Series 79 - Class Summary Cards

Question 1

Preliminary proxy (PRE14A) must be filed with the SEC at least _______ prior to filing a definitive proxy (DEF14A).

Answer 1

At least 10 calendar days

Question 2

Definitive proxy (DEF14A) must be filed with the SEC and sent to shareholders at least ______ prior to the shareholder meeting.

Answer 2

At least 20 days

Question 3

The final syndicate settlement must occur within ______ following the syndicate settlement date

Answer 3

90 days

Question 4

A currency transaction report (CTR) must be filed within ____ of a cash deposit in excess of $10,000.

Answer 4

15 days

Question 5

A suspicious activity report (SAR) must be filed within ______ of learning of suspicious activity.

Answer 5

30 days

Question 6

Under Regulation A for small issuers, issuers are allowed to raise up to ________ in a ___-month period.

Answer 6

$50mm in a 12-month period

Question 7

Under Rule 147 for intrastate offering exemptions, shares can be resold to non-residents after:

Answer 7

6-month holding period

Question 8

Under Regulation D (private placements), private placements of up to $____ can be sold to an unlimited number of accredited and non-accredited investors.

Answer 8

$5mm

Question 9

How can a firm avoid liability of insider trading if a rep is accused of doing so?

Answer 9

By showing that (1) effective supervisory procedures were in place and (2) those procedures were willfully ignored

Question 10

What is Regulation FD?

Answer 10

Red FD promotes the full and fair disclosure of material information to all investors at the same time.

• Intentional Disclosure: must publicly disclose material information SIMULTANEOUSLY through 8K, press release, etc.
• Unintentional Disclosure: must publicly disclose information immediately, no later than the later of 24 hours or the open of trading the next business day

Question 11

How long does Statutory Disqualification last?

Answer 11

-SD lasts for 10 years. A criminal conviction that occurred more than 10 years ago is NOT grounds for an SD.

Question 12

What are the consequences of Statutory Disqualification? (i.e., what can a person not do)

Answer 12

• Person cannot associate with or be employed in any capacity (as a rep or in clerical position) by a member firm, UNLESS the firm applies for an receives a waiver from FINRA
• A person banned, expelled, barred or suspended from membership by a foreign regulator is subject to a statutory disqualification in the US.
• An arrest IS NOT GROUNDS for an SD. Compliance may be notified, but legal process would be allowed to run its course.

Question 13

Form U4 requires that the individual disclose ____years of employment history and that the firm verifies the most recent ____ years.

Answer 13

10 years; 3 years

Question 14

What does it mean to be CE Inactive?

Answer 14

• One is CE inactive when they do not complete Regulatory Element continuing education within 120 days of their second anniversary and every 3 years after that.
• CE inactive individuals can work in a clerical role but cannot act in any registered capacity ore receive compensation for activities that require registration.
• If one is CE inactive for 2 years or longer, all licenses will be terminated and have to requalify by exam

Question 15

When is no permission or notice required to borrow from/lend to customers?

Answer 15

-if the customers are family members (BROADLY DEFINED) or financial institutions (banks)

Question 16

When is written pre-approval required to borrow from/lend to customers?

Answer 16

-if the loan is unrelated to the brokerage account and is based on an outside business or personal relationship

Question 17

What is required for a joint [investment] account between a rep and a client?

Answer 17

-requires the firm’s permission and that the sharing be in proportion to each person’s financial contribution to the account (proportionality requirement does NOT apply for joint accounts between family members)

Question 18

With an SAR (suspicious activity report), a firm is not allowed to:

Answer 18

-disclose to a client that an SAR was filed with regard to that client’s activities

Question 19

With a CTR (currency transaction report), a firm is allowed to:

Answer 19

-tell customers that a CTR has been filed because they are not secret filings

Question 20

Foreign Corrupt Practices Act (FCPA)

Answer 20

-if a broker-dealer learns that a client is paying kickbacks or bribes to government officials to win lucrative contracts, the firm must notify the justice department under the FCPA

Question 21

What defines an emerging growth company?

