment bankers have no financial responsibility and earn a commission on whatever they sell. In a firm commitment underwriting, the syndicate members have taken the financial responsibility and earn the spread (considered to be a markup rather than a commission). This would not be a standby underwriting because that applies to rights, and as an IPO, rights would not be applicable.
In the underwriting of a municipal bond, which of the following is determined by the issuer rather than the underwriter? A) Yield to maturity B) Maturity C) Underwriting spread D) Net interest cost
B Explanation The maturity is determined by the issuer and stated in the official notice of sale before bids are received.
Your manager notifies you that a new municipal revenue bond issue you have been working on has been oversubscribed. How is the order acceptance priority for this issue determined? A) On a first-come, first-served basis B) As outlined in the agreement among underwriters C) As outlined in the legal opinion D) As outlined in the indenture
B Explanation The priority of filling municipal orders is established by the managing underwriter in the release terms letter sent to the syndicate once the bid is won. This letter is an amendment to the agreement among underwriters. The priority is also disclosed in the official statement.
Members of a syndicate receive notice of their share of the offering through A) the due diligence meeting. B) the syndicate letter. C) the official statement. D) the prospectus.
B Explanation The syndicate letter is sent by a municipal dealer to prospective members inviting them to join the syndicate and setting forth the conditions of the syndicate. Such conditions include who the manager will be, the percentage participation (each member's share), and the amount of good faith deposit required.
FINRA Rule 2210, communications with the public, describes several different categories of communications. One of those categories is called A) public appearances. B) correspondence. C) email. D) social media.
B Explanation The three categories of communications with the public are correspondence, institutional communications, and retail communications. The other choices shown here may fit into one of those categories but are not a distinctive category in the rule.
In a municipal underwriting, total takedown can be described as A) underwriting fee plus additional takedown. B) additional takedown plus concession. C) additional takedown plus management fee. D) underwriting fee plus manager's fee.
B Explanation The total takedown has two components: concession and additional takedown.
The primary difference between an underwriting syndicate member and a selling group member in a firm commitment underwriting is that A) the securities offered by each differs within the offering. B) the syndicate assumes liability for unsold shares, while the selling group does not. C) the price per share paid by the public is more if purchasing new shares from a selling group member. D) the size of a syndicate member firm will always be larger than a selling group member firm.
B Explanation The underwriting syndicate makes a financial commitment in a firm underwriting to bring a new issue to market and take liability for unsold shares. A member of a selling group only agrees to provide a sales service for a certain number of shares in exchange for a commission on shares it sells. It has no responsibility for any unsold shares. The securities offered are identical, and the public offering price is the same. Both large and small firms can be either syndicate members or selling group members.
Private placements A) may be advertised under all circumstances. B) may be advertised if all of those solicited are accredited investors. C) may never be advertised under any circumstance. D) can only be advertised when 35 or fewer of the investors are nonaccredited.
B Explanation To solicit or advertise private securities offerings, all purchasers of the advertised securities must be accredited investors, or the business must reasonably believe that the investors are accredited investors at the time of the sale.
Which of the following statements regarding a tombstone advertisement for a new issue is not true? A) Underwriters are not required to publish tombstone advertisements. B) They are used to offer the securities for sale. C) The advertisement is a statement of facts used to announce the new issue. D) They are the only types of advertising allowed during the cooling-off period.
B Explanation Tombstone advertisements, though not required, are the only type of new issue advertisement that would be allowed during the cooling-off period. While they are a statement of facts used primarily to announce the new issue, they may not offer the securities for sale.
An investor and his father own 8% and 5%, respectively, of a corporation's outstanding shares, and the father wants to sell his holding. According to Rule 144, which of the following statements are true? He must file Form 144 to sell the shares. He does not have to file Form 144 to sell the shares. He is considered an affiliated person. He is not considered an affiliated person. A) I and IV B) II and IV C) II and III D) I and III
B Explanation Under Rule 144, an affiliate is a person in a control relationship with an issuer. Because neither of the investors own at least 10% of the stock, they are not control persons under Rule 144 and do not have to comply with the rule. Certain family members, such as a spouse or other immediate family member residing in the same home, are required to combine holdings. If the question indicated that the father and son share the same residence, then the filing requirements of the rule would apply because the 13% total would make them control persons.
