Investment Banking and Research

Question 1

What type of underwriting deal requires an escrow account for investor protection?
A. Firm commitment
B. Standby
C. All-or-none
D. IPOs

Answer 1

C

An escrow account is required in underwritings that have a contingency clause.

Question 2

Dustin is a retail investor who tries to get shares in a hot IPO, but he is not successful. He does the next best thing, which is to buy 900 shares in the secondary market as soon as the IPO stock begins trading. What requirement must his broker-dealer meet for delivering to him either a red herring or a prospectus?
A. None, because he bought in the secondary market.
B. None, because he tried to participate in the IPO.
C. He must be given a red herring.
D. He must be given a prospectus.

Answer 2

D

Following an IPo, dealers must deliver a prospectus to all purchasers, including those who bought in the secondary market, within 25 days of the effective date for NYSE- or Nasdaq-listed securities, or within 90 days of the effective date for OTC securities.

Question 3

Which of the following statements are true about stabilization efforts?
A. A stabilization bid can be no higher than the public offering price.
B. The maximum duration of a stabilization bid is 5 BDs.
C. Only one stabilization bid can be entered at any one time.
D. The stabilization agent must give prior regulatory notice.
E. Stabilizing bids can be made on an emergency basis to keep the stock price from falling.

Answer 3

A, C, D

Stabilization bids may not be made on an emergency basis, e.g. because the stock price is falling. They must be anticipated and announced in advance.

Question 4

What type of exempt offering is the following:

Securities obtained through an exempt transaction are resold after a minimum holding period of at least 6 months.

Answer 4

Rule 144 Restricted Stock

Question 5

What type of exempt offering is the following:
A small company offers $4 million of its stock to friends and family, to help its CEO cash out his stock and retire from the company.

Answer 5

Regulation A

Question 6

What type of exempt offering is the following:
An offering of unregistered securities is made exclusively to QIBs.

Answer 6

Rule 144A

Question 7

What type of exempt offering is the following:
Private placements (non-public sales of securities) are made to a relatively small number of investors.

Answer 7

Regulation D

Question 8

What type of exempt offering is the following:
An Illinois-headquartered issuer, that carries out a significant amount of business in the state, offers securities exclusively to Illinois residents.

Answer 8

Rule 147/147A

Question 9

Indicate the entity that usually prepares each of the following documents in an M&A process:
A. LOI
B. CIM
C. IOI
D. SOI

Answer 9

A. Potential buyer/their adviser
B. Sellside adviser
C. Potential buyer/their adviser
D. Potential buyer/their adviser

The CIM is a disclosure document prepared by the sell side. The LOI, IOI and SOI are ways in which a potential buyer submits a first-round bid.

Question 10

What is the minimum length of time a Rule 13e-4 tender offer must remain open?

Answer 10

20 BDs

Question 11

Among a given class of shareholders to which a tender offer is made, which shareholders can be excluded from tendering shares?

Answer 11

None

Question 12

Assuming tendered shares have not been accepted for payment, what is the time limit on withdrawing an offer to tender shares?

Answer 12

40 days after expiration of the tender offer

Question 13

What is the main disclosure document shareholders receive and use in evaluating a tender offer?

Answer 13

Schedule TO

Question 14

A bond indenture includes a provision, under which the bond is automatically declared in default if the issuer defaults on specified other debt issues in its capital structure. This is known as:
A. A sinking fund trigger
B. An assumption of indebtedness
C. A cross-default clause
D. A waterfall clause

Answer 14

C

A cross-default clause triggers a default if the bond issuer defaults on other debt in its capital structure. It is often found in the Trust Indenture.

Question 15

Indicate the priority of claims in a bankruptcy proceeding for each of the five types of claims listed below. “1” for the highest priority claim, “2” for the next highest priority, etc.
1. Common stock
2. Unsecured claims
3. Preferred stock
4. Mezzanine debt
5. Secured claims

Answer 15

1. 5
2. 2
3. 4
4. 3
5. 1

Question 16

What is the name of the corporate SEC filing described below:
Explains shareholder votes at an upcoming annual meeting, and officers’ and directors’ compensation.

Answer 16

DEF14A

Question 17

What is the name of the corporate SEC filing described below:
Annual corporate report for each fiscal year, filed at the end of the fiscal fourth quarter.

Answer 17

10-K

Question 18

What is the name of the corporate SEC filing described below:
Declares that an investor has actively acquired more than 5% of the stock of a public company.

Answer 18

13D

Question 19

What is the name of the corporate SEC filing described below:
Contains the most detailed quarterly earnings report and analysis, after the end of the quarter.

Answer 19

10-Q

Question 20

What is the name of the corporate SEC filing described below:
Filed by institutional money managers quarterly to declare holdings.

Answer 20

13F

Question 21

What is the name of the corporate SEC filing described below:
Filed as needed to report major events such as changes in senior management and legal actions against the company.

Answer 21

8-K

Question 22

Written procedures on information barriers must be designed to limit access to inside information to:
A. Officers and directors.
B. Research professionals who are directly involved in writing reports.
C. Those with a need-to-know.
D. Those with access to a secure safe room.

Answer 22

C

Question 23

A [?], also known as a rights offering, applies when additional shares are issued.

Answer 23

Standby commitment

Question 24

How much financial liability do members of the selling group have for unsold shares in an offering?

Answer 24

None

Question 25

Are immediate family members of a restricted person prohibited from buying IPOs?

Answer 25

Only if they are living with or receive/provide material support from/to the broker-dealer employee, or they buy the new issue from the firm that employs the broker-dealer employee.

Question 26

How is "material support" defined when it comes to immediate family members of restricted persons?

Answer 26

Material support is when the registered rep has provided at least 25% of the individual’s income in the prior calendar year.

Question 27

How is "immediate family" defined when it comes to immediate family members of restricted persons?

Answer 27

Spouse, child, parent, sibling, in-law

Question 28

The syndicate must be settled within [?] days from the syndicate settlement date.

Answer 28

90

Question 29

Which of these types of written communication with investors are allowed during the 20-day cooling off period? A. Road show presentation B. Tombstone ad C. Website invitation D. Red herring E. Press release

Answer 29

A, B, D ## Footnote Only three types of written communication with investors are allowed: road show, tombstone and red herring.

Question 30

A securities issuer prepares a notice that will be made available to the public, with the intent to have it excluded from the definition of a prospectus. May this notice include a brief descripiton of how the offering proceeds will be used? A. No, in no case. B. Only if no part of the proceeds will be used to buy stock from an insider. C. Only if the same information is included in the prospectus. D. Yes, in any case.

Answer 30

C ## Footnote A public note (not considered a prospectus) may include a brief description of how offering proceeds will be used, but only if the same information is also disclosed in the prospectus, as part of the filed registration statement.

Question 31

A prospectus that is older than [?] must have financial information that is not older than [?].

Answer 31

9 months 16 months

Question 32

Sales and offers of securities that take place during the pre-registration period are known as [?].

Answer 32

Gun-jumping

Question 33

Written communication during the 20-day cooling off period is limited to what three things?

Answer 33

Preliminary prospectus, tombstone ad, road show presentation

Question 34

When must a free writing prospectus be filed with the SEC?

Answer 34

On the day of first use

Question 35

Is there an exception on the prohibition on pre-filing communication for Emerging Growth Companies?

Answer 35

Yes

Question 36

What kind of issuer can use a FWP prior to the filing of a registration statement?

Answer 36

WKSI

Question 37

A broker-dealer that does not participate in an offering of securities may publish research regarding the offering, provided several conditions are met. Which one of the following is not among the conditions? A. The research does not include a rating. B. No compensation is paid related to the offering. C. The issuer is not a blank-check company. D. The research is part of the broker-dealer's normal course of business.

Answer 37

A ## Footnote In accordance with Rule 137, no compensation, not a blank check company, normal course of business.

Question 38

ABC Securities is publishing research on Matrix Analytics, a public company. ABC has received non-investment banking compensation from Matrix in the past 12 months. In which situations is ABC not required to disclose this compensation in the research report? A. The research report does not include a rating. B. The compensation is not related to securities-related services. C. Researchers were not aware of the compensation. D. Researchers did not benefit directly from the compensation. E. The firm separates research analysts from all information regarding compensation.

