SIE UNIT 1
All of the following phrases are associated with a broker dealer acting as a principal, except.
"Charges a commission for the transaction" When a BD acts as a principal (dealer, market maker), they are selling securities from the firm's inventory to a customer or buying a security from a customer for the dealer's inventory. The firm profits on the difference between what the firm paid for the security and what the customer pays, which is called the spread (or mark-up). There is no commission when a firm acts in a principal capacity.
The current quote for PQR Inc. common stock is bid 42, ask 42.10, 4 x 5. A customer who places an order to buy 200 shares at the market will likely pay how much for the purchase?
$8,420 Your customer will likely buy at the ask (42.10) or very close to it. The ask size is 500 shares, so the market can absorb the entire order (42.10 × 200 = $8,420). Customers who are selling receive the bid. Those who are buying pay the ask. The size shows bid × ask: 400 shares may be sold at 42 and 500 shares are available to buy at 42.10.
All of the following are false descriptions of different securities offering types EXCEPT
...in a primary additional issue, underwriting proceeds go to the issuer. As with all primary offerings, new issue (IPO) underwriting proceeds go to the issuing company.
BuyStuff, Inc., common stock is listed on the NYSE. Great Plains Securities is an over-the-counter market maker and has a posted quote for BuyStuff common of 250.10-255.50. If Great Plains wants to enter a new quote, the smallest incremental change is
0.01. The stock is quoted in increments of no less than one cent (0.01).
ABC currently has the following quotes: Bid Ask Size 10.00 10.50 3 × 2 10.20 10.45 4 × 3 10.25 10.60 3 × 2 What is the spread in ABC?
0.20. The spread is computed as the difference between the lowest ask and the highest bid. In this case, the lowest ask is 10.45 and the highest bid is 10.25. Therefore, 10.45 - 10.25 = 0.20.
Which of these may be found in the final prospectus that is NOT in the preliminary prospectus? I. Next year's sales II. Public offer price III. Release date IV. Planned use of the proceeds
1. Public Offer Price and Release Date. The public offer price may vary up until the release date. The SEC determines the release date, not the issuer. Next year's sales are counted next year, and could not be in the prospectus. Planned use of the proceeds is in both documents.
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
10%. If the beneficial interests of restricted persons do not exceed 10% of an account, the account may purchase a new equity issue.
Secondary markets exist to do all f the following except... A. Support the existence of primary markets B. Allow individual investors easy access to investment vehicles C. Decrease liquidity in the national markets D. Allow investors to easily liquidate securities
3. Decrease liquidity in the national markets Secondary markets are focused on providing, not decreasing liquidity. Ultimately, a fair and orderly secondary market makes securities more attractive, supporting the functioning of the primary markets.
What is the maximum number of nonaccredited investors allowed in a Regulation D exempt transaction under Rule 506(b)?
35. The SEC does not require registration of an offering under Regulation D as long as there are no more than 35 nonaccredited investors. There is no limit to the number of accredited investors that may invest in the private placement.
A client entering a sell limit order at 43 would accept which of these trades? 44 42.5 42 42.9
42.9
How long can a 'Good 'Til Canceled" order remain in force without being reconfirmed by the customer?
6 Months.
The aftermarket prospectus requirement for the IPO of nonlisted securities is...
90 days.
BigCo is currently quoted bid 32 ask 32.5 10 × 12. Your customer may be able to buy A. 1,000 shares at $32/share B. 1,200 shares at $32/share C. 1,200 shares at $32.50/share D. 1,000 shares at $32.50/share
Buy Limit. While market orders are always executed immediately at the current market price, limit orders can be only executed at the limit price designated by the consumer or better. For a buy limit order, or better means at the limit price or lower.
