Chapter 5 - Misc Flashcards
ALTERNATIVE PUBLIC OFFERING (APO)
An APO is sometimes referred to as a reverse takeover where shareholders of a private company choose to gain control of a company whose stock is publicly traded and merge it with their private company.
Can a selling group be formed before the filing of the registration statement ?
Under SEC rules, a selling group is formed after the filing of a registration statement.
Manager’s Fee
The manager’s fee is the amount, expressed in cents per share, that the syndicate manager earns for each share sold. It is the compensation the manager receives for overseeing all regulatory filings connected with the new issue and for making all decisions on behalf of the othersyndicate members.
The agreement among underwriters must state that, consistent with Regulation M, the book-running lead manager and the other syndicate members must require that any shares trading at a premium to the public offering price that are returned by the buyer after secondary trading has begun to :
be used to offset the existing syndicate short position; or if no syndicate short position exists, the member must either
— offer returned shares at the public offering price to unfilled customers’ orders pursuant to a random allocation methodology, or
— sell returned shares on the secondary market and donate profits from the sale to an unaffiliated charitable organization with the condition that the donation be treated as an anonymous donation.
To be effective, a green shoe clause must be disclosed in both the
To be effective, a green shoe clause must be disclosed in both the registration statement and filed with the SEC and the prospectus.
Concession
The concession is the amount, expressed in cents per share, that represents the gross profit made by members of the selling group for each share sold by those members.
Reallowance
With the permission of the manager, a syndicate or selling group member may sell the new issue to a member that is not part of the underwriting group. This firm must agree to sell the new issue at the public offering price. The compensation earned by this firm is termed a reallowance
, which is generally one-half of the concession.
The underwriting spread consists of three major components:
■Manager’s fee for negotiating the deal and managing the entire underwriting and public distribution process
■ Underwriting fee for assuming the risk of buying securities from the issuer without assurance that any or all of the securities can be resold
■ Selling concession for finding and placing the securities with investors
Underwriter Compensation
There always is a spread between the price at which underwriters buy stock from issuers and the price at which they offer the shares to the public. The price to the issuer is referred to as the underwriting proceeds , and the price to the buying investors as the public offering price (POP)
If the syndicate is divided (Western account), syndicate members are liable
If the syndicate is divided (Western account), syndicate members are liable only to the extent of their participation. In the example, syndicate members 1 and 3 are liable for $20 million each, which represents their unsold allotment.
If the syndicate is undivided (Eastern account),
If the syndicate is undivided (Eastern account), all syndicate members share in the liability based on their percentage participation.
Securities purchased in a standby arrangement are restricted for resale for a period of ?
Securities purchased in a standby arrangement are restricted for resale for a period of three months. Syndicate members are likely buyers in a standby arrangement.
Reg M Rule 101 - Tier 3 Security
Securities that do not meet the criteria for tier 1 or tier 2 are defined as tier 3 securities and are subject to a restricted period of five days—the five business days before the effective date.
Reg M - Rule 103
If a market maker who also is a syndicate member elects to function as a passive market maker during the restricted period, the following rules apply.
■ Notification must be made to Nasdaq one business day in advance of the restricted period.
■ Quotes over Nasdaq must be identified as those of a
passive market maker (PSMM is the Nasdaq modifier).
■ Passive bids can be no higher than the highest independent bid, which is a bid made by a
market maker not involved in the underwriting.
Reg M - Rule 105 prohibits purchases at the offering price to cover short positions established ?
Rule 105 prohibits purchases at the offering price to cover short positions established within five business days of the effective date
