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SIE LICENSE > Chapter 2 > Flashcards

Chapter 2 Flashcards

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1
Q

What is a block trade?

A

A large trade or order equal to 10,000 shares of a stock or a total of $200,000 or more.

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2
Q

What is a prospectus?

A

A document containing a security’s information regarding objective, capitalization, sales charges, operating expenses, etc..

This document is given to investors when the offering becomes effective and the security is available for sale to the public.

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3
Q

What form is submitted to the SEC if the issuer is doing an add-on offering?

A

The form is an S-3. This is used if the issuer already has publicly traded shares. It’s an abbreviated registration statement. The issuer and underwriter then pull pertinent information from the SEC registration and give to potential investors. This disclosure document is called the preliminary prospectus or red herring

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4
Q

What does the SEC do if the registration statement has material deficiencies?

A

They can issue a deficiency letter to postpone the issue or a stop order to prohibit the sale of the security until the deficiency is cleared up.A deficiency letter requires that the deficiency be cleared up by adding additional information.

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5
Q

What is the name of the registration statement that an issuer or company must submit to the SEC to raise funds from the public by issuing securities.

A

It’s known as an S-1

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6
Q

What does the “cooling off period” mean?

A

When the issuer files the S-1 registration statement with the SEC, “the cooling off period” begins

  • Usually about 20 days
  • From filing date (S-1) to offering securities to public (effective date)
  • During cool off, the underwriter and selling group may distribute preliminary prospectus
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7
Q

What is a “tombstone”?

A

It’s a very limited published announcement that details important facts concerning the offering.

  • probable price range
  • description of the issue
  • members of the syndicate

Syndicate is a team of broker/dealers that have joined together to underwrite the offering

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8
Q

What is due dilligence?

A

The proper investigating and researching of a security prior to transaction

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9
Q

Can an underwriter make offers or sales during the cooling off period?

A

No.

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10
Q

For how long after the effective date of a security must the underwriter issue a final prospectus to customers.

A
  • within 25 days of the effective date
  • 90 days for OTC securities not on the nasdaq
  • 40 days for OTC securities who have issued to the public previously
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11
Q

What information is included in the final prospectus?

A

Includes all of the information that was included in the registration statement and…

  • official price of stock offering
  • effective date
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12
Q

What is the restricted period?

A

Its period of time during which the offering participants are restricted from doing anything that may influence the price of the underwritten security.

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13
Q

How are the restricted period Tiers for corporations classified?

A

Tier 1: ADTV more than 1,000,000 and public Float 150,000,000 or more ( No restrictive period)

Tier 2: ADTV 100,000 and public float 25,000,000 (restricted 1 day prior to effective date)

Tier 3: Anything less than Tier 2. (restricted 5 days prior to effective date)

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14
Q

When does the ‘quiet period’ begin and end?

A

Quiet period for an ipo lasts until 10 days after the effective date. 3 days for an APO.

During quiet period research may not be published on the offering company or public analyst appearances.

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15
Q

What is regulation M?

A

It places restrictions on market participants who are included on public offering like IPO/APO and subsequent primary offerings. The participants are restricted from manipulating the offering price of the securities.

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16
Q

Which entities are under regulation M?

A
  • The issuer
  • The underwriting syndicate
  • The selling group members
  • Market Makers
  • Insiders of the issuing corporation (hold 10% or more of the issuers stock)
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17
Q

Blue Sky Laws: 3 methods to register a security at the state level?

A
  1. NOTIFICATION, in which the issuer simply files a notice with the state
  2. COORDINATION, which is done at the same time as and in coordination with the issuers SEC registration
  3. QUALIFICATION, which the issuer submits a full registration statement to the state and is qualified by the state
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18
Q

When was the NYSE created?

A

1972

-oldest ad largest in the US

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19
Q

What is an allied member?

A

An individual employee of a member firm who owns a seat on the exchange (NYSE Member)

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20
Q

The trading of listed securities on an exchange is called the ___ market?

A

First market. It is an auction market

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21
Q

The OTC or unlisted market is the ____ market?

A

Secondary market. It is the negotiated market.

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22
Q

What is known as a securities “inside quote”?

A

the highest price a buyer will pay for a security and the lowest price a seller will accept.

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23
Q

What is needed for a securities inside quote to be displayed?

A
  • At least two active market makers on bulletin boards

- showing firm quotes for both bid and ask

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24
Q

Consolidated quote system: What is the 3rd market?

