Issuing - Primary Market Flashcards
(84 cards)
1
Q
- Addresses new issue securities and primary market
- Provides issuer info to customers
- Prevent securities sales fraud
- Oversees registration and exemptions of securities
A
Securities Act of 1933
2
Q
- Another name for Securities Act of 1933
- Focuses on paper elements including REGISTRATION and PROSPECTUS
A
Paper Act
3
Q
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
A
Securities Registration Process
4
Q
Disclosure document that ensures investors have enough information to make an informed investment decision
A
Prospectus
5
Q
SEC issues deficiency letter to postpone issue or stop order to prohibit sale until fixed
A
Material Deficiencies in Registration Statement
6
Q
If issue is an add-on offering, issuer qualifies for abbreviated registration statement
A
S3
7
Q
- 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
A
Cooling-Off Period
8
Q
- 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
A
Preliminary Prospectus
9
Q
- Indication that investor might be interested in securities
- IOI is NOT a binding sale
A
Indication of Interest
10
Q
- Limited announcement distributed during cooling-off period
- Contains price range, description of issue, members of syndicate
A
Tombstone Ad
11
Q
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)
A
Blue Skied
12
Q
- 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
A
Filing Date
13
Q
- 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
A
Due Diligence
14
Q
First date on which securities may be sold
A
Effective Date
15
Q
- Must be given to all purchasers, even if they received a Red Herring
- Contains official price and effective date
A
Final Prospectus
16
Q
- Proceeds of offering go to issuer
- Either IPO or APO
A
Primary Offering
17
Q
- 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
A
Restricted Period
18
Q
- 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
A
Quiet Period
19
Q
- Broker/Dealer that helps issuer sell securities to the public
- Also known as investment banker
A
Underwriter
20
Q
- 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
A
Managing Underwriter
21
Q
- Contract between issuer and managing underwriter
- Specifies terms and conditions under which underwriter may sell shares to public
A
Underwriting Agreement
22
Q
- Team of broker dealers who sell securities to public on behalf of the issuer
- Sign agreement among underwriters (syndicate letter)
A
Syndicate
23
Q
Syndicate Letter (Agreement Among Underwriters)
A
Syndicate Letter (Agreement Among Underwriters)
24
Q
- 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
A
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
