Ch 2 Deck 4

Question 1

Underwriting fee is typically

Answer 1

around 20% of spread

Question 2

Underwriting expenses are typically

Answer 2

divided among the underwriters on a pro rata basis

Question 3

Profit to the dealer that sells to the public in an offering

Answer 3

Concession

Question 4

Members of the selling group are compensated by

Answer 4

Concessions

Question 5

Concessions are typically in the amount of

Answer 5

around 60% of spread

Question 6

compensation earned by a firm that is not a member of the syndicate is called

Answer 6

Reallowance

Question 7

Reallowance is often in the amount of

Answer 7

one half of concession

Question 8

If selling group members sell part of their allotment to a non-syndicate-member firm, that firm must sell

Answer 8

the shares to the public at the public offering price

Question 9

Terms if the syndicate is unable to sell all the shares in an IPO are described in

Answer 9

Agreement among underwriters

Question 10

Western walks

Answer 10

syndicate only responsible for shares they are allotted - they can walk away after they sell those

Question 11

Eastern eats

Answer 11

syndicate members are responsible for unsold shares on a pro-rata basis

Question 12

Larger offerings tend to have underwriting spreads that are

Answer 12

lower than smaller offerings

Question 13

Lower risk offerings tend to have underwriting spreads that are

Answer 13

lower than higher risk offerings

Question 14

Firm commitment offerings tend to have underwriting spreads that are

Answer 14

higher than best efforts offerings

Question 15

Offerings that require more marketing tend to have underwriting spreads that are

Answer 15

higher than those that require less marketing

Question 16

Under NASD Rule 11880 syndicate accounts must be closed

Answer 16

within 90 days after the syndicate settlement date

Question 17

No later than the final settlement, each member of selling syndicate

Answer 17

must receive an itemized statement of syndicate expenses

Question 18

syndicate expenses are considered

Answer 18

underwriting expenses

Question 19

FINRA Rule 5110 says underwriter’s fees must be

Answer 19

fair and reasonable

Question 20

The following are considered underwriting compensation

Answer 20

–Discounts/commissions

–Reimbursements

–Finder’s fees

–Advisory fees

–Securities (common and preferred stock, options, warrants, debt securities)
–Fees of a Qualified Independent Underwriter

Question 21

The following are NOT considered underwriting compensation

Answer 21

Not Underwriter Compensation


• -Expenses born by the issuer

• -Registration fees
• Blue Sky Fees
• Printing fees

Question 22

When an underwriter sells more shares than it has registered and committed to purchase from the issuer it is called

Answer 22

overallotment

Question 23

Overallotment allows the underwriter to

Answer 23

have some post-issue control

make more money

Question 24

If a stock price declines, an underwriter can use an overallotment to

Answer 24

cover short position by buying shares in the market at the lower price and pocket the difference

Question 25

If a stock price rises, an underwriter can use an overallotment to

Answer 25

exercise the Green shoe option