chapters 11-15 Flashcards
(36 cards)
pipe (private investment in public equity)
It’s a private placement arrangement where an accredited investor buys stock directly from a public company at a price below market value. In exchange, the company agrees to file a resale registration statement that allows the investors to sell the shares to the public.
types of underwriting
chart pg 144
Syndicate Agreement
between broker dealers who form syndicates to underwrite a deal and sign selling agreement with manager of a selling group
Liability Chart in Underwriting Process (Primary Market)
Underwriting managers & Syndicate members assume debt, selling group does not
lead manager is part of
Underwriting spread
pre registration: no communication with public
cooling off period: filed with SEC, “blue sky” aka state registration is often the issue, distro of preliminary prospectus called “red herring”, no pricing info
post registration period: effective date is set
When must after market prospective be sent for investors of
non listed IPO
non listed follow on
exchange listed IPO
exchange listed follow on
90 days
45 days
25 days
no req
types of prospectuses
summary prospectus: short form, often used for mutual funds
free writing prospectus: offering term sheets, emails, press releases, and marketing materials
red herring: preliminary prospectus (no pricing)
statutory prospectus: condensed form of registration statement with offering price and effective date
Exemptions: Reg D versus Rule 147
Reg D: private placement - unlimited accredited investors, no more than 35 non-accredited investors who must appoint a purchaser representative and then all investors must get a private placement memorandum
Rule 144: restricted and control stock
restricted stock: unregistered stock that’s acquired through a private placement or as compensation for senior executives of an issuer (has a 6 month holding period before it can be sold)
control stock: registered stock that’s part of an issuer’s public float and purchased in the open market by officers, directors, or greater than 10% shareholders of the issuer
Rules 144, 144A, 145
rule 144: sales of restricted and control stock
144A: exemption for restricted securities that are sold to qualified institutional buyers
145: reclassification of assets (not stock splits, but instead
- substitutions of one security for another, securities that are a result of a merger/ acquisition, securities issued after a transfer of assets from one corporation to another.)
5% markup rule: only for assets not requiring a prospectus
Finra believes a 5% markup is fair, no more, with certain exceptions
Discretionary accounts
Non discretionary accounts
Discretionary accounts: RR must document when it is used. So if RR tells you about trade and you agree, they are not exercising discretion bc u agreed to it
Non discretionary accounts:
- Solicited: if RR recommends trade and customer agrees
- Unsolicited: customer places trade with no RR recommendation
Review: Covered and uncovered options
If covered, no margin is required and risk is generally limited
Id uncovered, margin is required and risk may be significant
Sell limit and buy limit
sell limit: an order that will only be executed at a specific price or higher
buy limit: an order that will only be executed at a specific price or lower
Stop orders
Sell step order: placed below the current market price of the security and used to hedge a long position
Buy stop order: placed above market price and used to hedge a short position. If security increases in value, he will buy it at the next price (execution price) after the trigger price.
Order qualifiers
2 popular types
1. Day order – cancelled at days end
2. Good til canceled (GTC) – stays on the book until it expires, is executed, or cancelled
- may be adjusted for distributions on the security or partial execution
Trading Process 5 steps
- Order entry: ticket details regarding how trade should be executed
- Execution
- Clearing: Executing firms agree to the details of a trade; any unrecognized trades may result in a DK (Don’t Know) notice
- Settlement: Day on which customer’s name is placed on or taken off the issuer’s books
- Custody: safeguarding of client and firm assets
Settlement Dates
corporate and munis: T+!
government securities and option trades: T+1
Cash settlement for any security: Same day as trade date
Seller’s option: negotiated settlement; not earlier than 2 days after trade
When Issued: As determined by the National Uniform Practice Committee
Reg T Payment Date: 2 days after regular way settlement (s+2 or T+3)
Good Delivery
- Properly registered
- Properly endorsed certificate
- Signed stock power if the stock certificate is sent unsigned
- CUSIP numbers may be used to identify and clear
Restricted securities are not considered good delivery
Stock Splits
Purpose: no improve marketability (make share cheaper) of stock. No change to holder’s percentage of equity ownership, economic gain or loss, or issuer’s capitalization
Types of splits WEIRD NOTATION
1. forward (2:1 or 3:2): more shares, lower price
2. Reverse (1:5): fewer shares, higher price
10% tax dividend is factored in as 10% more shares in cost basis calculation.
Tender Offers
Indicates the intent to buy shares from the owner at a fixed price
In investor can participate if: they own stock, have rights or warrants to the stock, own a call option and have exercised the call option
Official Communication Types between issuers and investors
beneficial owners: investors whose securities are held in their name and recorded on the firm’s books
non-objecting beneficial owner (NONO): owners who allow issuers to contact and send communications to them directly
Objecting beneficial owner (OBO):all communication must be sent from issuer to OBO’s broker dealer; brokerage can charge issuers for forwarding financial info or proxies (voting)
Types of accounts
Cash account: pay for securities in whole
margin account: 1. long - client borrows funds from the broker dealer to purchase shares 2. short - the client borrows shares from the broker dealer in order to execute a short sale
- to open a margin account, you need margin (regulation T deposit requirement of 50%), credit agreement, and a hypothecation (pledge) agreement which means that the broker dealer borrows money from bank to replace the loan made to the customer, margin disclosure document (securities can be sold from the account to meet a margin call)
optional: loan consent agreement (allows broker dealer to lend securities in a margin account to others)
options account: no response from customer means verified. But if customer refuses to provide certain info, a note of this is made in options agreement.
Discretionary accounts
customer gives power of attorney to RR to make investment decisions
limited: can place orders but not withdraw
full POA: can place orders and withdraw