Answer 21

-Firms with less than $1 billion in revenue

Question 22

What are the Code of Procedure penalties?

Answer 22

-Penalties under this code include censure (a warning), fines, and suspension, but FINRA may not imprison or terminate a registered rep

Question 23

What are the limits to SEC power?

Answer 23

-SEC has the power to freeze assets but does not have the power to incarcerate (i.e., imprison)

Question 24

Arbitration between firms and reps…

Answer 24

• Is mandatory; can result in monetary reward; CANNOT result in imprisonment
• payment must be made within 30 days of decision date
• arbitration awards are binding; there is no appeal

Question 25

Are investments in currency and commodities considered securities?

Answer 25

NO!!!!!!!!!!!!!!! NEVER!

Question 26

Subscription Rights (Pre-Emptive Rights)

Answer 26

- Securities allow shareholders to maintain their proportionate ownership in a company if the company issues additional equity - investor avoids dilution by maintaining its proportionate ownership stake

Question 27

The most common benchmark rate that issuers use to determine the interest they will pay on a bond is based on:

Answer 27

US Treasury Securities

Question 28

If the yield is greater than the coupon, the bond was bought...

Answer 28

-at a discount

Question 29

If an issuer is disappointed with the amount raised in a debt offering, it could...

Answer 29

increase the interest rate to try to attract more interest

Question 30

An investor can mitigate interest rate risk by...

Answer 30

investing in a floating rate bond, as the return of this bond would increase as interest rates increase

Question 31

The higher a bond's duration, the ____ sensitive the bond will be to changes in interest rates.

Answer 31

MORE SENSITIVE

Question 32

The three types of yield curves are:

Answer 32

(1) Normal Yield Curve (2) Inverted Yield Curve (3) Humped Yield Curve

Question 33

Underlying assets in an ABS are:

Answer 33

Financial instruments (i.e., loans), NOT hard corporate assets, such as corporate equipment

Question 34

OTC Pink and OTCBB are defined as...

Answer 34

"non-exchange, equity quotation facilities"; they can quote unlisted or delisted equity securities

Question 35

Who is exempt from "customer specific" suitability and how?

Answer 35

-Institutional investors are exempt IF the rep determines that the institutional investor can effectively assess risk on its own and that the investor is exercising independent judgment

Question 36

What is generic advertising?

Answer 36

Can be used by firms to provide basic information about their mutual funds, such as the fund's objective (growth, income, balance, leverage, and no load)

Question 37

Liability under Section 11 under the 1933 act (misstatements in a registration statement) can be avoided by:

Answer 37

offering a due diligence defense, which establishes that after a reasonable investigation, any untrue statements in the registration statement were believed to be true at the time of the registration statement going effective

Question 38

Due Diligence Defense is available to all parties except:

Answer 38

(1) the issuer and (2) non-consenting accountants

Question 39

Key items in a Form S-1 include:

Answer 39

audited financial statements, capitalization table, additional details of offering

Question 40

What are Free Writing Prospectuses used for?

Answer 40

Used to provide additional or supplemental information to that found in preliminary prospectus - FWPs must be filed on their day of first use - ex: CEO gives an interview to a local paper about his company's upcoming IPO

Question 41

When filing the preliminary prospectus...

Answer 41

five copies of each version of preliminary prospectus must be filed with the SEC no later than when each copy is first distributed to potential investors

Question 42

When the SEC declares the registration statement effective...

Answer 42

- the underwriter can confirm indications of interest and sales - issuer files TEN COPIES of the final prospectus, which includes the final offering price, with the SEC and delivers prospectus to all purchasers

Question 43

An amended prospectus or prospectus supplement must be filed if:

Answer 43

- the prospectus is nine months old, AND | - the financials in that prospectus are more than 16 months old

Question 44

Prospectus Supplement:

Answer 44

- used to update financials | - DOES NOT supersede the original prospectus, which will remain in effect and still need to be delivered to investors

Question 45

Post Effective Date Research Restrictions

Answer 45

- following the effective date, underwriters are prohibited from publishing research for certain number of days - FOR IPOS: 10 DAYS FOR SYNDICATE MANAGER AND MEMBERS - FOR FOLLOW ON OFFERINGS: 3 DAYS FOR SYNDICATE MANAGER; no blackout period for members

Question 46

A shelf registration allows an issuer to sell shares...

Answer 46

on a delayed or continuous basis at various times and prices

Question 47

WKSI benefits include:

Answer 47

- automatic shelf registration (registration statements are effective immediately upon submission to SEC - free writing prospectuses (FWPs) may be used at any time (before or after filing registration statement) - SEASONED ISSUERS CAN ONLY USE AN FWP AFTER A REGISTRATION STATEMENT HAS BEEN FILED

Question 48

Two differences between the 10K and 10Q are that:

Answer 48

-the financial statements in a 10Q are unaudited and the 10Q does NOT include a list of major shareholders

Question 49

Proxy Statement

Answer 49

- FORM 14A - distributed to shareholders prior to a shareholder meeting to elect directors, approve a merger, and address other corporate actions

Question 50

What does a proxy statement NOT include?

Answer 50

- proxies do not include minutes from previous board meetings, voting record of each director, or voting results from board meetings - proxy does list the officers, directors and greater than 5% shareholders

Question 51

Sarbanes-Oxley Audit Committee Requirements

Answer 51

-does not require that a financial expert serves on the audit committee; does require disclosure of whether there is one

Question 52

Reporting Requirements for Corporate Insiders include:

Answer 52

Form 3: filed when a person becomes a corporate insider (officer, director, or more than 10% shareholder) Form 4: when corporate insider trades stock in the open market Form 5: reports any change in ownership outside the open market trade (i.e., receipt of stock as compensation)

Question 53

Form 13G vs Form 13D

Answer 53

Form 13G: filed by investors who own more than 5% with a passive intent; must be filed within 45 days of calendar year end Form 13D: filed by investors who acquire more than 5% with active intent;

Question 54

Joint 13D (acting in concert)

Answer 54

active investors who agree to vote their shares together and own more than 5% in aggregate are required to file a 13D

Question 55

Form 13F

Answer 55

institutional investment managers manage a discretionary securities portfolio of $100 million or more (i.e., hedge funds, mutual funds)

Question 56

If a company wants to learn who its large (>5%) active shareholders are and what other stocks those investors own...

Answer 56

-it should first review its own shareholders' 13Ds and then review those investors' Form 13Fs

Question 57

In order to minimize underwriting fees, an issuer would likely pursue a...

Answer 57

best efforts underwriting rather than firm commitment

Question 58

Sequence of IPO deal process is:

Answer 58

(1) Bake Off (2) Win Mandate (3) Sign Engagement Letter (4) File Registration Statement with SEC (5) Book-building/Marketing (6) Go effective (shares registered under '33) (7) Confirm allocations, distribute securities and settle transactions to all investors

Question 59

Selling Group IOIs

Answer 59

-selling group members can accept indications of interest in connection with an IPO, but they do not purchase shares, take risk for unsold shares, or offer shares at a discount to investors

Question 60

Execution Risk via a Block Trade

Answer 60

-an underwriter executing a follow-on offering for a company with a substantial number of shares owned by a few large investors would view a block trade by an investor as an execution risk

Question 61

Fixed-Price Offering

Answer 61

- in a fixed price offering, all shares must be sold at the public offering price (POP) - they cannot be sold at a discount to any investor, such as retail or institutional investors (syndicate and selling group will buy shares at a discount - POP minus the underwriting fee or selling concessions)

Question 62

If stock price falls post-IPO...

Answer 62

-the underwriter can purchase the excess 3 million shares in the open market, effectively creating demand for the shares and supporting the price

Question 63

If the stock price rises post-IPO...

