UNIT 7 Checkpoint

Corporate debt securities (such as commercial paper) are exempt from registration under the Securities Act of 1933 if their maturities do not exceed how many days?

. 270 days Corporate debt securities (such as commercial paper) with maturities of 270 days or less are exempt from registration; longer maturities would subject them to the act's registration and disclosure requirements.

A shelf registration statement is good for two years, but once effective with the SEC, it allows shares to be sold over a maximum period of

. 3 years Shelf offerings provide an issuer with the flexibility to raise money as needed throughout a 3-year period.

An investor files the necessary forms to sell stock under Rule 144. The filing is effective for a maximum of how many days?

. 90 days. Investors who wish to sell stock under Rule 144 must file Form 144 with the SEC. The filing is effective for 90 days.

If the SEC has cleared an issue, which of the following statements is TRUE? A)The issuer has filed a standard registration statement. B)The SEC has endorsed the issue. C)The SEC has guaranteed the accuracy of the information in the prospectus. D)The SEC has guaranteed the issue.

. A. The SEC does not approve, disapprove, endorse, or guarantee a registration statement's accuracy.

As a registered representative, you can use a preliminary prospectus to A. obtain indications of interest from investors B. solicit orders from investors for the purchase of a new issue C. solicit an approval of the offering from the SEC D. obtain FINRA's authorization to sell the issue

. A. A preliminary prospectus is used to obtain indications of interest from investors.

If an officer of a public company buys 400 shares of the company's registered stock in the open market, he A)may sell immediately subject to Rule 144 volume limitations B)may not sell until he leaves the company C)may sell immediately without restriction D)may sell under Rule 144 only after a 6-month holding period

. A. If purchased in the open market, the transaction is not a private placement and there is no required holding period. The officer, however, is an affiliate and is therefore subject to the reporting and volume limitations under Rule 144

Which of the following will NOT be found in a final prospectus? A)Agreement among underwriters B)Business plan C)Statement that the SEC neither approves nor disapproves of the issue D)Date and offering price

. A.The agreement among underwriters is a separate document and is not included in a prospectus

A customer is interested in an IPO of a stock in registration. He requests that you highlight the important information on the preliminary prospectus and send an analysis of the company's past performance. You may A)not comply with the request because the stock is not yet listed for trading on any exchange B)not comply with the request because the preliminary prospectus may not be altered C)comply with the request because it involves an IPO in which little information is known about the issuer D)comply with the request because the customer solicited the information and analysis

. B. A prospectus, whether preliminary or final, is a legal document that cannot be altered by the registered representative. It is illegal for a registered representative to mark on or attach anything to a prospectus (even if requested by a client). Important information may be pointed out orally but not highlighted.

Which of the following securities is NOT exempt from the Securities Act of 1933? A)Municipal issues B)Real estate investment trusts C)U.S. government agency issues D)U.S. government issues

. B. REITs are nonexempt securities subject to the registration and new issue disclosure provisions of the Securities Act of 1933. Agency issues, U.S. government issues, and municipals are exempt.

If the SEC has cleared an issue, which of the following statements is TRUE? A. The SEC has guaranteed the issue. B. The underwriter has filed a standard registration statement. C. The SEC has endorsed the issue. D. The SEC has guaranteed the accuracy of the information in the prospectus.

. B. The SEC does not approve, endorse, or guarantee the accuracy of a registration statement.

A Tier 1 securities offering under Regulation A+ allows small to medium sized companies to A)raise up to a maximum of $10 million in a 12-month period B)raise up to a maximum of $20 million in a 12-month period C)raise up to a maximum of $5 million in a 12-month period D)raise up to a maximum of $15 million in a 12-month period

. B. Tier 1 of Regulation A+ allows small to medium sized companies to raise up to a maximum of $20 million in a 12-month period

The Securities Exchange Act of 1934 covers all of the following EXCEPT A)trading on exchanges B)trading of corporate securities C)issuance of corporate securities D)issuance of financial reports by corporations

. C. The Securities Exchange Act of 1934 regulates secondary trading or trading markets, including reporting requirements. The Securities Act of 1933 regulates the issuance of new, nonexempt securities

Which of the following is NOT required in a preliminary prospectus? A. Written statement in red that the prospectus may be subject to change and amendment and that a final prospectus will be issued B. Purpose for which the funds being raised will be used C. Final offering price D. Financial status and history of the company

. C. A preliminary prospectus is issued before the price is established, and it does not include the eventual offering date or the spread.

