Issuing - Primary Market Flashcards Preview

Series 7 > Issuing - Primary Market > Flashcards

Flashcards in Issuing - Primary Market Deck (84):
1

-Addresses new issue securities and primary market
-Provides issuer info to customers
-Prevent securities sales fraud
-Oversees registration and exemptions of securities

Securities Act of 1933





2

-Another name for Securities Act of 1933
-Focuses on paper elements including REGISTRATION and PROSPECTUS

Paper Act

3

Form S1, Company wants to raise capital by issuing securities for first time

Must include:
-Description of issuer's business
-Shareholders of issuer stock including officers, underwriters and directors, control persons (10% shareholders)
-Biographical data on officers and directors
-Company's Capitalization
-Proposed usage of issuer's proceeds

Securities Registration Process

4

Disclosure document that ensures investors have enough information to make an informed investment decision

Prospectus

5

SEC issues deficiency letter to postpone issue or stop order to prohibit sale until fixed

Material Deficiencies in Registration Statement

6

If issue is an add-on offering, issuer qualifies for abbreviated registration statement

S3

7

-When issuer files registration statement with SEC
-Underwriter prepares red herring (preliminary prospectus) which is distributed to generate Indication of Interest (IOI's)
-Distribute tombstone ads
-Sales cannot be made during this time
-Ends when SEC releases securities for sale to the public

Cooling-Off Period

8

-Issued during cooling-off period
-Also called Red Herring
-Has red border to indicate registration has been filed but not effective
-Not complete, no offering price, effective date, or date available to public
-Could have price range
-Cannot be marked on, must be pristine

Preliminary Prospectus

9

-Indication that investor might be interested in securities
-IOI is NOT a binding sale

Indication of Interest

10

-Limited announcement distributed during cooling-off period
-Contains price range, description of issue, members of syndicate

Tombstone Ad

11

New issues must be registered under state securities laws

Registration methods
-Notification (notice with the state)
-Coordination (in coordination with issuer's SEC registration)
-Qualification (issuer submits full registration statement and is qualified by the state)

Blue Skied

12

-Starts the cooling-off period when SEC reviews information
-Lasts minimum of 20 days
-If SEC finds deficiency in registration statement, period is frozen until fixed

Filing Date

13

-Ensures full and fair disclosure to potential investors
-Officers, directors, underwriter, syndicate members meet to review aspects of issue
-Determine if due diligence was exercised in all areas

Due Diligence

14

First date on which securities may be sold

Effective Date

15

-Must be given to all purchasers, even if they received a Red Herring
-Contains official price and effective date

Final Prospectus

16

-Proceeds of offering go to issuer
-Either IPO or APO

Primary Offering

17

-Includes pre-registration period, cooling-off period, and post-registration period
-Offering participants may not influence price of security
-No secondary market trading of security

Restricted Period

18

-Research cannot be published on offering company
-No public due diligence meetings or public analyst appearances
-40 day period for IPO
-10 day period for APO

Quiet Period

19

-Broker/Dealer that helps issuer sell securities to the public
-Also known as investment banker

Underwriter

20

-Contract with the issuer using document called underwriting agreement
-Responsible for keeping due diligence file
-Makes sure that proper disclosures have been made by the issuer
-Can invite broker/dealers to join in and form syndicate

Managing Underwriter

21

-Contract between issuer and managing underwriter
-Specifies terms and conditions under which underwriter may sell shares to public

Underwriting Agreement

22

-Team of broker dealers who sell securities to public on behalf of the issuer
-Sign agreement among underwriters (syndicate letter)

Syndicate

23

Syndicate Letter (Agreement Among Underwriters)

Syndicate Letter (Agreement Among Underwriters)

24

-Syndicate buys shares from issuer then reoffers to public
-Syndicate takes risk for unsold shares
-Unsold shares will be divided amongst members based on liability participation

Includes Standby Underwriting

Firm Commitment Underwriting

25

-Special type of firm commitment
-Associated with stock rights offerings
-Standby underwriter assures that shares offered through stock rights will be sold
-If unsold shares remain, standby underwriter purchases remaining shares from issuer

Standby Underwriting

26

-Best efforts given by syndicate on behalf of issuer
-Issuer must keep any unsold shares
-Issuer takes the risk
-Uses escrow account, money held by impartial third party

Two types
-All or None
-Mini-Max

Best Efforts Underwriting

27

Entire issue must be sold or the deal is canceled

-Sales proceeds held in escrow until all shares sold
-Once sold, escrow agent release the funds to the issuer and underwriter
-If not all sold, sales proceeds in escrow are refunded to investors