Answer 63

the underwriter can exercise a greenshoe clause and purchase the necessary shares from the issuer, instead of buying them in the open market. doing so increases the share count as well as the proceeds raised by the issuer

Question 64

Fair and Reasonable Underwriter Fees

Answer 64

-all fees must be fair and reasonable as determined by FINRA's Corporate Finance Department (CFD) - maximum spread FINRA will generally be comfortable with is 7% of the gross offer price

Question 65

The three defined components of the gross spread are:

Answer 65

(1) management fee (2) underwriting fee (3) selling concession

Question 66

Conflict of interest within underwriting occurs when...

Answer 66

- the issuer is a broker-dealer | - the issuer intends to become a broker dealer

Question 67

Rules regarding conflicted securities

Answer 67

- when underwriting and soliciting conflicted securities, the conflict must be prominently disclosed in writing - if selling conflicted securities into a discretionary account, the customer must provide WRITTEN AUTHORIZATION

Question 68

Issuer Directed Shares

Answer 68

-shares specifically directed by the issuer to a restricted person

Question 69

Regulation M (market manipulation)

Answer 69

-designed to prevent market manipulation by issuers and underwriters with an interest in the outcome of an offering by prohibiting activities and conduct that could artificially influence the market for an offered security during a restricted period

Question 70

Sections 4(a)(2) and 4(a)(5) of the 1933 Act

Answer 70

- allow an issuer to sell unregistered securities privately through private placements - a company raising equity through a private placement would not file a registration statement

Question 71

Who is considered to be accredited under Reg D?

Answer 71

- officers and directors of the issuer - institutional investors with more than $5million in assets (if an institution is organized with the purpose of investing in private placement, it will not be accredited) - individuals with over $200k in income each of the past 2 years - individuals with over $1 million in net worth, excluding value of real estate

Question 72

Regulation S

Answer 72

- allows an issuer to sell securities exclusively to non-US residents and avoid SEC registration - can be immediately sold on an offshore securities exchange - residency is important for the test, NOT citizenship

Question 73

Rule 144 Control Stock:

Answer 73

- control stock is any security owned by a corporate insider or affiliate - affiliates can sell the greater of: 1% of outstanding shares or the average reported weekly trading volume during preceding four weeks - must file a Form 144 for control stock

Question 74

Rule 144A Market

Answer 74

-allows qualified institutional buyers (QIBs) to freely trade unregistered securities between each other

Question 75

Sale Leasebacks and EBITDA

Answer 75

- example of a transaction that will negatively impact EBITDA - Company A sells an asset to Company B, then leases it back

Question 76

Earnings Yield=

Answer 76

EPS/Stock Price

Question 77

Dividend Yield=

Answer 77

Annual Dividend/Stock Price

Question 78

Current Yield (Bond)=

Answer 78

Annual Interest/Current Market Value

Question 79

To use dividend yield to determine stock price...

Answer 79

Dividend/Dividend Yield

Question 80

P/E Multiple Calculation (on a per share basis and overall company basis)

Answer 80

Per Share Basis: Stock Price/EPS | Overall Company Basis: Equity Value/Net Income

Question 81

When is it best to use the P/E multiple?

Answer 81

P/E is useful multiple for established companies with consistent profitability. Not useful for companies with negative net income or significant earnings volatility.

Question 82

Goodwill=

Answer 82

Purchase Price - Market Value of Net Assets of Target

Question 83

Enterprise Value Calculation from FCF

Answer 83

=FCF/(WACC-Growth Rate)

Question 84

Economic Value Added Calc (EVA)

Answer 84

EBIAT - (Investment Amount * WACC)

Question 85

Debt/Tangible Net Worth =

Answer 85

Total Debt/(Shareholder's Equity - Goodwill and Intangible Assets)

Question 86

Total Capitalization

Answer 86

Total Debt + Shareholder's Equity

Question 87

Debt/Total Capitalization

Answer 87

Total Debt/(Total Debt + Shareholder's Equity)

Question 88

Levered Beta=

Answer 88

(Unlevered Beta)*(1+(1-tax rate)*D/E)