Narcissus, Inc. a social media company, has shares selling at $52. Your customer likes the company but thinks it is currently a bit too high and would like to buy the stock if the price declines to $50 per share. Which of the following orders meets this customer's request? 1. Buy outs with a 50 strike 2. Buy stop at 50 3. Buy stop at 55, limit 50 4. Buy limit @ 50
Buy limit @ 50 This order instructs the broker to buy at a price of $50 or better. Entering a buy stop at 50 would trigger the order immediately, becoming a market order to buy at the current price. The stop limit would not trigger until the stock rose at 55, then it would be an order to buy at 50, so the stock would have to rise at least 55 then drop to 50 or below.
An investor who has a short position in 500 shares of JKH common stock would eliminate that position by....
Entering a closing purchase order for 500 shares of JKH.
A corporation enlists the services of a transfer agent, who would be expected to handle all of the following functions except...
Filing an S-1 registration statement. The transfer agent for a corporation is responsible for ensuring that its securities are issued in the correct owner's name; canceling old certificates and issuing new ones; maintaining record of ownership; and handling problems relating to lost, stolen, or destroyed certificates. It is the registrar - a separate entity - who is responsible for registering the corporation's securities with the state.
Which of the following is an exempt issue?
Fixed annuity Fixed annuities are exempt from registration.
Which of the following calls for the underwriters to buy securities from the issuer acting as an agent, not as principal?
Follow-On Offering In a best efforts underwriting the underwriters (syndicate) buy securities from the issuer acting simply as an agent, not as principal. This means that the underwriter is not committed to purchasing the shares and is therefore not at risk. The underwriter acts as an agent contingent on its ability to sell shares in either a public offering or a private placement.
During the cooling-off period, underwriters may do all of the following except:
Gather binding indications of interest. There are NO binding indications of interest. Indications of interest are NONBINDING. All the other functions mentioned are allowed during the cooling off period, as are non-binding indications of interest.
A term indicating that a security is tradable and all of the requirements of the contract to sell the security have been met and the security is ready to be transferred is....
Good delivery. "Good Delivery" means that all the conditions of the contract have been met.
If a customer's shares are held by and registered to the broker-dealer, the shares are said to be...
Held in street name. Shares held in street name are normally registered to the broker-dealer, who hold them on behalf of the client at the broker-dealer's clearing firm.
When shares are held in street name, this refers to the shares being....
Held in the name of the broker dealer for the beneficial owner. When shares are held in street name, they are being held in the name of the broker-dealer for the beneficial owner. This does not encumber the shares regarding receipts of dividends or their transferability if sold.
WRJ stock is quoted as 21 bid,, 21.15 offer. For a customer order, which of the following is TRUE?
I. A purchase can be made at $21 per share if buying at the market. III. The spread is 0.15.
Your client, Bill Hearst, inherited several thousand shares of his grandfather's auto parts manufacturer, National Autoparts. He sells a portion of the position in order to raise some cash to buy a new boat. Which of these is true? I. This is a secondary market transaction. II. This is a primary market transaction. III. This is a long sale of the stock. IV. This is a short sale of the stock (he never purchased it).
I. This is a secondary market transaction III. This is a long sale of the stock.
During the 20-day cooling-off period, I. solicitations of sales can be made. II. solicitations of sales may not be made. III. deficiency letters, if issued, are sent to the issuer. IV. deficiency letters, if issued, are sent to the underwriters.
II and IV. No solicitations of sales are permitted during the cooling-off period. If a deficiency letter is issued by the SEC halting the review of the registration, it is sent to the issuer who is responsible for correcting the deficiency.
A large-volume transaction for an institutional investor has occurred on an alternative trading system or network. Entered anonymously, the general public will see no information regarding the volume, price, or who the institutional investor was. The transaction scenario is generally referred to as having occurred:
In a dark pool.
Under the intrastate offering rule (Rule 147), when may a resident purchaser of securities resell them to a nonresident?
In an intrastate offering, a purchaser of the issue may not sell the securities to a resident of another state for atleast SIX months from the date of purchase.
Which of the following activities would be handled by a carrying firm and not an introducing firm?
Issuing statements for customer accounts. Holding customer assets is a task handled by a carrying firm rather than an introducing firm.
Which of the following statements regarding the third market is true?
It is composed of listed securities traded OTC.