If an officer of a bank wants to purchase new issues, which of the following statements is true? A) She may purchase a new issue because anyone is allowed to purchase new issues. B) She may not purchase a new issue because she is considered a restricted person. C) She may purchase a new issue because no banking rules prohibit it. D) She may not purchase a new issue unless the amount she wishes to purchase is considered small in relation to the total offering.
B Explanation Under the rules regarding the purchase of new issues, bank officers would be characterized as restricted persons. They may not, therefore, purchase new issues.
Communications with the public include all of the following except A) institutional sales material. B) independently prepared reprints forwarded to your firm's customers. C) informational material on a new mutual fund intended for sales personnel. D) television appearances by an officer of the firm.
C Explanation Material intended for internal use only is not considered a communication with the public.
A registered representative reproduced a research report prepared by an independent research analyst on his broker-dealer's letterhead, with no mention of the party who prepared the report. If this literature is forwarded to a select group of clients only, the registered representative's action is A) allowed. B) allowed only if the research report has been filed with FINRA. C) not allowed. D) allowed with the written approval of a principal of the broker-dealer.
C Explanation A broker-dealer is prohibited from presenting to a client research reports, analysis, or recommendations prepared by other persons or firms without disclosing that they were prepared by a third party.
A dealer that quotes a concession of half to another dealer means A) 0.5% of the market price. B) 0.5% of the dealer's price. C) $5 per $1,000 of par. D) a 50% commission split.
C Explanation A concession between broker-dealers on secondary market transactions is a discount from the yield that the broker-dealer is quoting. It is common for a broker-dealer to offer bonds to other broker-dealers at a price, less the concession. The net price becomes the purchase price for the buying broker-dealer. If simultaneously sold to a retail account, the markup is from the net price paid. If not simultaneously retailed but held in the broker-dealer's inventory, it is fair for the broker-dealer to market her inventory and mark up from there for retail sale.
Who signs the agreement among underwriters for a municipal bond issue? A) Managing underwriter and trustee B) Managing underwriter and issuer C) All members of the underwriting syndicate D) Managing underwriter and bond counsel
C Explanation All members of the syndicate, including the managing underwriter, sign the agreement among underwriters. It is not signed by the issuer, bond counsel, or trustee.
Which of the following securities is not exempt from the registration provisions of the Securities Act of 1933? A) A high-quality corporate promissory note maturing in 180 days B) A U.S. government bond C) A new stock being offered in three states D) An equity security issued in only one state, solely to residents of that state
C Explanation Government securities, money market instruments, and intrastate offerings are exempt from the registration provisions of the Securities Act of 1933. A stock being offered in three states would have to register with the SEC and with those states.
A new offering has a green shoe option. This means A) the issuer has purchased put options to protect itself against a decline in the price of the stock. B) the syndicate is obligated to purchase up to 15% of the offering. C) the syndicate can oversell by up to 15% of the offering. D) the syndicate members have purchased put options to protect against a decline in the price of the stock.
C Explanation If the syndicate manager, based on anticipated demand, wants to sell more shares than initially registered with the SEC, the manager can invoke the green shoe clause on short selling. A green shoe clause, negotiated with and agreed to by the issuer, allows the syndicate to sell up to 15% more shares than initially registered within 30 days of the IPO beginning to trade. The additional shares are made available to the syndicate by the issuer. To be effective, a green shoe clause must be disclosed in both the registration statement filed with the SEC and the prospectus. **This question deals with material not covered in your LEM, but it relates to recent rule changes and/or student feedback.
In some underwritings, the anticipated demand for a new issue is higher than the syndicate estimated. Because they believe they will be able to sell more shares than are available, they will want to invoke A) an additional public offering. B) the red shoe clause. C) the green shoe clause. D) their preemptive rights.
