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Series 24 > 16. Supervision of Investment Banking Activities > Flashcards

16. Supervision of Investment Banking Activities Flashcards

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1
Q

_______ is a 33 Act exemption that allows the sale of unregistered securities to foreign residents outside the U.S. (test is residency, not citizenship)

A

Reg S

Note - offerings of US Securities to foreigners can be done via Reg S

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2
Q

Securities issued under Reg S can be sold in the US after a seasoning period of:

1) Debt ________

2) Equities of current SEC filers ______

3) Equities of late SEC filers _______

A

1) Debt: 40 days

2) Equities of current SEC filers: 6 months

3) Equities of late SEC filers: 12 months

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3
Q

Under Reg A+ Tier 1, capital formation in any ___ month period is limited to $_____ and state law (blue sky) _____ required

A

12 month

$20 mm

Is required

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4
Q

Under Reg A+ Tier 2, capital formation in any __ month period is limited to $_____ and state law (blue sky) _____ required

A

12 month

$75 mm

Is NOT required

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5
Q

Issuers file _________ with the SEC to report the occurrence of a significant event, such as a change in fiscal year, change in auditor, resignation of a director, bankruptcy, or extraordinary acquisitions or disposition of assets

A

Form 8-K

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6
Q

Three types of marketable investment banking underwritings are 1) _____, 2) _____ and 3) ______. A ______ would be the least “marketable” offering

A

1) at-the-market offering

2) best-effort offering

3) shelf offering

A tender offer

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7
Q

The syndicate manager shall immediately (but never later than the scheduled closing date) notify ____________ of any anticipated delay in the closing of the offering

A

FINRA’s Operation Department (NOT the SEC)

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8
Q

In underwriting activities, an escrow account would be required for __________

A

Contingency offerings (all or none, part or none, mini-maxi)

Firm commitments or standby underwritings do NOT require an escrow account

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9
Q

The _________ allows for over subscription of an offering up to _______ of the original deal size and must be executed within ______

A

Greenshoe options

15%

30 days

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10
Q

Following an IPO, dealers must deliver a prospectus to all purchasers (inc those who purchase in the secondary market)…

______ if the securities is listed on an exchange; or

____ if the security is unlisted (OTC)

A

Within first 25 days

Within first 90 days

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11
Q

Rule 147 securities can be resold outside of the state _______ after the last sale in the offer

A

six months

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12
Q

True / False: the effective date of a registration statement is determined by FINRA

A

false - it’s determined by the SEC alone

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13
Q

A ________ is any written communication (including letters, radio, or TV ads, emails, websites, etc.) that offers to sell securities in connection with a new issue

A

Free writing prospectus (FWP)

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14
Q

A Free Writing Prospectus (FWP) must be filed with the SEC ______

A

on the day of first use

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15
Q

True / false: a WKSI can file a Free Writing Prospectus (FWP) any time, even before filing a registration statement

A

True

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16
Q

An unseasoned issuer may use a free writing prospectus (FWP) so long as 1)._____ and 2) _________

A

1) it is filed with the SEC on the day of first use and

2) refers the reader to the statutory (regular) prospectus

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17
Q

Under what circumstance can investment seminars be permitted under Reg D private placements?

A

attendees must be screened and invited privately (public general solicitation / general advertising) is not permissible

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18
Q

What are the filing requirements for Reg D private placements?

A

Requires filing…

1) Form D with the SEC within 15 days of first sale

2) all offering documents (PPM / term sheet) with FINRA within 15 days of first sale (if no offering documents must be communicated to FINRA)

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19
Q

Under Reg D (private placements) institutions are accredited if they have total assets in excess of $________. This same dollar threshold test applies to ________

A

$5mm

Trusts but the trusts cannot have been formed for specific purposes of acquiring the securities offered in the private placement

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20
Q

Under Reg D, a private placement memorandum (PPM) is NOT required for offerings to under ______ institutional investors (accredited)

A

15

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21
Q

A PIPE transaction is a ______ offering of additional shares in a company that has already gone public

A

Reg D

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22
Q

If a B/D is underwriting a new issue and has a conflict of interest (e.g., it is a subsidiary of the issuer), the issuer would also need to hire _______

