Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Series 7 > Chapter 5- Investment Banking > Flashcards

Chapter 5- Investment Banking Flashcards

(53 cards)

Start Studying
1
Q

Investment Bankers

A

firms hired by corporations to help them with various financing and corporate related manners

Raise Capital
Advise corporation on mergers and acquisitions

Serve as underwriter, sponsor, distributor, and/or a syndicate member

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Issuers

A

Companies that sell securities (stocks and bonds) to the general public for the purpose of financing its new ventures or operations
Includes: Domestic and foreign corporations
US government
State and local government

Corporations distributing new issues are considered to be issuer not customer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Primary vs secondary distribution

A

Primary is stock that has not been issued previously and the proceeds from the sale of the security goes to the issuer (can not be purchased on margin)

Secondary is a large block of securities that are sold by a few owners. Proceeds are paid to the seller (can be purchased on margin)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Chinese Wall

A

Imaginary barrier between investment banking, research, and trading departments.

Prevents material that is not public knowledge from being shared between departments

Personnel working in the broker-dealers research department can not be supervised or compensated by the investment banking department

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Syndicate Group or Syndicate desk

A

group of broker dealers who agree to be distributors for a new issue of common stock by an issuer to the general public

Does research, advise about required filings, maintains records, and allocates new issues to sell

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Managing Underwriter

A

Brokerage Firm chosen by the corporation to issue their securities
Choose by negotiated or competitive bids

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Negotiated vs. Competitive bids

A

Negotiated are typically used for selling stocks
Competitive bidding is typically done for bonds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Who helps Managing underwriter selling securities

A

Selling Syndicate, They can either selling directly to the public or they can bring on smaller groups to help with sales refereed to as selling groups

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Broker/Dealer purchasing New Issues

A

The broker dealer can go to any level, managing underwriter, Selling syndicate or the selling group to purchase shares for their customers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Selling Syndicate VS selling group

A

Selling Syndicate- has made a financial commitment and share in the financial liability

Selling group has not put any money upfront and do not carry any financial risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

IPO: what is the spread

A

The spread is the difference between what the issuer receives for each security and how much the public pays for them

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Fee for issuing securities

A

Issuer proceeds- goes to issues
Manger’s Fees- goes to managing underwriter
Underwriter compensations (AKA retention) - goes to selling syndicate
Selling concession- goes to selling group
Reallowance- goes to the broker dealer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Factors that determine the amount of the spread

A

size of the issue
Type of security involved
Financial strength of the issuer
Type of commitment made by the investment bank

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Agreement between underwriters

A

Agreement between Managing underwriters and all syndicate members

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Managing Underwriters responsibilities

A

Forming syndicate and selling groups
Running the books
Establishing underwriter retention
allocate issues to syndicate members
Stabilize the issue if needed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Agreement between underwriters can be either

A

Easter- signed severally and jointly (undivided liability)

western - signed severally but not jointly (divided liability)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Types of underwriting agreements

A

Firm commitment
Stand-by agreement
Best efforts agreement
All or none agreement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Firm Commitment

A

The syndicate buys the entire issue and resells it to the public

greatest risk to underwriter

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Stand-by agreement

A

The underwriter agrees to purchase and distribute any part of an issue not purchased by stockholders who received preemptive rights (rights offering)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Best efforts Agreement

A

Underwriter acts as an agent, does not buy the shares themselves
The issues is the owner of any unsold shares

Most Common used

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

All or None agreement

A

The issue is canceled unless the entire issue is sold to the public

Always has an escrow account established

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

A market-out clause

Study These Flashcards
A

AN escape clause for the underwriter if a material adverse development affects the securities market
Used with all types of agreements

23
Q

Registration Statements

Study These Flashcards
A

Files with the SEC by the underwriter on behalf of the issuing corporation
Full and fair disclosure of all relevant facts about the issuing company
Describes issuers business as well and the use of the proceeds