C Explanation If the syndicate manager, based on anticipated demand, wants to sell more shares than initially registered with the SEC, the manager can invoke the green shoe clause on short selling. A green shoe clause, negotiated with and agreed to by the issuer, allows the syndicate to sell up to 15% more shares than initially registered within 30 days of the IPO beginning to trade. The additional shares are made available to the syndicate by the issuer. To be effective, a green shoe clause must be disclosed in both the registration statement filed with the SEC and the prospectus. **This question deals with material not covered in your LEM, but it relates to recent rule changes and/or student feedback.
Which of the following would not be found in the underwriting of a new corporate bond issue? A) A stabilization clause B) The holding of a due diligence meeting C) A legal opinion D) A market out clause relieving the underwriter of his responsibility
C Explanation Municipal securities are the only ones requiring a legal opinion. The bond counsel provides the legal opinion attesting to the validity, enforceability, and tax status of the issuer's bonds. There is no such requirement for corporate debt issues. It is possible you are not familiar with stabilizing a new issue or the market out clause. On the real exam, there will be answer choices you may have never seen before. But, just as in this question, the correct answer does not require you to know these other terms (you can look them up in the LEM's glossary). The point is, don't lose control when you see something unfamiliar.
The ABCD Corporation's common stock is listed on the NYSE. For expansion purposes, ABCD plans to issue an additional 300,000 shares using authorized, but unissued, shares. This additional public offering (APO) is classified as A) a secondary offering. B) a mixed offering. C) a primary offering. D) an authorized offering.
C Explanation New and primary are the same, and because the issuer receives the sales proceeds, these are known as primary or issuer offerings. Once these shares trade later between investors, this is the secondary market. A registered secondary offering is the sale of previously issued stock to the public. An example would be a selling stockholder (typically an insider or affiliate) wishing to sell more than Rule 144's safe harbor.
When an existing, long established publicly traded corporation issues a large block of new shares in order to expand or modernize, it is A) an IPO. B) a secondary distribution. C) a primary distribution. D) a refunding.
C Explanation New shares are always part of a primary distribution. When it is the first time, it is an initial public offering (IPO). That does not apply here because this company already has shares publicly trading.
Which of the following is least likely to impact an underwriter's considerations when establishing the offering price for a new issue? A) Earnings multiples for other companies in the market in the same industry B) Projected earnings for the company C) Geographic location of the company headquarters D) Demand for the security by the investing public
C Explanation Of the choices given, unless the geographic location of the company was critical to its financial success in some way it is the least likely factor to be considered by underwriters when pricing the new issue. Indications of interest (demand for the securities), projected earnings, and comparative financial data for similar companies in similar industries are much more likely to impact pricing of the new issue.
An investor is buying stock through a private placement. Under the Securities Act of 1933, which of the following statements is true? A) The stock must first be registered with the SEC. B) The investor will receive a letter stating their ownership. C) The stock need not be registered with the SEC. D) The investor must notify the SEC that they are buying private placement securities.
C Explanation Private placements are exempt transactions under Regulation D of the Securities Act of 1933 and are therefore exempt from registration. Investors in a private placement of stock are entitled to receive a stock certificate as with any stock purchase. However, the certificate may bear a legend indicating that it cannot be transferred without registration or exemption.
A resident of a state who acquires stock pursuant to Rule 147 (intrastate offerings) is prohibited from selling the stock to a nonresident of that state for how many months? A) 12 B) 18 C) 6 D) 3
C Explanation Rule 147 stock cannot be sold to a nonresident of the state for a period of six months after the purchase date.
Under Rule 506(c) of Regulation D, advertising is permitted when A) the advertisements have been filed with FINRA. B) the advertisements have been approved by a principal. C) the issue is limited to accredited investors. D) there are no more than 35 nonaccredited investors.