During the cooling-off period the disclose document that may be delivered to interested parties is called the...
Preliminary prospectus. The document available during the cooling-off period in the preliminary prospectus, also called a red herring.
An investor receives a quote of 62.55 - 62.60 for Fontana Steel Corp. common stock. Which of these is TRUE?
Purchasing the stock will cost $62.60 per share. Quotes are provided in bid-ask form. The first number— the bid—is the price an investor can sell a security. The second number—the ask—is the price an investor will need to pay to buy the security
The Securities Act of 1933 protects investors who buy new issues by doing all of the following except...
Requiring the licensing of persons affiliated with broker-dealers. Licensing of individuals associated with broker-dealers is mandated under the Securities Exchange Act of 1934.
Both the individual and institutional investor are able to easily buy and sell securities to meet their objectives through....
Secondary markets.
A customer is given a quote for ABC as: 17.00 - 17.25 6 x 12. This quote indicates the customer can:
Sell 600 shares for $17 per share. Customers can purchase at the offer (the lowest price someone else is willing to sell) and sell at the bid (the most someone else is willing to sell). With this in mind, the customer can buy up to 1,200 shares at $17.25 or sell up to 600 shares at $17.
The market for Dizzy Rides Inc. is at $52 per share. Your customer would like to sell his shares for $55, and believes the stock will climb to that level in the next two to three weeks. What order should he place?
Sell limit 55 GTC. Only the good-til-canceled (GTC) order will live past today. All the others will cancel if unexecuted by the end of the day. If there is no qualifier then it is a day order. Fill-or-kill (FOK) orders that cannot be filled immediately are cancelled. An all-or-none order would need to also be marked GTC to go into the next day.
The market for Sierra Verda Coffee Company stock is at $72 per share. Your customer would like to sell his share for $75, and believes the stock will climb to that level in the next two to three weeks. Which order should he place?
Sell limit 75 GTC. Only the good-til-canceled (GTC) order will live past today. All the others will cancel if unexecuted by the end of the day. If there is no qualifier, then it is a day order. Fill-or-kill (FOK) orders cannot be filled immediately or canceled. An all-or-none (AON) order would need to also be marked GTC to go into the next day.
An order that when triggered becomes a limit order is called a
Stop limit order
The SEC regulates the trading of all of the following except:
The London Stock Exchange
Regarding the issuance of new securities to the public, which of the following is true?
The Securities Act of 1933 provides criminal penalties for fraud.
The federal law requiring companies offering public equity or debt securities to provide a prospectus to investors is known as...
The Securities Act of 1933. The Securities Act of 1933 is also known as the Prospectus Act. With limited exceptions, companies looking to offer securities to the public must provide a prospectus to those who are approached about purchasing those securities. A prospectus is a disclosure document that provides key information about the company.
Great Plains Securities, an OTC market maker, holds inventory and provides liquidity for Modulux Homes, an NYSE listed company. This is an example of...
The THIRD Market. The fourth market is composed of electronic communication networks and is primarily used by institutional investors.
Regarding the registration statement filed with the Securities and Exchange Commission (SEC) when new securities are to be issued, all of the following are true except
The accuracy and adequacy of the registration documents is the responsibility of the underwriters. While underwriters (broker-dealers and investment bankers) may assist the issuer in preparing and filing the registration statement, the accuracy and adequacy of the registration documents is the responsibility of the issuer. Full disclosure is also made on a number of issues, including but not limited to names and addresses of company officers and a description of how the sale proceeds will be used.
A corporation seeking to raise funds in order to expand its manufacturing capacity would do so in....
The capital market. Raising new capital is generally accomplished thorugh the issuance of stock ( equity capital) or bonds (debt capital). This is done in the capital market. When an issuer offers stock and the proceeds from the sale are added to the company's capital, it is called a primary offering. By contrast, a secondary offering is one in which one or more shareholders in the corporation sell all, or a portion of their equity holdings to the public. The proceeds of a secondary offering are paid to the selling shareholder(s), not the company.