All of the following are restricted persons EXCEPT A)finders and fiduciaries acting on behalf of the managing underwriter B)employees of members C)any persons owning 5% or more of a member firm D)portfolio managers

. C. Rules prohibit member firms from selling initial equity public offering stock to any account in which restricted persons are beneficial owners. Restricted persons include FINRA members, employees of member firms, finders and fiduciaries acting on behalf of the managing underwriter, portfolio managers, and any person owning 10% or more of a member firm. Also included are a restricted person's immediate family members.

Officers of XYZ Corp., a listed company, are permitted to A)benefit from short swing profits B)benefit from material, non-public information C)write calls against unrestricted XYZ stock held long D)short XYZ stock

. C.Insiders may write calls against stock held long as long as the shares are not restricted. Under the Securities and Exchange Act of 1934, insiders are prohibited from shorting stock and from keeping short-swing profits. Any short-swing profit (a profit made from buying and selling the issuer's stock in a six month period or less) must be disgorged

Which of the following statements about a red herring is NOT true? A. A red herring is used to obtain indications of interest from investors. B. The final offering price does not appear in a red herring. C. Additional information may be added to a red herring at a later date. D. A registered representative may send a copy of a company's research report with it.

. D. A registered representative is prohibited from sending a research report with either a preliminary or final prospectus.

Which of the following is subject to the holding period provisions of Rule 144? A. A corporate insider who has held restricted stock for 2 years. B. A nonaffiliate who has held registered stock for 3 years. C. A nonaffiliate who has held control stock for 6 months. D. A nonaffiliate who has held restricted stock for 3 months.

. D. Only restricted stock is subject to the six-month holding period for both affiliates and nonaffiliate; registered shares are not and control stock is not.The nonaffiliate in choice D, who has only held the shares for 3 months, will stillbe subject to the holding period until the six-month requirement is met.

—— 1. Has aspects of both a primary and secondary offering —— 2. An investor's expression of a conditional wish to purchase a new security after that investor has read a preliminary prospectus —— 3. Interval between the filing date of a registration statement and the date on which the security becomes effective —— 4. Abbreviated prospectus distributed while an issuer's registration statement is reviewed by the SEC —— 5. Federal securities legislation mandating full and fair disclosure about new issues

. D. Split (combined) offering E. Indication of interest A. Cooling-off period C. Red herring B. Securities Act of 1933

The demand is far less than anticipated for a new issue of common stock. In this situation, the underwriter may stabilize the issue by placing bids in the open market A)slightly above the public offering price B)at or anywhere above the public offering price C)at the public offering price only D)at or slightly below the public offering price

. D.When demand for a new issue is less than anticipated, thus causing the price to fall, an underwriter may place a stabilizing bid at or just below the public offering price

Under Regulation D, accredited investors in a private placement must meet minimum standards that may include which of the following? I.Annual income in excess of $200,000 for at least the last two years II.Annual income in excess of $100,000 for at least the last two years. III.Net worth in excess of $1 million not including net equity in a primary residence. IV.Net worth in excess of $200,000.

. I and III The requirement for an accredited investor under the private placement exemption is either a net worth in excess of $1 million not including net equity in a primary residence or annual income in excess of $200,000 in the last two years and the same or more income expected this year, or $300,000 for joint incomes

Which statements are TRUE regarding the purchase of new equity issues by restricted persons? I.An investment club is permitted to buy a new equity issue at the POP. II.An investment club is not permitted to buy a new equity issue at the POP. III.An investment club that has a registered representative as a member is permitted to buy a new equity issue at the POP. IV.An investment club that has a registered representative as a member is not permitted to buy a new equity issue at the POP.

. I and IV As long as an investment club has no restricted persons as members, they may purchase new equity issues. A registered representative is a restricted person regarding the purchase of new equity issues

Which of the following are SROs? I.FINRA II.SIPC III.SEC IV.Chicago Stock Exchange

. I and IV Like FINRA, the exchanges are registered with the SEC. FINRA regulates the OTC market and members of the New York Stock Exchange, whereas the other exchanges regulate transactions occurring on their trading floors. The SEC is a federal commission, not an SRO. All SROs are subject to SEC oversight

Which of the following statements regarding a firm commitment underwriting are TRUE? I.An underwriting syndicate is a group of broker/dealers who have banded together to distribute new issue securities to the public and whose members have made financial commitments to the issuer. II.A selling group consists of 2 or more broker/dealers who have agreed to participate in the distribution of new issue securities to the public and have made financial commitments to the underwriting syndicate in advance. III.An underwriting syndicate is a group of broker/dealers who have banded together to buy new issue securities to be held by the syndicate members for investment purposes. IV.A selling group consists of 2 or more broker/dealers who have agreed to participate in the distribution of new issue securities as selling agents only, without principal risk.

. I and IV Members of an underwriting syndicate buy securities from issuers in principal transactions, assuming financial risk (in a firm commitment underwriting). Members of a selling group act merely as agents and assume no financial risk.

Which of the following are characteristics of the Securities Act of 1933? I.Requires registration of exchanges II.Called the Truth in Securities Act III.Requires full and fair disclosure of material facts IV.Enabled the Federal Reserve Board to determine margin requirements

. II and III The Securities Act of 1933 regulates new issues of corporate securities sold to the public. The act is also referred to as the Full Disclosure Act, the Paper Act, the Truth in Securities Act, and the Prospectus Act. The purpose of the act is to require full, written disclosure about a new issue. The Securities Exchange Act of 1934 requires registration of exchanges with the SEC and enabled the FED to set margin requirements

In a corporate underwriting, the syndicate letter is signed by which of the following? I.Issuer II.Managing underwriter III.Syndicate members IV.Selling group members

. II and III The syndicate letter is signed by the managing underwriter and syndicate members and identifies these parties' rights and responsibilities.

Which of the following describe indications of interest secured during the 20-day cooling-off period? I.Binding on the customer II.Nonbinding on the customer III.Binding on the broker/dealer IV.Nonbinding on the broker/dealer

. II and IV Indications of interest are not binding on either party.

Which of the following are considered to be nonexempt offerings according to the Securities Act of 1933? I.Government securities II.Private placements III.Public offering of $60 million by a brokerage firm IV.Sales of corporate bonds of $50 million

. III and IV The Securities Act of 1933 exempts U.S. government bonds and private placements from registration. Public offerings of less than $50 million are also exempt (under Regulation A+), so an offering of $60 million and sales of corporate bonds are not exempt; they must be registered with the SEC

The smallest component of a corporate underwriting spread is usually the

. Managers fee The syndicate manager's fee is typically the smallest percentage of the underwriting spread.

To which securities market does the Securities Act of 1933 apply?

. Primary The Securities Act of 1933 covers the registration and disclosure requirements regarding new issues, or the primary market. The secondary markets are covered under the Securities Exchange Act of 1934

ABC is engaged in a stock rights offering with the help of Alpha Securities as managing underwriter. If Alpha Securities agrees to purchase the unused rights for any stock that ABC cannot sell to current stockholders, and use them to purchase stock for resale to the public, what type of underwriting arrangement is this?

. Standby A standby underwriting allows a corporation to sell as much of a new issue to current stockholders as possible, backed by the underwriter's promise to purchase any unsold rights. Remember that a standby underwriting agreement is associated with a rights offering.

The underwriting agreement is the contract that establishes the relationship between

. the issuers and the underwriters The underwriting agreement is the contract that establishes the relationship between the issuer and the underwriters setting forth both parties' rights and obligations

When you encounter a Rule 144 question, always look for two things:

What kind of stock is being sold? (Restricted or control) Who is selling it? (Insider or noninsider) Only restricted stock has a holding period. Control stock, unless it is restricted, can be sold immediately, but volume limits always apply.