C Explanation Rule 506 of Regulation D of the Securities Act of 1933 has two parts. Rule 506(b) prohibits any advertising of the private placement, while Rule 506(c) permits it. The primary condition to be met is that the issue is offered solely to accredited investors. It is Rule 506(b) that has a limit of 35 nonaccredited investors, but that has nothing to do with the advertising restriction. Regulation D applies to issuers, not broker-dealers, so there is no principal to go to for approval. In the same vein, because issuers are not FINRA members, filing with FINRA is irrelevant.
A registered representative opens a new account for an investment club. His spouse is a member of the club and owns 15% of the club's assets. The registered representative wants to sell shares of a common stock IPO to the investment club. This is allowed A) only if the IPO is suitable for the investment club. B) with written notice to the SEC. C) under no circumstances. D) with written principal approval.
C Explanation Rules prohibit member firms from selling common stock IPOs to restricted persons. Under the rules, the account would not be restricted if the assets owned by the spouse made up less than 10% of the club's assets. Because the registered representative's spouse is a member of the investment club and owns more than 10% of the club's assets, the registered representative cannot sell shares of the IPO to the club.
If a customer owns 7% of a publicly traded company's stock, and his spouse owns 6% and wants to sell her shares, which of the following statements is true? A) The spouse is an affiliate, and Rule 144 does not apply. B) The spouse is not an affiliate, and Rule 144 does not apply. C) The spouse is an affiliate, and Rule 144 applies. D) The spouse is not an affiliate, and Rule 144 applies.
C Explanation Together, the client and wife own 13% of the company's stock, so the spouse is considered an affiliate and is bound by Rule 144. Unless otherwise specified, the exam assumes spouses reside in the same home. If there is a 10% or more ownership interest among members of an immediate family, then only those who live in the same home, or receive significant financial support, are combined and are considered control persons (affiliates) who are subject to Rule 144.
Gentry is the chief operating officer (CFO) of RMBM, a NYSE-listed corporation. Gentry has an account at your firm, and five months ago, Gentry purchased 1,000 shares of RMBM common stock at $50 per share. The RMBM shares are now $125 per share, and Gentry exits the position at that price. Which of the following statements presents the view of the SEC? A) Gentry has done nothing wrong because the stock was purchased in the open market. B) Gentry has violated the holding period requirements of Rule 144. C) Gentry has violated the short-swing profits rule. D) Gentry has violated the volume requirements of Rule 144.
C Explanation Section 16 of the Securities Exchange Act of 1934 contains the short-swing profits rule. This rule states that any insider of a publicly traded corporation (the CFO would certainly be included in the definition of insider or affiliate) is prohibited from profiting from any purchase or sale (or sale and purchase) of the company's equity securities within a period of less than six months. This rule authorizes the corporation to recover from such statutory insider any so-called "short swing" profits. The term used in industry circles is that the profit must be disgorged (given back). There is nothing illegal here—no fines or penalties. However, we investors might consider returning a $75,000 profit to be a penalty. This stock was purchased in the secondary market, so the Rule 144 holding period does not apply. Rule 144 permits affiliates (like Gentry) to sell up to 1% of the outstanding shares over a 90-day period. RMBM is listed on the NYSE, and 1,000 shares is certainly much less than 1% of the shares outstanding. You do not need to know the listing requirements, but listing on the NYSE requires a minimum of 1.1 million shares outstanding.
In reviewing prospectuses and registration statements, the SEC A) passes on the merits of a particular security covered by a registration statement. B) certifies the accuracy of the disclosures made in a prospectus. C) does not approve or disapprove of the issue. D) guarantees the adequacy of the disclosures made in a prospectus.
C Explanation The SEC requires full disclosure regarding a new issue so that investors can make informed decisions about the security. The SEC does not, however, guarantee the accuracy or adequacy of the information, nor does it approve or disapprove of the issue.