Seacoast Securities is a syndicate member for the initial public offering of WeariTech, Inc. WeariTech is a hot new issue in the wearable technology space. The S-1 registration statement has been filed but the effective date has not been released yet. This is....
The cooling-off period. The period of time after the offering is filed, but before the SEC releases the security for sale, is called the cooling-off period.
When the SEC clears securities for sale to the investing public, this is..
The effective date.
Electronic communication networks (ECNs) are part of:
The fourth market. The market centers that operate through ECNs are known as the fourth market. These centers were created to serve large institutional investors like mutual funds and pension plans. The fourth market reduces the transparency of trading activity by these organizations and allows them to trade more efficiently.
The ABC Chemical Company wishes to advertise its upcoming offering of common stock in a tombstone advertisement that they, the issuer, will place. When placing the tombstone advertisement, which of the following would be LEAST likely to appear?
The names of the investment bankers underwriting the issue.
An investor is long MJS stock. For this investor, which of the following is true?
The risk is that the stock falls in price. For an investor with a long stock position, the risk is that the stock falls in value. Maximum loss occurs at zero and is therefore limited to the amount paid for the stock when purchased.
What federal law regulates the initial sale of securities to the public?
The rules for registering a new issue come primarily from the Securities Act of 1933.
A bearish sentiment means that a person believes
The security will decline in value
ABC stock is currently trading at $63. Julia Miller would like to purchase ABC stock, but not at $63. If the price of ABC stock were to fall to $58 or less, then Miller wants to buy the stock. Which type of order should Miller place considering her objective. A. Market order B. Buy limit C. Buy stop D. Buy stop limit
The third market is composed of OTC market makers (dealers) that deal in and provide liquidity for exchange-listed stocks . Through most of the trading of listed stocks takes place on the exchange they are listed on, there is no rule that prevents OTC market makers from providing liquidity for these stocks as well.
All of the following are true of tombstone advertisements except....
They are expected to show the number of shares to be offered. 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.
All of the following are true of tombstone advertisements EXCEPT
They are mandatory and must be placed during the 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.
All of the following are true for designated market makers EXCEPT....
They guarantee the consumer will get a profitable trade.
An issuer that is already a publically traded company wants to register new securities without selling any of the shares until later when it anticipates it will be retooling all of its existing manufacturing plants. Which of the following applies?
This can be accomplished by utilizing a shelf registration specifically designed to register shares presently to be sold later. A shelf offering (registration), allows an issuer that is already a publically traded company to register new securities without selling any of the shares until later or waiting to sell a portion of the shares later when the capital might be needed.
Seabird Airlines is selling shares to the public for the first time. The company intends to use the proceeds from the sale of its stock to purchase several new passenger aircraft. This offering is an example of a. a secondary offering. b. a rights offering. c. an initial public offering. d. a subsequent primary offering.
This is the first time this company has made its stock available to the public, so this is an IPO.
Which of the following securities are except from the Securities Act of 1993.
Treasury Notes Securities issued by the federal government are exempt from the Securities Act of 1933.
On Monday, August 1st, your customer purchased 10 Treasury notes at a price of 99.5 that mature in three years. Cash to pay for the purchase must be delivered by what date?
Tuesday,. August 2nd.
Ron buys 522 shars of Narcissus., Inc., common stock in a cash account on Monday, March 19th. He deposits cash into the account sufficient to cover the trade on Marc 20th. How soon would he be able to withdraw those shares?
Wednesday, March 21st. This is a regular way settlement of a corporate security (T+2). The trade is fully paid for so the customer may request the shares be moved on or after settlement on Wednesday, March 21st.
The Securities Act of 1933 requires that....
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.
An opening transaction can be
either a buy or a sell An opening transaction can be either a buy or a sell. Which one will determine the investor's market attitude—bullish when buying to open a position and bearish when selling to open a position (selling short).
A shelf regulation...
is good for two years and requires a supplemental prospectus be filled before each sale. Once filed, a shelf registration is good for two years and allows the issuer to sell portions of a registered shelf offering over the two-year period without having to re-register the security. However, a supplemental prospectus must be filled with the SEC before each sale.