24
Q

Registration and the prospectus

Study These Flashcards
A

Investors get a prospectus once the registration becomes effective

25
Registration and the SEC
SEC does not approve or disapprove of a registration they may reject a registration if they feel there is missing information
26
Types of registration Statement filings
S-1 IPO- full registration for domestic issues F-1 IPO- full registration for foreign based issuers S-3 - Follow-on Short-form registration for domestic issuers F-3 - Follow on - short-form registration for foreign issuers
27
Cooling off Period
20 days- Minimum waiting period before the issue can become effective. No sales before issue date. The selling group is formed Blue sky the issue -qualified in each state in which it will be sold The due diligence meetings is held by the issuer and investment bank to review the offering deficiency letters, and the final prospectus
28
New issue is priced...
either the night before or the morning of the issue
29
Red Herring or Preliminary Prospectus
It is used to solicit indications of buyers interest
30
Following a red herring
a RR can not confirm a sale or accept funds indication of interest is not binding on anyone red herring can not be altered in anyway Can not be accompanied by a research report will not include or declare a final offering price (potential price range is allowed but is also not binding) Must be sent to people that have given rep indication of interest in the offering brief history of issue, its management and the use of the proceeds
31
Pricing of a new issue
Once the price is set, all new issues must be sold at that price. Selling group does not have any say over the price of the new issue
32
If price begins to drop during offering...
The managing underwriter will step in and purchase shares under the initial offering price to help stabilize the market by becoming a buyer
33
Selling shares purchased during stabilization
Must be done only at the public offering price
34
Final Prospectus
Includes the date, stabilization transactions, any penalty clauses And a statement saying the SEC does not approve of Disapprove of the security
35
Access equals delivery
Once the final prospectus is delivered on to the SEC it will be available at EDGAR on the SEC's website. Therefore the investor will have access to this and the SEC will count this as them having had delivery of the prospectus.
36
Prospectus violations
Misstatements in the prospectus Sending sales literature with the preliminary prospectus Altering the prospectus in any way Sending excerpts of the prospectus Accepting an order to purchase before the effective date of the registration statement
37
New Issues and margin
Securities can not be purchased on margin for their first 30 days
38
New issue of a firms own stock
Can only be sold through unsolicited orders
39
Tombstone ads
Announce the availability of new issues for sale only form of advertising permitted not required to be filed with the SEC Contains the Name of the issuer, managing underwriter, and the amount of the new issue can only contain statements of facts must indicate where a prospectus could be found do not show selling group members DO show public offering price
40
Quiet period
No acting member of the public offering can publish a research report on the subject of the new issue for: 10 calendar days for an IPO 3 calendar days from a secondary offering Eliminated for Emerging growth companies under the JOBS act
41
Issuers and Brokers under the JOBS act
may communicate with qualified institutional investors and accredited investors to ascertain investor interest
42
FINRA rule 5130
If you work for, are related to someone or live with someone who works or a broker dealer (restricted persons), you may not buy IPO stock
43
Restricted Persons
People who are employed by a member firm or broker-dealer (And their immediate family) Finders and Fiduciaries (attorneys, account and financial consultants) and their immediate families Portfolio managers and their immediate family
44
Immediate family means
Parents, spouses, and siblings In-laws Children And any other person to whom the individual provides material support Does NOT include Aunts, uncles and grandparents
45
Restrictions on sales of IPO
Can not be sold to an account where a restricted person has a beneficial interest
46
Preconditions for sale
The member firm can sell the new issue so long as they have made a good faith effort to confirm that the account is eligible to purchase new issues
47
Not Restricted persons
Investment company registered under investment company act of 1940 Trust fund formed from 1,000 or more accounts and not primarily restricted persons Insurance company with at least 1,000 policyholders and not primarily made of restricted persons Investment club where restricted persons make up less then 10% of account value
48
Exception to a restricted persons rule
A restricted person may purchase shares if they already hold the security and are buying to maintain their proportionate share of ownership in the company
49
Stand By Purchasers
Are restricted purchasers that are allowed to by shares if the managing underwriters can not find any other purchasers for the shares as long as additional requirements are met
50
Stand by purchasers requirements
agreement must be disclosed in the prospectus Must be a written agreement Securities sold through this are "locked up" for 3 months after purchase
51
Under subscribed IPO
Underwriter may purchase portion of a public offering into their own account if they are unable to sell those shares to the public
52
Retention...
is the difference between the underwriters compensation and the selling concession for a public offering
53

Series 7 (20 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions