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Series 79 (VKM) > Section 2 > Flashcards

Section 2 Flashcards

1
Q

No person may sell an equity security short in the shorter of which two periods of time?

A
  • From five business days before the pricing of the security’s offering and the pricing of the offering
  • From the initial filing of the registration statement or notification on Form 1-A or Form 1-E for the security to the pricing of the security’s offering.
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2
Q

FINRA Rule 5110 - Corporate Financing Rule - allows FINRA to do what?

A

FINRA Rule 5110 states that it will conduct a review to make sure that underwriting compensation to be paid by the issuer in connection with the offering is “fair and reasonable” before an IPO can close.

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3
Q

After an IPO, broker-dealers must provide prospectuses with the sale of securities for __ days for non-NMS securities (OTCBB, Pink Sheets) and for __ days for NMS securities (Nasdaq and exchange listed securities).

A
  • 90 days for non-NMS securities (OTCBB, Pink Sheets)

- 25 days for NMS securities (Nasdaq and exchange listed securities)

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4
Q

Does an issuer make money in a secondary offering?

A

No. The offering is a secondary offering which means that large stockholders are selling their stock, not the issuer, so the proceeds to the issuer are zero. Look out for this kind of question on the exam.

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5
Q

What is a Qualified Independent Underwriter (QUI)?

A

The definition of a QIU is a member who acts as an underwriter on the offering, and to act as an underwriter the QUI must assist in distributing the issue .

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6
Q

IPO syndicates typically consist of three parts: management, underwriting and selling. What is a standard fee split among these three groups?

A

In the US, a 20-20-60 split of the gross spread among the three groups in an IPO syndicate: management (20%), underwriting (20%) and selling (60%) has been observed as a industry average. For IPOs, in the US, an average gross spread has been 7%.

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7
Q

Syndicate accounts need to be finalized and closed within __ days of the syndicate settlement date. Final settlement includes an itemized statement of syndicate expenses that will be __.

A

The manager of the syndicate account must finalize the syndicate accounts with the other syndicate members within 90 days following the syndicate settlement date. The final settlement includes an itemized statement of syndicate expenses to add to the purchase price of the new issue. These expenses will be divided on a pro-rata basis among the syndicate members.

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8
Q

Under the green-shoe over-allotment option, how many incremental shares can be issued?

A

An over-allotment option (green shoe) allows underwriters to offer additional shares, up to 15% of the initial offering, if demand for the shares exceeds supply.

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9
Q

If the prospectus is used more than 9 months after the effective date of the registration statement, the information must not be more than __ months old

A

16 months old

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10
Q

What is an underwriting bracket?

A

It is a group of underwriters who take on a share of the offering and who are listed on a tombstone advertisement.

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11
Q

What are three types of seasoned equity offer (SEO) methods? What is the timeline for each?

A

1) Bought Deals - 24 hours
2) Accelerated Book Built Offers - 48 hours
3) Fully marketed offer - 20-40 days

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12
Q

Under Regulation M, Rule 105, what are exceptions for the rule for short selling a security during the restricted period?

A

1) separate accounts,
2) bona fide purchases,
3) investment company purchases

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13
Q

Return on Capital formula

A

ROC = NOPAT (Net Op. Profit After Taxes) /

Net Debt + BV of Equity

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14
Q

Regulation A+ allows an issuer to sell up to $__ million in securities during a __-month period without having to follow the standard registration process under the Securities Act of 1933. Issuers do have to file an offering circular, however.

A

$50 million in any 12-month period

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15
Q

If the yields of Treasury bills are falling, are interest rates and bond prices rising or falling?

A

Interest rates: falling
Bond prices: rising
**Due to inverse relationship between bond yield and prices

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16
Q

What is a spin-off considered tax-free to the parent company?

A

The company must be in business for at least five years. Provide at least three years of audited financials.

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17
Q

What is a bond refunding?

A

Replacement of existing bonds with new “refunding” bonds, often issued as a lower coupon rate to lower its interest payments

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18
Q

What is a net long position?

A

When an investor has more long positions than short positions for a particular asset

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19
Q

If a person tenders a security subject to a partial tender offer, that person must have a net long position in the security (or an equivalent security) __ the amount tendered.

a) less than or equal to
b) greater than or equal to

A

“Short tender rule” prohibits a person from tendering more shares than they own in a security that is subject to a partial tender offer.
Must have net long position greater than or equal to the amount tendered

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20
Q

Cash ratio formula

A

(Cash + marketable securities) / current liabilities

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21
Q

Tender offers must be open for at least __ business days
In a tender offer, if the issuing company offers an amendment to the price (by any amount) or number of securities being sought (>2%), the offering must be open for an additional __ business days

A

20 business days

10 business days

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22
Q

In a tender offer, if the issuing company offers an amendment to the price (by any amount) or number of securities being sought (>2%), the offering must be open for an additional __ business days

A

10 additional business days

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23
Q

Can shareholders withdraw securities tendered while the tender offer is open?

A

Yes

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24
Q

During the tender offer period and for __ business days after the offer ends, the issuer cannot buy shares of the stock outside the tender offer.

A

10 business days after the tender offer ends

25
Q

A research analyst may not purchase or sell any security issued by a company the analyst follows for __ days before and __ days after the publication of a research report on that company or on a change in the rating or price target of the company’s securities. This prohibition also applies to options on and derivates of the company’s securities.

