Investment Banking

Question 1

Investment banking

Answer 1

How to raise money from the public

Question 2

Negotiated offering

Answer 2

Issuer chooses the IB directly, most common

Question 3

Competitive offering

Answer 3

IB chosen through auction, letter of intent

Question 4

UW

Answer 4

Buys securities from issuer, sells them to the public

Question 5

Syndicate

Answer 5

Group of UW’s chosen by IB of issuer, risk is subdivided

Question 6

Managing (lead) UW

Answer 6

Manages syndicate and negotiates with issuer

Question 7

Selling group

Answer 7

No underwriting, no risk, just helps sell

Question 8

Chinese wall

Answer 8

Separates IB from B/D

Question 9

3 types of UW agreements

Answer 9

1. Firm commitment - unsold securities retained by syndicate, must maintain escrow acct
2. Best efforts - unsold securities returned to issuer includes A. AON entire offering sold or cancelled and returned to issuer B. Min/Max minimum amount sold to avoid cancellation, unsold returned to issuer, must maintain escrow acct
3. Stand-by rights - purchases shares not bought during rights offering, firm commitment

Question 10

Investments not regulated by SEC

Answer 10

LI , fixed annuities, commodities, futures, regular CDs, currencies, real estate

Options and RETs ARE securities and regulated

Question 11

Primary offering

Answer 11

Authorized but unissued securities, shelf registration 2 or 3 yrs

Question 12

Well known seasoned issuer

Answer 12

At least 700mm public float or 1bill of non convertible bonds issued w/in last 3 yrs, shelf registration 3 yrs

Question 13

Seasoned issuer

Answer 13

An issuer w/at least 75mm in public float, shelf registration valid for 3 yrs

Question 14

Unseasoned issuer

Answer 14

Less than 75mm in public float, files qtrly and annual w/SEC, 2 yr shelf registration

Question 15

Non-reporting issuer

Answer 15

Not required to file with SEC i.e. Private company, not publicly traded

Question 16

Public float

Answer 16

Outstanding stocks not held by insiders

Question 17

Secondary offering

Answer 17

Stock held by insiders or treasury stock

Question 18

Combined (split) offering

Answer 18

Primary and secondary offering

Question 19

Red herring

Answer 19

Preliminary prospectus, not final, subject to completion, cannot be delivered electronically

Question 20

Effective registration date

Answer 20

1st day the offer starts trading, set by the SEC

Question 21

Issuer directed sales

Answer 21

No need for syndicate or selling group

Question 22

Securities act 1933

Answer 22

Regulated federal registration of new issues, requires issuer to make full disclosure of relevant info

Question 23

Corporate charter

Answer 23

Purpose, place, type of security, amount of securities, mgt rules

Question 24

Trust indenture act 1939

Answer 24

Indenture filed w/SEC for new issues of corporate bonds over $50mm

Question 25

Price of new issues determined by:

Answer 25

1. Earnings 2. Comparisons 3. Mkt conditions

Question 26

Exempt securities

Answer 26

Govt securities, munis, commercial paper, non profit, bank issued securities, rail & trucking issued securities, small business investment co's, intrastate offerings,

Question 27

Reg A

Answer 27

Offering of $50mm or less w/in 12 month period Exempt Transaction

Question 28

Reg S

Answer 28

US companies offering securities outside the US exempt transaction

Question 29

Reg D

Answer 29

Private Placement - no promotion allowed unless targeting accredited investors, website ok with password PPM private placement memo AKA PROSPECTUS Exempt transaction

Question 30

Accredited investors

Answer 30

Financial institutions, insiders (and family of), annual income of 200k (300k jt) for previous 2 yrs and coming yr, net worth $1mm excluding residence

Question 31

Restricted stock

Answer 31

Stock purchased through private placement Exempt transaction

Question 32

State registration (blue sky)

Answer 32

B/D, rep, and security must all be registered in the customer's state, unless exempt

Question 33

Methods of state registration

Answer 33

1. Notification - filing, simplest form 2. Coordination - registration effective w/SEC (same time), used for IPO 3. Qualification - used for federal exempt, not state, hardest

Question 34

Cooling off period

Answer 34

Starts when filed w/SEC, lasts about 20 days, SEC reviews, may send stop order, can send red herring, cannot send money though

Question 35

Allocation of orders

Answer 35

1. Pre sale 2. Syndicate (group net) 3. Designated 4. Member

Question 36

Distribution of profits, Spread:

Answer 36

Difference btwn POP and amount paid to issuer includes takedown and managers fee Spread = takedown + managers fee

Question 37

Takedown

Answer 37

Part of the spread, this is the biggest part which goes to the syndicate Part 1 concession - profit to the selling group Part 2 reallowance - profit paid to those outside selling group

Question 38

Types of syndicates

Answer 38

1. Western (divided) account - members do not assist each other "Wild West" 2. Eastern (undivided) account - unsold reallocated based on original allocation %

Question 39

Market out clause

Answer 39

Allows UW to w/d from offering due to negative mkt conditions, can happen up through the due diligence mtg

Question 40

Sticky issue

Answer 40

New issue, difficult to sell, cannot be sold at a discount to firms outside the syndicate or selling group w/o UW permission.

Question 41

Hot issue

Answer 41

New issue in high demand, trades at a premium w/in 1st 5 minutes

Question 42

Over allotment (oversubscribed)

Answer 42

Take indications of interest for securities than available Greens how clause - can sell additional 15% of securities due to over allotment, still must register with SEC

Question 43

Corporate financing department rule

Answer 43

Part of FINRA that examines compensation to UW, looks at 6 month window for comp, cannot include registration or legal fees, UW must report comp to CFD w/in 1 day after docs filed w/ SEC stock, options, warrants, are included but cannot be more than 10% of outstanding shares, 6 month holding period