A

It refers to the trading of exchange-listed securities in the OTC market

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25
Electronic Communications Network (ECN): Fourth market?
_ consists of institutional investors, such as mutual funds and pension funds - electronically trading big blocks of securities with one another - These investors use ECN's (instinet)
26
What is a private security offering (regulation D)?
- Are those that have an exemption with registering with the SEC. A private placement is a direct private offering of securities to a limited number of sophisticated investors. - regulation D exemption
27
What is a tender offer?
- Offer that happens with a takeover. - A formal offer to the existing shareholders to purchase their stock at a price above current market value. - Tender offers are often hostile takeovers
28
Who do the proceeds go to in a secondary offering?
They go to a party other than the issuer, such as a shareholder or another corporation
29
What is rule 145 with the SEC?
Its an SEC rule that allows the transfer of certain securities without first registering them, specifically those acquired through mergers, acquisitions, consolidations, and substitutions of one security for another
30
What is a spin-off?
Occurs when a publicly traded company separates one of its divisions into an entirely new entity.
31
What is a free-writing prospectus?
It is a disclosure document issued by a well established company distributing shares through an add-on offering, or a subsequent primary offering - known as Well-known seasoned issuers (WKSI) - Must not have missed a debt or dividend payment in the last 3 years
32
What's the difference between 147A and rule 147?
They are mostly the same with the exception that with 147A.. - the organizer is not required to be organized in the state of issuance of the securities - The offering is not limited to in-state residents
33
Intrastate Offerings: Exemption rule 147
EXEMPT TRANSACTIONS Securities sold within the borders of are allowed an intrastate exemption offering under 147 At least 1 of the following: - 80% of the corporations gross revenue are derived from operations within one state. - 80% of the corporations assets are held in that state - 80% of the offerings proceeds are used to expand operations within that state - A majority of the issuers employees must be based in the state - 100% shares must be owned by state residents
34
Regulation A+ offerings.
- is an amendment to to Reg A of the securities act of 1933 - known as small issue or small dollar exemption - allows companies to raise capital from the public in an offering that is exempt from registration - small businesses such as start ups or emerging companies
35
What do companies using the Reg A+ exemption need to do?
- Issuers file an offering statement on form 1-A w/ SEC - distribute an offering circular to prospective buyer - it was created under the J.O.B.S. (Jumpstart Our Business Startups) Act
36
What is contained within the offering circular?
- info about the offering and securities being offered - investment risks - selling shareholders - use of proceeds - companies business - management - performance
37
What is "testing the waters" in regards to Reg A+?
- An additional type of solicitation - permits solicitation prior to filing an offering statement and is accompanied with a preliminary offering circular - enables issuer to determine if the offering is marketable
38
Under reg A+, what are the two tiers?
Tier 1 - Allows offerings up to 20 million in a 12 month period - No more than $6 million on behalf of affiliates Tier 2 - Can raise up to $50 million in a 12 month period - No more than $15 million on behalf of affiliates - Must file form 8-A (shortened registration statement)
39
What is regulation D?
An issuer can avoid registration requirements by offering securities through a private placement under regulation D of the securities act of 1933. - Rule 504 , $1 million or less in 12 months ( can be unaccredited - Rule 505 , $5 million in 12 months ( Need to be accredited investor, up to 35 non accredited investors - Rule 506 , unlimited amount of money to be raised ( Up to 35 unaccredited investors
40
What are the conditions that must be met to use the regulation D exemption?
- The corporation must have significant reason to believe the buyer is a sophisticated investor - The buyer must be provided with the same info found on a prospectus (offering memorandum document) - Security must be held for 6 months (Issuer receives letter from buyer stating they wont make a quick sale on the offering - Referred to as "letter stock" or "restricted stock" - securities cannot be sold to more than 35 unaccredited investors - Non-accredited investors must have a purchaser representative for each offering
41
Who would be a restricted person in regards to an IPO?
- registered representatives in-laws - siblings - children - parents and spouses -
42
What is the term that would be used to describe a pre-offering solicitation under Reg A+?
Testing the waters. - This is done prior to the offering statement being filed - The issuer is gauging marketability of their offering
43
Under rule 144, when does an affiliate need to file a notice of proposed sale with the SEC?
- If the sale involves more than 5,000 shares | - or if the aggregate dollar amount is more than $50,000 in a 90-day period
44
What announcement must be filed in connection with a regulation D offering?
An offering memorandum
45
Which type of transaction requires the distribution of an offering circular to prospective investors?
Reg A+ - Regulation A+ or small issue exemptions, use an offering circular for disclosure instead of a prospectus. - It must be sent to the prospective buyer either within 48 hours prior to the purchase, or at the time of purchase, with a 5 day right of rescission
46
Which type of securities are exempt from registering and prospectus requirements?
- U.S. government and U.S. government agency securities - municipal securities (city/county/state - state and local gov't issue these types of securities) - issues of non-profit organizations - commercial paper ( short term dead instrument usually matures in 270 days or less) - issues of domestic banks and trust companies ( local bank that doesn't have a holding company) - issues of small business investment companies
47
What are the exempt transactions?
Rule 147 - intrAstate exemption (within 1 state) Reg A offering Reg D offering - Private Placement
48
What is the purpose of rule 144?
It's for the sale of unregistered securities.
49
Under rule 144, what restrictions are the for non-affiliates?
Unregistered stock Reg D 6 month holding period No restriction
50
Under rule 144, what restrictions are the for affiliates?
``` Unregistered stock Reg D 6 month holding period or registered stock Must file 144 concurrently with the sale and volume limitation ( The sale can happen within a 90 day period) ```
51
Whats the volume limitation for affiliates under rule 144?
The greater of 1% of the outstanding shares or average trading volume previous 4 weeks - Not allowed to sell short
52
What is known as a "chinese wall"?
A "chinese wall" separates the investment banking department ( also called the underwriting department), which handles inside information, from other departments of the broker/dealer
53
According to Rule 144A, what type of buyer is permitted to purchase restricted stock?
A qualified institutional buyer (QIB). A QIB has at least $100 million in assets under discretionary management
54
After how many seconds of the execution of a trade are NASDAQ market makers required to give a confirmation?
10 seconds
55
What is best efforts?
issuer assumes risk of unsold shares
56
What is a "firm commitment"?
Syndicate assumes risk of unsold shares
57
An underwriting agreement is an agreement between who?
An agreement between the issuer and the underwriter
58
What is a syndicate letter?
An agreement among underwriters
59
What is a "standby underwriter"?
Ensures that all shares are sold by purchasing remaining unsold shares from the issuer
60
What does all-or-none stand for?
Entire issue must be sold or the offering is canceled
61
What does mini max stand for?
minimum dollar amount of offering must be sold or offering is canceled

SIE LICENSE (3 decks)

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