Communications with the Public & New Issue Market Flashcards Preview

Series 7 Top-off Exam > Communications with the Public & New Issue Market > Flashcards

Flashcards in Communications with the Public & New Issue Market Deck (150)
Loading flashcards...

What was the purpose of the act of 1933?

The 1933 Act requires all securities to be registered with the SEC for public sale unless the security is exempt or sold in an exempt transaction. The purpose is to ensure full and fair disclosure of all material information to investors.


The Act of 1933 requires what first step before any sales can take place of any new security?

The registration statement to be filed by the issuer with the SEC


What is the period following the filing of the registration statement called?

20-day cooling off period


What cannot occur during the 20 day cooling off period?

No sales or offers of the new issue security can occur


What is permitted during the cooling-off period?

The following activities/marketing materials are permitted:

1) Red herring (aka preliminary prospectus)

2) Collection of indications of interest

3) Tombstone ad

4) Road shows

5) Free Writing Prospectus


What is the effective date?

This is the date the SEC permits sales to the public. It occurs once the underwriter has fully marketed the new issue securities to investors and know the price they want to sell for.


What is the meaning of the registration being effective?

This means that the issue can legally be sold.


What is the process of due diligence?

Due diligence is the process of gathering all information and ensuring that disclosures made by the issuer are both adequate and truthful.



What is a shelf registration?

Shelf registration, also called rule 415, allows an issuer with previously registered securities with the SEC a three-year window to issue new securities without going through the re-filing process which can be expensive and time-consuming. A shelf can be used for both equity and debt securities, but not for an IPO.


Which securities are exempt from the securities act of 1933?

1) Government and Government Agency Securities

2) Municipal Securities

3) Commercial Bank Securities

4) Commercial Paper with a maturity of 270 days or less



Under Rule 147, how long does an investor have to wait before they can resell purchased securities outside the state of issuance?

Securities can be sold outside of the state in which they were issued six months following the sale being completed. 


What does the Act of 1934 require of corporate issuers with regarding reporting income and expenses?

The act of 1934 requires all issuers to file an annual audited 10-K with the SEC as well as quarterly 10-Q which is un-audited. It is intended that these reports are made public so that investors can make informed decisions. 


Under the act of 1934 what is the definition of an insider?

Any officer of the company, a director, member of the Board of Directors, or a greater than 10% shareholder of the company's equity are all considered insiders.


Under what conditions is a security exempt from the Act of '33 when it is offered only to the residents of a single state?

Under Rule 147, intrastate offerings are exempt from SEC registration if the following requirements are met: 

The issuer must be incorporated in the state, all securities must be sold to state residents and one of the following criteria must be met:

  • 80% of the revenue comes from the state
  • 80% of the issuer's assets are in that state
  • 80% of the proceeds of the offering must be used in that state, or
  • a majority of the employees must be located in the state.



What is another word for a preliminary prospectus?

Red Herring


What is the use or purpose of a preliminary prospectus or Red Herring?

It is used by the syndicate to gauge interest in the new IPO during the cooling off period.


Does the preliminary prospectus include an IPO price?


The preliminary prospectus will not have the final offering price (that is only included on the final prospectus). Instead, it will have a range of potential prices.


Tombstone announcement

An advertisement or announcement that the lead manager places in a newspaper to with the basic details about the offering. A tombstone ad is allowed to be published during the cooling off period.


Who is restricted from buying an IPO? 

Restricted persons include

  • Broker-dealers for their own accounts
  • The employees of broker-dealers
  • Finders and fiduciaries of the managing underwriter such as accountants or attorneys
  • Portfolio managers who are trying to purchase for their own personal accounts 
  • Immediate family members of a restricted person (includes spouse, parents, siblings, children, and in-laws)


What is a green shoe clause in underwriting?

The greenshoe clause allows the underwriters to increase the size of the deal and purchase up to 15% more shares from the issuer to satisfy demand. It can be exercised by the underwriters for up to three years after the effective date.


Stabilizing bid

A bid that the lead underwriter is allowed to place once an IPO begins trading, to support the price of the IPO. The underwriters can never stabilize above the IPO price.


Which law regulates the new issue of securities?

The Securities Act of 1933



Which securites law first required a prospectus and SEC registration before securities could be sold to the public?

The Securities Act of 1933


The Securities Act of 1933 protects investors in what specific ways?

  • Requires registration and a prospectus for all new issues (unless the security is exempt or sold in an exempt transaction)
  • Mandated companies provide full disclosure to investors
  • Created the regulatory body for securities in the primary and secondary markets (SEC)


The Securities Act of 1933 requires a registration statment to be made to the SEC. What must this registration statement contain?

  • Identification of anyone owning 10% or more of the company
  • Intended use of raised capital proceeds
  • Any pending lawsuits against the company
  • Names and addresses of company officers and directors
  • Compensation and five-year business histories (including past employers) of company officers and directors
  • Amount and structure of the company's current capitalizaton


"Blue Sky" laws

State laws designed to protect investors from highly speculative or fraudulent offerings, regulating the offer and sale of securities.


What are the three phases of taking a company public that were established in the Securities Act of 1933?

  1. Pre-registration period
  2. Cooling-off period
  3. Post-effective period


Does the SEC approve the registration document filed during the registration phase?

No. The SEC neither approves nor disapproves of the filing, only reviews it for appropriate disclosures such that an investor can make an informed decision about the company. 


Minimum length of the cooling off period during the registration process

20 days


Disclosure document used to gather indications of interest during the cooling off period

Preliminary prospectus (red herring)