All or None Underwriting

28

-Specified minimum amount must be sold or it is canceled
-Escrow account holds sales proceeds until minimum is reached
-Once sold, escrow breaks up and funds are released
-Syndicate continues selling until shares depleted or selling period ends

Mini-Max Underwriting

29

-Additional broker/dealers allowed by syndicate to sell shares to public
-Must sign written agreement
-No liability for unsold shares
-Receives SELLING CONCESSION

Selling Group

30

-Difference between Public Offering Price (POP) and what issuer receives
-Fairness judged by FINRA's Committee on Corporate Financing
-Managing Underwriter must filed documents with committee before effective date

Components
-Manager's Fee
-Syndicate Fee
-Selling Concession

Underwriting Spread

31

-Managing underwriter receives fee for every share sold
-Smallest portion of spread
-Meant to reimburse managing underwriter for expenses and compensate for extra work (due diligence, liaison between issuer and syndicate members)

Manager's Fee

32

-Divided among syndicate members based on liability participation

Ex: Syndicate member liable for 20%, receives syndicate fee based on shares sold or 20% of offering

Syndicate Fee

33

-Largest component of spread
-Paid to syndicate or selling group member

Selling Concession

34

Shares given to syndicate members may not be transferable for a period of 180 days

Lockup Period

35

-Issuer sells shares to the public for the first time
-Underwriter examines pricing of similar companies to assess overall market conditions

IPO (Initial Public Offering)

36

-Broker/Dealers and registered persons are prohibited from buying the IPO from syndicate
-Shares must be offered to public

FINRA Rule 5130

37

-Fiduciaries for managing underwriters including accountants and attorneys
-Immediate family members (siblings, children, parents and in-laws)
-Person who owns more than 10% of portfolio an established portfolio

IPO Restricted Persons

38

Person who owns more than 10% of a portfolio that is buying IPO shares will be carved out of the purchase and divided up among other portfolio

Carve Out Provision

39

-Registered person's immediate family member who had sale directed towards them by issuer
-Registered persons qualified only to sell investment companies, variable products or direct participation programs

IPO Exempt Restricted Persons

40

-IPO purchasers must sign this to claim their non-restricted status every 12 months
-Accomplished with negative consent letter

Positive Affirmation

41

-Addresses conflicts of interest when issuer brings own shares to market
-Broker/Dealer must hire qualified independent underwriter
-Applies when broker/dealer is controlled by or controls company whose shares are being offered

FINRA Rule 5121

42

Must have done at least three offerings of at least 50% of this size in the last 3 years

Qualified Independent Underwriter

43

-Add On offering
-File S3
-Company has already gone through an IPO
-Publicly traded issuer offers more shares to the public

Additional Public Offering

44

-Called shelf offering because once filed, securities sit on shelf waiting to be sold
-Usually sold at current market price of outstanding shares
-Begins when issuer files registration statement with SEC which creates window of time for APO
-Window is 2 to 3 years

Shelf Offering

45

Has $700,000,000 of outstanding capitalization in secondary market

Well-Known Seasoned Issuer

46

-Has $75,000,000 of outstanding capitalization in secondary market
-Has not missed an interest or dividend payment interest or dividend payment in last 3 years

Seasoned Issuer

47

Must file a full S1 and only has a 2 year window

Unseasoned Issuer

48

-Exempts stock splits, changes in par value and stock dividends from registration filing

Rule 145

49

-When a publicly traded company separates one of its divisions into its own entity
-Finding comes from parent company by debt or equity position
-Could be sold to another entity

Spinoff

50

-Formal offer to existing shareholders to purchase stock at price above current market value
-Must remain open for minimum of 20 days
-If price changed, need additional 10 days
-Used in hostile takeovers

Tender Offer

51

Investor has ability to deliver shares

Net Long

52

-Security sales proceeds go to other party such as major shareholder or another corporation
-Either registered secondary offerings or Rule 144 trades

Secondary Offering

53

-Corporate officer sells previously unregistered shares to the public
-Proceeds go to officer, not corporation
-Can be combined with primary offering
-Employee exercises options and wants to sell stock in open market

Registered Secondary Offering

54

-Delivered in 25 days of the effective date
-OTC securites is 90 days after effective date for companies who haven't previously issued stock
-40 days if stock has been previously issued

Final Prospectus

55

-Issued by well known seasoned issuers (WKSI) distributing shares through add on, or subsequent primary offering

Free Writing Prospectus

56

-Places restrictions on market participants when associated with IPOs or APOs and subsequent primary offerings
-Participants cannot manipulate offering prices

Regulation M

57

-Issuer
-Underwriting Syndicate
-Selling Group Members
-Market Makers
-Insiders of issuing corporation

Regulation M Participants

58

Shareholder that owns 10% or more of issuer's stock

Insider

59

-Separation between investment banking and underwriting functions, trading and market making
-Investment bankers have sensitive information

Chinese Wall

60

-Period during which the offering participants are restricted from doing anything that could influence price

Restricted Period

61

-Average Daily Trading Volume exceeds $1 mil and public float is valued at $150 mil
-No restricted period because they are actively traded

Tier 1 Corporation

62

-Restricted period is one day prior to effective date
-$100k in average daiy trading volume
-$25 mil public float

Tier 2 Corporation

63

-Restricted period is 5 days prior to effective date

Tier 3 Corporation

64

-Underwriter on APO who is also market maker in underlying security during offering period
-Broker dealer can by and sell shares
-Cannot change inventory net purchase position by more than 30% of ADTV
-Meant to prevent underwriter from manipulating price of security

Passive Market Maker

65

-Position where investor borrows securities and sells them

Short Position

66

-Considered market manipulation
-Investors drive price down
-Cannot purchase shares below POP to cover short positions

APO Short Selling

67

-Underwriter places purchasing bid below POP on outstanding shares sold from primary offering
-Must be disclosed on prospectus
-Meant to stabilize share price from falling lower
-Meant to help syndicate continue selling primary offering shares

Stabilization

68

-Charged to syndicate or selling group member when customer sells shares back to underwriter at stabilizing bid
-Seller loses concession
-Disclosed in prospectus

Penalty Bid

69

-Cannot participate in roadshows for offering
-Restricted from publishing research on security during offering period
-Cannot talk to investment banking department without compliance or legal personnel
-Analyst must be separately managed and not compensated based on investment banking activity

Analyst Restrictions

70

-If analyst follows issuer on regular basis and produces research on issuer or sector
-Can publish research as long as issuer's security isn't highlighted
-Cannot publish research involving convertible bonds

Analyst Exceptions

71

-Government and agency
-Municipals
-Non profits
-Commercial Paper
-Issues of domestic banks and trust companies
-Issues of small business investment companies

Exempt Securities

72

-Rule 147 Intrastate Offerings
-Regulation A
-Regulation D

Exempt Offerings

73

-Intrastate Offering exemption
-80% of gross revenue derived from operation within one state
-80% of assets held in state
-80% of proceeds used to expand operations within state
-100% of purchasers are principal state residents
-Purchasers of stock hold it for 9 months

Rule 147

74

-Small issue or small dollar exemption
-Less than $5 mil during 12 month period
-If done by affiliated person, maximum amount to be raised is $1.5 mil in 12 months
-File A1 offering statement
-Offering circular sent to purchaser either 48 hours before purchase
-At time of purchase with 5 day right of recission
-Sales must be reported every 6 months to SEC

Regulation A

75

Enables investors to get money back if they change their minds

Right of Recission

76

Reduced legal fees and shorter document preparation time

Reg A Advantage

77

-Private Placement
-Buyers must be sophisticated
-Provided with offering memorandum
-Issuer must receive assurance that buyer will not make quick sale
-Cannot be sold to more than 35 nonaccreddited investors
-Cannot be advertised

Regulation D

78

-Financial institution
-Private business development company
Director or officer of issuer
-Individual with net worth $1 mil or annual income of $200k for past 2 years
-Married with $300 over two years

Accredited Investor

79

-Needed for nonaccredited investors
-Must not be associated with issuer unless by blood, marriage or adoption

Purchaser Representative

80

-Allows public resale of restricted and control securities
-Must be held at least 6 months or 1 year
-Adequate current info about issuer
-Trading volume limit of either 1% of outstanding shares or trading volume for the last 4 weeks
-Must be handled as routine trading transaction
-File notice of proposed sale

Rule 144

81

Notice filed with SEC If sale involves more than 5000 shares or if dollar amount is greater than $50,000 in 3 month period

Notice of Proposed Sale

82

Allows purchase of restricted stock outside of US by Qualified Institutional Buyer

Rule 144A

83

Has at least $100 million in assets under discretionary management

Qualified Insitutional Buyer

84

-Requires 1 year holding period of off shore sales dealing with restricted stock

Regulation S