A

a Qualified Independent Underwriter

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23
Q

Upon acquiring more than 5% of a public company an investor must file a __________ within _______ days of the acquisition with 1)_______, 2) _______ and 3) _______

A

Schedule 13D

5 biz days

1) SEC
2) Listing exchange
3) the issuer

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24
Q

Emerging Growth Companies (EGCs) are defined as issuers with less than _______ in revenue

A

$1.235 billion

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25
Under Reg M, actively traded securities (defined as $_____ of ADTV and MV of public float of $______) are not subject to _________
$1mm of ADTV $150mm of MV Passive market making
26
An issuer’s “insiders” are defined as its _______, _______ and ______
officers Board members >10% shareholders
27
Under 33 Act, discussing a deal prior to filing registration stmt (S-1, S-3 etc) is knows as _______
gunjumping
28
Under 33 Act, the “cooling off” period post filing of registration is _______
typically 20 days
29
Under 33 Act, during the cooling off period, what is prohibited (3 things)?
1) making sales 2) public advertising 3) taking orders / sales
30
Under 33 Act, during the cooling off period, what is generally permitted (5 things)?
1) take indications of interest 2) distribute preliminary prospectuses (red herrings) 3) publish tombstone ads - basic facts of the deal 4) road show 5) free writing prospectus
31
True / false: the preliminary prospectuses contains both the effective date and the offer price
False (but a range may be included)
32
In a firm commitment offering… 1) underwriter acts as a ________ 2) Unsold shares are the ______ 3) fees (vs. best efforts ) are ________ 4) Escrow funds? ______
1) principal (dealer) 2) the UWs shares 3) Higher given risk 4) no escrow
33
A firm commitment underwriting used w a rights offering is called ________
a standby underwriting Committed to purchase any shares that exiting shares don’t buy
34
In a best efforts offering… 1) underwriter acts as a ________ 2) Unsold shares are the ______ 3) fees (vs. firm commitment ) are ________ 4) Escrow funds? ______
1) agent / broker 2) the issuers shares 3) lower (less risky) 4) Yes - until threshold met
35
In an “all-or-none” best efforts underwriting, the threshold to trigger a transaction is ______
100% otherwise can cancel the deal
36
In a “part or none” or “mini-max” best efforts underwriting, the threshold to trigger a transaction is ____
< 100% and if not met, deal can be cancelled NOTE - If deal is weak, UW can purchase unsold shares at the POP with no holding period
37
True / false: the selling group has to take risk to sell all shares allocated to them
false - they help sell shares as an agent not a principal; no financial commitment to a deal
38
The agreement among underwriters (AAU) is a contract among syndicate members that….(4 things)
1) gives syndicate manager a power of atty (to be able to speak on behalf of entire syndicate) 2) confirms the size of offering as well as the gross spread (fees) 3) permits the exercise of the greenshoe option 4) sets forth underwriting obligations / fees of each member (allocations)
39
In the context of an IPO the ____________ makes a determination whether underwriting compensation is “fair and reasonable”
FINRA Corporate Finance Department For IPOs, up to 7% in generally reasonable
40
What information must be submitted to FINRA’s Corporate Finance Department (4 things)?
1) Registration statement / prospectus 2) agreement among underwriters (AAU) 3) non-cash compensation received (eg. Shares in the deal) 4) reimbursed expenses
41
In an underwriting, these are reimbursed expenses that are NOT considered compensation (3 examples)
1) printing costs (prospectus) 2) blue sky fees (state registration) 3) accounting fees (auditing financials)
42
In an underwriting, these are reimbursed expenses that ARE considered compensation (2 examples)
1) underwriters counsel (lawyers for bank paid for by the issuer) 2) marketing expenses (eg road show expenses)
43
Four types of prohibited underwriting compensation are…
1) options / warrants w > 5 year expiration OR in the money at outset 2) ROFR (on future business) that’s greater than 3 years 3) tail fee arrangements greater than 2 years 4) shares without a 6 month lock-up
44
Are BDs restricted from receiving allocations in an IPO?
yes (unless exception)
45
Are employees of BDs restricted from receiving allocations in an IPO?
yes - no allocations at ANY firm (unless exception)
46
Are IMMEDIATE family members of a BD employee restricted from receiving allocations in an IPO? What does IMMEDIATE mean?