A

30 days before; 5 days after

26
Q

Whenever the bidder purchases or intends to purchase more than __% of a company’s outstanding shares in a tender offer, it must file Schedule TO. It must also file a Form 13D, which is a beneficial ownership form.

A

5%

27
Q

After receiving a tender offer, the target firm’s management must communicate a position within __ business days of the offer. What are the 3 opinions that management can give?

A

10 days

a) accept / reject
b) remain neutral
c) take no position

28
Q

In a contingency offering, when must checks to purchase securities be delivered to the escrow agent?

A

by noon the next business day

29
Q

What is a contingency offering?

A

A contingency offering is an offering in which the underwriters use their best efforts to sell the securities and there is some condition that may result in investors’ funds being returned if the condition is not met, such as a certain number of shares are not successfully sold

30
Q

What is the Securities Act of 1933?

A

Regulates the registration of securities that are sold to the public; focused on providing disclosure to investors and requires that investors receive a prospectus that gives detailed information about the securities

31
Q

What is the prefiling period?

A

Period before a registration is filed with the SEC; written and oral offers to sell/buy a security are prohibited until a registration statement has been filed

32
Q

What is the registration period?

A

Also known as the “cooling-off period”

Oral offers to sell/buy are allowed; written offers are limited to preliminary prospectus

33
Q

What is the post-registration period?

A

After the SEC declares a registration effective; securities may be actually sold and written/oral offers made, as long as they are “accompanied/preceded by a prospectus”

34
Q

What requirements must a company meet to file a S-3?

A

1) Must have met all reporting requirements for 12 mo. preceding filing
2) Public float >=$75mm OR listed on national exchange and has not sold more than 1/3 of public float over previous 12 months

35
Q

Shares sold in a PIPE transaction are typically sold at a

a) premium
b) discount

A

discount

36
Q

If a PIPE transaction results in an increase of 5% or more of shares outstanding, the issuer must file a notification form within __ days of closing the transaction

A

10 days

37
Q

Under Regulation S-X, filers are expected to include audited balance sheets for the __ most recent fiscal years and audited income statements and cash flow statements for each of the __ prior fiscal periods

A

BS: 2 years

IS / CF: 3 years

38
Q

When is the underwriting agreement signed?

A

Right before or shortly after the SEC declares a registration statement effective; typically wait until all pre-pricing activities are complete and final price is decided

39
Q

What is Rule 144A?

A

Allows qualified institutional buyers (QIBs) to buy restricted securities without the holding period restriction and without having to register the security.

40
Q

Under NASD Rule 2711, research analysts that work for the lead or co-manager of a follow-on offering may not make public appearances for __ days from the beginning of the offering. There is one exception for ___ securities.

A

10 days

actively traded securities

41
Q

What type of IPO method enables an underwriter to issue a green shoe option?

A

Firm commitment

42
Q

How long is a lock-up period typically?

A

180 days

43
Q

What is the settlement date?

A

Settlement is the date the purchaser pays for the security and the seller makes good delivery or the date at which the securities are delivered from the issuer to the underwriters.

44
Q

Records such as blotters, general ledgers, and stock records must be kept for __ years.

A

Six years

45
Q

How many nonaccredited investors can participate in a private placement that is ?$1mm and does not use public advertising?

A

Limited to 35 nonaccredited investors

Note that there is no limit to accredited investors

46
Q

Under FINRA Rule 11880, when must syndicate accounts be closed?

A

Within 90 days after the syndicate settlement date

47
Q

What is Regulation S?

A

Regulation S allows both U.S. and foreign issuers to sell securities to non-U.S. residents. All sales must be made off-shore and there may be no direct selling efforts to U.S. residents.

48
Q

What are the offering limits for the following Reg D rules:

a) Rule 504
b) Rule 505
c) Rule 506

A

a) $1mm
b) $5mm
c) no financial limit

49
Q

What is a best efforts commitment?

A

Underwriter does not guarantee all shares will be sold, but instead, makes a best-effort at selling the shares

50
Q

What is a mini-max commitment?

A

Underwriter must sell a minimum number of shares or the offering is cancelled, bu the underwriter is expected to use their best efforts to sell the remainder of shares; requires payment to be deposited into an escrow account

51
Q

What is an all-or-none commitment?

A

Either the underwriter sells all of the shares or the offering is voided; requires that payment be deposited into an escrow account

52
Q

What is a standby underwriting commitment?

A

When a company issues additional stock, existing shareholders have the right to keep their proportional ownership in the company

53
Q

What is a Western account agreement among underwriters?

A

Members are only responsible for paying for the shares they were alloted

54
Q

What is a Eastern account agreement among underwriters?

A

Members will be responsible for paying for unsold shares

55
Q

What is the underwriting agreement? What is included?

A

Agreement between issuer and lead manager; specifies public offering price and underwriting spread, and any legal provisions (market-out-clause, material adverse change clauses, calamity out clause)

56
Q

What is a common underwriting spread?

A

7% of total proceeds

57
Q

What are the three components of the underwriting spread? What is the % allocation?

A

1) Managing underwriters fee: 20% - payment for managing the underwriting
2) Underwriting fee: 20% - payment to syndicate members
3) Concession: 60% - profit to dealer for selling to the public

58
Q

What are the requirements to qualify for filing an S-3?

A

Seasoned issuer; greater than $75mm of public float

59
Q

Which form is used to register securities to be offered under employee plans?

A

S-8

Series 79 (VKM) (3 decks)

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