Which of the following legislative acts exclusively regulates debt securities? A) Securities Act of 1933 B) Investment Advisers Act of 1940 C) Trust Indenture Act of 1939 D) Securities Exchange Act of 1934
C Explanation The Trust Indenture Act of 1939 protects investors in corporate bonds should the issuing company default. While the Securities Act of 1933 and the Securities Exchange Act of 1934 both have provisions dealing with corporate debt securities, the Trust Indenture Act of 1939 is the only act that affects them exclusively.
During the cooling-off period of a new issue's registration with the SEC, a preliminary prospectus may be sent to prospective investors. This document would not include A) disclosure of the issuer's planned use of the proceeds. B) a statement that the securities may not be sold and offers to buy may not be accepted before the registration statement becomes effective. C) the offering price and effective date. D) pertinent information about the upcoming offering.
C Explanation The offering price, largely based on the indications of interest from prospective investors, is generally set on or immediately before the effective date. The SEC declares the effective date, and that is when orders can be accepted. The preliminary prospectus contains a statement to the effect that information included is subject to change and may be incomplete. There is enough information about the issuer and the offering for an investor to make a nonbinding indication of interest.
All of the following regarding the official statement for a new municipal issue are true except A) that it meets disclosure requirements for purchasers of the new issue. B) that it can be used to review the issuer's creditworthiness. C) that it is also called a prospectus. D) that it must include information about the offering's call provisions.
C Explanation The official statement is the disclosure document for each new issue of exempt municipal bonds. Although it is similar to a prospectus, these terms are not synonymous. The official statement commonly includes information about the call provisions of the bond, creditworthiness of the issuer, and other information potential purchasers should know before investing.
An investor purchases 1,000 shares of a stock in a Regulation D private placement. The investor is not deemed an affiliate of the issuer. If the investor wishes to sell, A) as a nonaffiliate, there is no required holding period. B) the stock must be held for a minimum of nine months. C) the stock must be held for a minimum of six months. D) the stock must be held for a minimum of one year.
C Explanation The resale of privately placed stock comes under Rule 144. As a nonaffiliate, the only restriction is that of time (affiliates have time and volume limits). The time limit for all purchasers is six months. Technically, the wording is six months fully paid for, but it is unlikely the exam will go that deep into the weeds.
The difference between the syndicate bid and the reoffering price on a competitive bid of a new municipal underwriting is A) the scale. B) the selling concession. C) the spread. D) the discount.
C Explanation The spread, or underwriter's compensation, on a competitive bid underwriting is the difference between the bid to the issuer and the dollar price at which the underwriter reoffers the bonds to the public.
XYZ Corporation is preparing a registration statement for a new issue consisting of 300,000 new shares and 200,000 existing shares held by officers. The offering price is $30 per share, and the spread taken by the underwriters is $2 per share. After the offering is complete, XYZ will receive A) $14,000,000. B) $9,000,000. C) $8,400,000. D) $15,000,000.
C Explanation XYZ Corporation will receive $28 per share for each of the 300,000 new shares being issued ($30 per share price less the $2 spread). The proceeds from the 200,000 shares sold by the officers will benefit the officers themselves, not XYZ Corporation.
FINRA Rule 2210, communications with the public, has a number of filing requirements. Some communications are prefiled, others are postfiled, and some are excluded from filing with FINRA. Included in the list of exclusions would be retail communications A) that do not make any financial or investment recommendation, but only promote a service offered by the member. B) dealing with specific index funds that previously have been filed with FINRA and that are to be used, with the only change being a recommendation of index exchange-traded funds from the same sponsoring organization. C) that do no more than identify and recommend a specific registered investment company or family of registered investment companies. D) that do no more than identify a national securities exchange symbol of the member or identify a security for which the member is a registered market maker.
D Explanation A communication limited to identifying the member's exchange or market-maker symbol is excluded from the FINRA filing requirements. A communication that identifies and recommends a specific investment company or companies must be filed. When previously filed material is used, no filing is necessary as long as there is no material change. However, changing from recommending specific funds to specific ETFs is a material change and would require filing. A retail communication promoting a service offered by a member firm is a communication that would likely need filing with FINRA.