It depends… if lives w employees - yes no allocations at ANY firm (unless exception) If does not live w employees - can participate in OTHER firm’s allocation IMMEDIATE means - spouse, children, parents, siblings & in-laws
47
Are persons receiving material support (>25% of income) from a BD employee restricted from an IPO allocation?
Yes - no allocations at ANY firm (unless exception)
48
Are EXTENDED family members of a BD employee restricted from receiving allocations in an IPO? What does EXTENDED mean?
no restriction Extended means grandparents, aunts/uncles, cousins, nieces /nephews, ex-spouses
49
EVEN IF restricted, who can buy IPOs? (5 examples)
1) employees of the issuer and their family members 2) Accounts (e.g. joint accounts or funds) that have 10% or less restricted person ownership 3) Investment companies & variable annuities (IPOs going to “Main Street”) 4) Issuer directed sales not designed to circumvent rule 5) employees of limited business BDs (i.e. only sells investment companies, annuity products and DPPs)
50
These are 5 types of exempt securities under the 33 Act
1) US govt securities (Treasuries) 2) Municipal securities 3) Commercial paper 4) Banker’s acceptance 5) Bank securities (NOT bank holding companies)
51
Who can invest in a Reg D private placement offering?
506- Accredited investors + 35 or fewer non-accredited investors 504- Anyone can invest but only up to $10mm
52
Under Reg D, an individual is accredited if her annual income (over past 2 years) is ______ or if married _____
>$200k >$300k
53
Under Reg D an individual is accredited if (based on net worth) they have a NW of _________
>$1mm (excluding primary residence)
54
Under Reg D, who is considered accredited?
1) officers and directors of the issuer 2) BDs, IAs & Institutional investors 3) High income / NW individuals 4) Individuals who can assess investment opportunity - series 7, 65 or 82 licenses (knowledgeable employees of a private funds can invest in that employer’s private fund)
55
Under Rule 147, in addition to incorporation requirement and sales to state residents standard, what does it mean to do a “significant amount of its business” within a state?
Means at least one of…. 1) 80% of revenues are in-state; or 2) 80% of assets are in state; or 3) 80% of net proceeds will be used in-state; or 4) a majority of employees are based in-state
56
What’s the difference between Rule 147 vs. Rule 147A?
Under Rule 147, to get the exemption the company must be incorporated within the state whereas Rule 147A does not require incorporation but just significant business requirement
57
Restricted stock is sold without a registration through _______
Rule 144
58
What are the requirements to selling restricted stock under Rule 144?
1) 6 month holding period 2) adequate current information about the issuing company
59
Under Rule 144, who are considered holders of control stock?
1) executives 2) board members 3) large (10%+) shareholders
60
Under Rule 144, how much control stock can be sold and how often?
how much…. The greater of: 1) 1% of outstanding shares, or 2) the average weekly trading volume over last 4 weeks How often… Once every 90 days
61
Under Rule 144A, what is a Qualified Institutional Buyer (QIB)?
institution with greater than $100mm in discretionary AUM
62
What are typical Rule 144A transactions?
Pre-IPO share sales High yield debt
63
Overview of various exempt transactions
64
The purpose of [ ] is to prevent manipulation of a new securities offering or the market for an offered security
Reg M
65
Under Reg M, [ ] is the new security being distributed
subject security
66
Under Reg M, the [ ] is any security that the subject security converts into
reference security e.g., new convertibele bond offering (subject security) --> converts into common stock (reference security)
67
For Reg M, the Average Daily Trading Value (ADTV) is defined in dollars over the past [ ]
two months (60 days)
68
Under Reg M, a Small Issuer is defined as....
ADTV (2 mos) < $100k OR Public float < $25mm
69
Under Reg M, what is the restricted period on a Small Issuer?
5 days before pricing until distribution is complete
70
Under Reg M, a Medium Issuer is defined as….
ADTV (2mos) >=$100k AND Public float >= $25mm
71
Under Reg M, what is the restricted period on a Medium Issuer?
1 day before pricing until distribution is complete
72
Under Reg M, an Actively Traded Securities Large Issuer is defined as…
ADTV (2 mos) >= $1mm AND Public float >= $150mm
73
Under Reg M, what is the restricted period on an Actively Traded Securities Larger Issuer?
No restriction (large stocks are hard to manipulate)
74
Under Reg M, what is restricted during the Restricted Period? 3 things