In a prime brokerage account, the prime broker..
provides custody and clearing services, as well as margin loans. In a prime brokerage account, the prime broker provides custody and clearing services. The prime broker may produce some execution services and contract with other brokers to provide additional execution services.
A company is already public with several major stockholders. The company proposes an offering where sale proceeds for shares being sold to the investing public will go to some of the existing stockholders who want to divest of their shares as well as the corporation. This is....
A COMBINATION offering. Anytime proceeds are going to the selling shareholders rather than the issuer, it is a secondary offering. Because the company is already public (has shares in the hands of stockholders), this offering of those shares to the investing public would be an APO rather than an IPO. The best description of this offering is a combination offering.
ABC Broker-Dealer maintains an inventory of MMNO common stock. They transact purchases and sales with customers using this inventory. In this example, ABC is acting as what?
A Market Maker Broker-dealers who incorporate proprietary trading into their business model are known as model makers. As a market maker, the broker dealer trades in their own account attempting to profit.
DEF, Inc. registered to sell 1 million shares of DEF common stock. They plan to sell 500,000 shares immediately and sell the remainder of the offering within the next two years. This is called.....
A SHELF offering. A shelf offering occurs when the shares may be held and sold later under Rule 415. A Green Shoe offering allows the size of the offering to be increases up to 15%.
A customer's confirmation shows that they paid a commission of $74 on a purchase of 10 shares of a $35 stock. The broker-dealer is acting in what capacity?
Agency. If a BD charges a commission for a service provided, the firm is acting as an agent.
The purchase of an equity options settles ______; the exercise of an equity option settles ____.
All option trades settle next day. The exercise of an equity option must be completed two days after exercise instructions are issued.
Modulux, Inc., a NYSE listed manufacturer, is offering 5 million shares to the public, which will raise capital to build a new plant. The new technology and design should allow Modulux to increase market share significantly in the modular home business. This offer is...
An APO. There are two points to consider (1) This is an offering to raise money for the issuer, which is (2) a primary transaction. The company's stock is actively trading in the secondary markets so this must be additional shares. This is an Additional Public Offering.
A central, physical, marketplace where securities are traded through a designated market maker is:
An exchange.
Which of the following choices would best describe a follow-on offering?
An issue of shares by a public company that is already listed on an exchange. A follow-on public offer (FPO) is an issue of shares by a public company [registered and reporting to the Securities and Exchange Commission (SEC)] that is currently listed on an exchange and has previously gone through the IPO process.
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 SHELF regulation. 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.
A customer placed an order to purchase 300 shares of DEF Corp. preferred stock. The broker-dealer sourced the shares from another broker-dealer that makes a market in that stock. The customer's firm acted as....
A broker.
Your customer is quite nervous about the stock market but expresses his belief that equities are still the place to save for retirement over the long term. He places a trade for 500 shares of an equity index fund. Overall your customer is likely....
A bull. The customer has expressed confidence in stocks and has invested money to back up his belief. He is not confused at all. He recognizes that the equities can produce nerve-wracking consequences but have the best record of long-term growth.
Your broker-dealer, rather than clear its own securities transactions, chooses to introduce its business to another firm that will clear, processes and handle all back-office operations for it. The firm receiving the business is known as
A carrying firm. A firm that chooses to introduce its customers' business to another firm to another firm to clear and process transactions, as well as handle all back-office tasks as such
How many primary offerings can a corporation issue?
A corporation can sell as many shares, and have as many offerings, as it gets people to buy the stock. - Unlimited amounts.
A broker dealer that concentrated its business efforts on proprietary trading would be functioning as...
A market maker
When a broker-dealer maintains an inventory in a particular stock and trades that stock in the OTC market, it is acting as....
A market maker
During the cooling-off period of a new registration filed with the SEC....
A red herring may be given to prospective investors. During the minimum 20-day period, tombstone ads may be punished, and a preliminary prospectus, AKA Red Herring, my be distributed to prospective investors. Sales literature may not be distributed and indications of interest are not binding on either the investor or broker-dealer.