Which of the following does not participate in the syndicate (joint account) for a municipal underwriting? A) A financial advisor acting as a municipal securities dealer B) A bank dealing in municipal securities C) A municipal broker-dealer D) The issuing municipality
D Explanation A syndicate or joint account helps spread the risk of underwriting an issue among a number of underwriters—n this case, banks and broker-dealers who deal in municipal securities. The issuing municipality would not be a member of the syndicate (joint account) formed for the purpose of selling their municipal securities to the public.
ABC Corporation is offering 500,000 units to the public at $5 per unit. Each unit consists of two shares of ABC preferred stock and one perpetual warrant for half of a common share of ABC, exercisable at $5. How much capital was raised by the initial sale of the issue? A) $1.25 million B) $5 million C) $7.5 million D) $2.5 million
D Explanation Because the issuing corporation is offering 500,000 units to the public at $5 per unit, the total amount of capital to be raised by this sale will be $2.5 million (500,000 units × $5 per unit). Be sure to read the question carefully. It is only referring to the initial sale of the units. If those warrants are exercised in the future, the company will receive additional capital.
Before the filing of a registration statement for a new issue, a registered representative may not solicit indications of interest for the security. solicit orders. confirm the sale of the security to a customer. A) II and III B) II only C) I only D) I, II, and III
D Explanation Before the registration statement is filed, no sale, solicitations, or indications of interest in the issue may occur.
Which of the following accurately depicts communications with the public designated as correspondence? Review by a principal must occur before use. Review by a principal can occur either before or after use, in accordance with the firm's written procedures. Filing with FINRA is required. Filing with FINRA is not required. A) I and III B) II and III C) I and IV D) II and IV
D Explanation Correspondence review by a principal can occur either before or after use, in accordance with the firm's written procedures. Filing of correspondence with FINRA is not required.
Which of the following municipal securities could have been sold in a negotiated underwriting? A) Industrial development bonds B) Limited tax bonds C) School bonds D) All of these
D Explanation Either municipal revenue or general obligation (GO) bonds can be underwritten using a negotiated underwriting process to set the terms of the new issue. Industrial development bonds are revenue bonds, while both limited tax bonds and school bonds are types of GO issues.
In which of the following types of offerings does a brokerage firm have no financial obligation for unsold securities? All or none Best efforts Standby A) I and III B) II and III C) I, II, and III D) I and II
D Explanation In a best efforts underwriting, the underwriter serves as an agent with no financial obligation for unsold securities. In an all-or-none offering, the underwriter agrees to devote its best efforts to sell the issue, but the entire offering is canceled if all shares cannot be sold. In a standby underwriting, the underwriter agrees to purchase any unsold shares remaining after the expiration of a rights offering (firm commitment).
Under the intrastate offering rule (Rule 147), when may a resident purchaser of securities resell them to a nonresident? A) None of these B) Six months after the last sale made in that state C) Three months after the first sale made in that state D) Six months after the purchase date
D Explanation In an intrastate offering, a purchaser of the issue may not resell the securities to a resident of another state for at least six months after the purchase date.
In an undivided syndicate, liability for unsold securities rests with A) the syndicate members that failed to sell their allotment. B) the issuer. C) the syndicate manager. D) the syndicate members on a pro rata basis.
D Explanation In an undivided (Eastern) account, liability for unsold securities rests with each syndicate member based on its participation percentage. For example, if a syndicate member has a 10% participation, that member would be responsible for 10% of any unsold securities (even if that member sold all of its participation). Sales do not affect undivided accounts.
The terms of municipal general obligation (GO) and revenue bond offerings may be set by the issuer as A) competitive bid underwriting arrangements only. B) negotiated underwriting arrangements only. C) neither a competitive bid nor negotiated underwritings. D) either competitive bid or negotiated underwritings.
D Explanation Municipal bond underwriting terms may be set by the issuer as either competitive bid or negotiated for both GO and revenue bond issues.