Answer 38

C, E ## Footnote The key is that research analysts' opinions and analysis were not influenced by the compensation.

Question 39

Courtney is a research analyst who covers the tech industry. She invites out to dinner the editor of an influential technology publication, along with the editor's spouse and her spouse. They mostly discuss their kids' schools, social events, and local real estate trends. However, Courtney takes the editor aside at the end of dinner and gets a few good tech industry tips for her research. Courtney then picks up the check for all four diners, $452 in total. Has Courtney committed a violation of FINRA Rule 5230 covering payments to the media? A. No, because the payment was non-cash. B. No, because the payment did not exceed the dollar limit. C. Yes, if Courtney uses tips gained from the editor. D. Yes, if the editor's media influences the market price of securities.

Answer 39

D ## Footnote Associated persons may not give anything of value (cash or non-cash) to influence or reward actions of a person involved with the media, when 1) the payment is an attempt to influence or rewards actions of the media; and 2) that media impacts the market price of any security (actual or intended impact). Whether or not Courtney uses the tips gained, the dinner might impact the market price of a security. For example, the editor could be more inclined to read Courtney's research and then tout her recommended stocks.

Question 40

FINRA Rule 5280, regarding buying or selling securities ahead of research reports, is designed to limit information flows between research analysts and which other employees of a broker-dealer? A. Compliance staffers B. Investment bankers C. Traders D. Officers and directors

Answer 40

C

Question 41

ABC Securities is downsizing its research department and terminating its coverage of Midwest Power, a publicly listed electric utility. Which requirements must ABC meet in a final research report on Midwest Power? A. Include a final rating. B. Explain the key reason(s) for terminating coverage. C. Include a referral to other analysts covering the same company. D. Use the same dissemination methods as in prior reports about the company. E. Be as comprehensive as prior research by the same analyst. F. Indicate if the company has objected to the termination of coverage.

Answer 41

A, D, E

Question 42

In a presentation to the public, a research analyst is permitted to offer an opinion about a company that is a current investment banking client of the firm, provided two important conditions are met. Identify those two items from the list below. A. The opinion must be reflected in the analyst's most recent research report. B. The opinion must be fair and balanced. C. The opinion must include a rating. D. The opinion must include a broad overview of the company's industry. E. The opinion must reflect the personal views of the analyst.

Answer 42

B, E

Question 43

Joe is a research analyst. Joe's son Albert and his significant other, Anita, live in a cottage Joe has built behind his residence. Although the cottage is a separate structure from the house, it shares the same principal address with the residence. Albert and Anita both work and support themselves financially. Are they subject to the research analyst trading restrictions? A. No, neither is subject to the rules. B. Only Albert is subject to the rules. C. Only Anita is subject to the rules. D. Both Albert and Anita are subject to the rules.

Answer 43

B ## Footnote As a relative, Albert is subject to the rules, even though he is financially independent. As a non-relative, Anita is not.

Question 44

Regarding the annual attestation required under NYSE Rule 351, which action is not required to be performed by the broker-dealer? A. Originate and distribute research. B. Verify the establishment and implementation of procedures regarding Communications with the Public standards. C. Attestation must be signed by a principal executive of the broker-dealer. D. Must submit the letter if its research analysts make public appearances.

Answer 44

## Footnote The standards for the annual attestation of broker-dealers regarding compliance with NYSE Rule 472 must be met not only by firms who originate or distribute research but also by those firms who distribute research prepared by others such as third-party researchers.

Question 45

What is the definition of a research report?

Answer 45

A client communication distributed to at least 15 people that analyzes individual securities and provides information on which to base an investment decision.

Question 46

When is a research report not required to disclose compensation expected in the next three months?

Answer 46

If it compromises nonpublic information

Question 47

Firms are required to disclose services provided during the preceding [?] to a company that is the subject of a research report.

Answer 47

12 months

Question 48

A broker-dealer must disclose beneficial ownership of [?] or more of a company's equity securities if that company is the subject of a research report.

Answer 48

1%

Question 49

What is the alternative to printing disclosures on the front page of a research report?

Answer 49

A reference to the page on which disclosures are provided.