1) No bidding 2) no purchasing 3) no soliciting others (to bid / purchase)
75
Under Reg M, who is restricted?
1) all distribution participants (any current or PROSPECTIVE underwriter or BD distributing shares) 2) all insiders, affiliates, and selling securities holders (company itself, executives, board, sig. shareholders)
76
Under Reg M, what are exceptions to restrictions on distribution participants? (2 exceptions)
1) dissemination of research reports (ongoing NOT an initiating report) 2) unsolicited brokerage transactions (from client; no manipulation)
77
Under Reg M, what are exceptions to restrictions on company insiders? (2 exceptions)
1) odd lot transactions 2) unsolicited purchases
78
Under Reg M, to maintain liquidity what are BDs allowed to do in Nasdaq securities during the restricted period?
Passive market making - allowed to bid and purchase at the highest independent bid
79
Under Reg M, for passive market making, what happens when the highest independent bid drops below a restricted party’s level?
Can purchase up to 200 shares and then must drop bid to latest highest independent bid
80
Under Reg M, for passive market making, what is the limit on daily purchases?
daily NET purchase limit = The greater of 30% of the market maker’s ADTV limit OR 200 shares
81
Under Reg M, how many stabilization bids may be entered?
only one at a time
82
Under Reg M, how much stock can a stabilization agent purchase and how long can the agent stabilize post-effectiveness?
Unlimited Indefinitely
83
Under Reg M, stabilization bids may be entered at….
the lower of 1) the public offer price OR 2) the highest ind bid or last transaction on the primary exchange
84
When is a public company normally required to file an 8-K
In most cases within 4 business days If mnpi had been leaked may need to be sooner
85
When audited statements are required, what periods must be covered by statement?
BS - two years Inc Stmt - 3 years Cash Flw - 3 years
86
What are the components of an IPO spread?
Manager’s fee Full take down (underwriting fee + selling concession)
87
During stabilization, notice to the SEC and primary exchange is given ________
Daily
88
True / false: investors must be informed of potential stabilization in the prospectus
true
89
A syndicate member who loses its selling concession for shares sold to “flippers” has been assessed a _______. These must be imposed uniformly on all syndicate members and requires prior notice to ______
penalty bid FINRA (on OTC equity securities) or otherwise the regulator of the principal market in which the penalty bid is imposed NOTE - Flipping is selling within 30 days of offering
90
Reg M (Rule 105) prohibits anyone from purchasing securities in a public offering (follow-on) if that person sold the same securities short within _____ day period preceding the pricing of the offered securities
5 business day Prevents covering short by buying securities in a follow-on offering at depressed prices (from downward selling pressure) NOTE - the short can be closed in the SECONDARY market, just not from the U/Ws
91
Under HSR, the normal waiting period is _________ days but for all cash tender offers it is ________
30 days minimum 15 days
92
______, which is part of Reg S-K (for financial reports), requires investors in M&A or tender offers to receive a summary term sheet describing the deal
Reg M-A
93
Tender offers must remain open for at least _______, and any amendment to the tender offer would extend the offer by ________ from that date of amendment
20 business days 10 business days
94
True / false: tendering shares that have been shorted is allowed
false - short tendering is prohibited; only “net long” shares may be tendered by a shareholder of a subject or target company
95
Investors can tender unconverted convertible bonds into what type of TO?
a partial TO (for less than 100% of company)
96
Final syndicate settlement must be affected by the syndicate manager within _______ days following syndicate settlement date
90 days
97
A Qualified Institutional Buyer (QIB) must have at least $_________ in discretionary assets under management
$100mm
98
True / false: research analyst can attend an investment banking pitch for an EGC
true Note - research analysts can publish research on an EGC IMMEDIATELY after the effective date of a new issue. The quiet period does not apply Note - for Non-EGCs, attendance by an analyst at an investment pitch is prohibited
99
After an IPO, there is a ______ day blackout period during which UWs may not publish research reports or make public appearances
10-day Note - this does not apply to emerging growth companies

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