Which of the following are exempt from the registration provisions of the Securities Act of 1933? Variable annuities Bonds issued by the State of Alaska Mutual funds Commercial paper maturing in 90 days A) I and III B) I and IV C) II and III D) II and IV
D Explanation Municipal bonds are always exempt from registration under federal law, as is commercial paper with a maturity of 270 days or less.
If you are an associated person of a FINRA member, which of the following individuals is not considered a restricted person and may buy shares of a new issue? A) Your spouse B) Your parents C) Your supervisor at that member firm D) Your grandparent
D Explanation Of those listed, a grandparent would not be considered a restricted person and would be allowed to buy shares of a new issue. Remember that while immediate family members are restricted, aunts, uncles, and grandparents are not considered to be immediate family members under the FINRA rule.
Popular Investment Securities, a FINRA member firm, produces short videos describing the general characteristics of different types of securities. Periodically, an interstitial appears during the video. Under FINRA's rules on communications with the public, A) as long as the presentation is strictly generic, filing with FINRA is not required. B) interstitials may not be used in public communication without the consent of the viewer. C) video presentations of any kind must be filed with FINRA within 10 days after first use. D) the appearance of the interstitial defines the video as retail communication requiring filing.
D Explanation Probably the best example of an interstitial is the pop-up ad. Sometimes it is a full-page ad causing the viewer to see the advertisement before being able to see the rest of the content. Without the interstitial, a generic video describing general characteristics of a type of security would not require filing. But, once that advertisement pops up, it is now retail communication and must be filed.
A firm underwriting of a municipal bond issue usually has a number of different broker-dealers involved. Those who earn the total takedown on each sale they make are performing in the role of A) the syndicate manager. B) a selling group member. C) the issuer. D) a selling syndicate member.
D Explanation Selling syndicate members have a commitment to sell the bonds allocated to them. On each bond the member sells, the total takedown (the takedown plus the additional takedown) is earned. Selling group members earn the concession. The syndicate manager earns the entire spread on any bonds it sells.
One term you would never see in conjunction with an underwriting of a municipal security is A) syndicate. B) takedown. C) concession. D) standby.
D Explanation Standby underwriting is a term associated only with a rights offering. A rights offering can only be done by a corporation issuing new shares of stock. States and municipalities do not issue stock.
In the context of municipal bond underwritings, the true interest cost (TIC) is different from the net interest cost (NIC) because it A) reflects the credit risk. B) is the method required by the IRS. C) produces a lower cost of borrowing for the issuer. D) reflects the time value of money.
D Explanation The TIC method uses present value calculations that consider the time value of money (as opposed to NIC, which does not consider the timing of interest payments). It is a more complicated calculation than NIC. The IRS is not concerned with this issue.
A legal contract—known as an indenture—between a bond issuer and a trustee appointed to represent the bondholders is required for A) government bond issues of any size sold to domestic (U.S.) investors. B) municipal bond issues of $100 million or more sold within one municipality. C) corporate bond issues of $25 million or more sold interstate. D) corporate bond issues of $50 million or more sold interstate..
D Explanation The Trust Indenture Act of 1939 requires corporate bond issues of $50 million or more sold interstate to be issued under a trust indenture, which is a legal contract between the bond issuer and a trustee representing bondholders
All the following statements are false about the process of awarding an underwriting to a syndicate except A) in a competitive bid situation, the contract is award to the syndicate bid that reflects the highest net interest cost to the issuer. B) a negotiated underwriting is the standard in a general obligation municipal underwriting. C) a competitive bid underwriting is the standard for corporate offerings. D) a competitive bid underwriting is the standard for general obligation municipal underwritings.
D Explanation The double negative in the question tells us we are looking for the true statement. A competitive bid underwriting is the standard for general obligation municipal bond underwritings. In many cases, state law requires competitive bidding. On the other hand, negotiated underwritings seem to dominate municipal revenue bonds. Negotiated is also the primary method for corporate issues. The award in a competitive bid is to the syndicate submitting a bid representing the lowest net interest cost (NIC). In some underwritings, it is the lowest true interest cost (TIC). TIC accounts for the time value of money.