Modulux, Inc., a NYSE listed manufacturing company, was founded by Clarence Mod. Clarence is now 82 years old and is looking to divest his significant interest in Modulux to capitalize the Mod Family Foundation, a charity. He has enlisted the help of Seacoast Securities, a regional investment banker based in Seattle to run the sale. This is an example of....
A secondary offering. The shares that are to be sold belong to a person (Clarence Mod), not the issuer. This is a secondary offering.
Which of these broker dealers would MOST likely have corresponding firms? 1. An introducing broker-dealer 2. A fully disclosed broker-deaker 3. A market maker 4. A self-clearing firm
A self-clearing firm. A self-clearing firm holds funds and securities of the fully-disclosed or introducing firm's customers and performs related functions, such as sending confirmations and statements for them. Those firms, for whom the carrying firm performs those services, are known as its correspondents.
Cypress Care Nurseries, Inc. owns and operates a chain of nurseries and is headquartered in Cypress, California. The company is considering selling shares of the company to the public in California. In order to be exempt from registering with the SEC, under Rule 147, it would need to meet several criteria. Which of these is NOT a listed criterion under Rule 147? A) 80% of the issuer's customers must be located in the state of California. B) 80% of the issuer's proceeds will be used in the state of California. C) 80% of the issuer's revenue must be generated from the state of California. D) 80% of the issuer's assets are located in the state of California.
A) 80% of the issuer's customers must be located in the state of California. The 80% rule is that the company must meet at least one of the three 80% rules: 80% of revenue from the state, 80% of the proceeds earmarked for the state, or 80% of company assets in the state. The rule is the percentage of revenue, not the percentage of customers, from the state.
Each of the following provides for an exemption from the registration requirement of the Securities Act of 1933 EXCEPT
Access equals delivery rule. Securities offerings may qualify for exemption from the registration statement and prospectus requirements of the Securities Act of 1933 under Regulation A, Regulation D, Rule 147 and Regulation S.
All of the following are associated with a market maker EXCEPT..
Charging a commission.
A business entity that preforms the function of receiving and delivering payments and securities on behalf of both parties to a securities transaction is called a...
Clearing agency
ABC stock is quoted at 25.20 bid—ask 25.22 5 × 12. The spread is A. $0.02 B. $0.25 C. $0.20 D. $0.12
Customers buy at the ask (32.5), and there are 1,200 shares available at that price ( 12 x 100 ).
All of the following are true regarding the term MARKET except
It is unique to the U.S. Securities industry.
Which of the following may purchase an IPO at the POP?
Jim, an employee of a BD, is a prohibited person, as his spouse, parents, siblings, children, and various in-laws. Aunts and uncles are not on the prohibited list, nor are nieces and nephews.
On Friday, July 1st, your customer purchased 10 3% T-Bonds maturing in 15 years.
July 5th
On Tuesday, July 3rd, your customer bought 15 SBRD 30 September calls at 4. On Friday, August 10th, the calls are in the money and your customer issues exercise instructions. On which days did the trade and the exercise settle?
July 5th and August 14th. The exercise of an equity option settles in two business days. July 4 is a holiday. August 11 and 12 are on a weekend.
Bao Chiang executes a trade to purchase 100 shares of ABC Corporation common in her cash account on Thursday, June 30. Cash must be in her account sufficient to pay for the trade by the close of business on A. July 1 B. July 2 C. July 4 D. July 5
July 5th. Regular way settlement for corporate securities is two business days. The second business day following Thursday, June 30th is Tuesday, July 5th.
Which of the following is NOT part of the secondary markets? A. Over-The-Counter market B. The exchanges C. Third market D. Mutual Fund Market
Mutual funds, as open-ended investment companies, do not trade in the secondary markets.
Underwriters have been taking indications of interest for shares of an upcoming new issue. Indications of interest are
Nonbinding on all parties. Indications of interest are non-binding on either buyers (investors) or sellers (underwriters).