Smith and Company, a FINRA member firm, is preparing to underwrite securities to be issued by KLC Corporation for a new business venture. For which of the following will Smith and Company be responsible? Filing the registration statement with the SEC and state regulatory bodies Providing advice on the type of security to be issued Distributing the security to the public Providing advice on how KLC can best use the funds raised A) II and IV B) I and III C) I and IV D) II and III
D Explanation The issuer is ultimately responsible for filing registration statements with federal and state regulatory bodies and has already determined how the money will be used. The underwriter confines his activities and advice to the type and sale of the securities.
In a firm commitment underwriting of a municipal bond issue, when the syndicate manager makes the sale, the compensation is A) the selling concession. B) the total takedown. C) the manager's fee. D) the spread.
D Explanation The only party in an underwriting who makes the entire spread is the syndicate manager (or managers if jointly managed). The manager's fee is what the manager makes on sales by everyone else. When a syndicate member makes a sale, the compensation is the total takedown. When a selling group member makes a sale, the compensation is the selling concession.
You are asked to read the preliminary prospectus for a new issue of common stock for a client. You would expect the preliminary prospectus to include A) the effective date of the offering and the final offering price. B) the effective date of the offering and the risks associated with the offering. C) an overview and history of the issuer's business and the final offering price. D) an overview and history of the issuer's business and any risks associated with the offering.
D Explanation The preliminary prospectus will include an overview and history of the business, as well as any risks associated with it. The preliminary prospectus cannot include the effective date or the public offering price because they have yet to be determined. It will generally include the expected price range, but not the final offering price.
The portion of a municipal bond underwriting spread that remains after the syndicate manager subtracts the management fee is A) the concession. B) the total spread. C) the additional takedown. D) the total takedown.
D The total takedown is that portion of the municipal underwriting spread that remains after the underwriting manager takes the management fee. The total takedown consists of the additional takedown and the concession.
A retired customer was unhappy with the low yields paid by her CDs. In their first meeting, her registered representative recommended Class B shares of a long-term government bond fund, emphasized the safety of government bonds, and provided her with a prospectus. After signing a statement saying she had read and understood the prospectus, the customer invested all of her money in the fund. A year later, interest rates rose, and the value of the fund declined. Having assumed the fund was government guaranteed, she was upset and became increasingly so when she learned that the deferred sales charge could cause her to lose additional money if she were to redeem her shares. Which of the following statements is true? A) Because the fund invests in government bonds, it is government guaranteed and is therefore just as safe as a CD. B) Because no one can predict interest rate moves, and the customer had read the prospectus, the bond fund was an appropriate investment. C) Because her money was originally in a single investment, it was suitable to move her funds into another single investment. D) The representative should have fully explained the features, charges, price fluctuations, and other characteristics of a bond fund before having the customer make such a substantial investment commitment.
D Explanation This customer is used to low-risk investments. The prospectus must not only be supplied, but the risks must be fully explained as well.
A registered representative of a FINRA member firm is going to present a seminar on retirement planning. It will be a slide show, and no specific advice will be given. The expected attendance is approximately 50 people. Under the FINRA rule on communications with the public, A) this is a public appearance and no approvals are necessary. B) this seminar can take place only if the recommendations are tailored to the specific needs of the audience. C) a registered principal is required to attend to ensure that the standards of ethical conduct are maintained. D) the slides are considered a retail communication and need principal approval before first use.
D Explanation Under the FINRA rule on communications with the public, it is only an unscripted presentation that needs no principal approval. The use of slides changes things, and once more than 25 individuals will see them within a 30-calendar-day period, those slides are retail communications. As such, principal approval is required. Because the question states that no specific advice will be given, suitability of recommendations is irrelevant. However, all presentations at seminars should consider the nature of the audience and keep the presentation at the appropriate level.