Who can a FINRA member firm give certain selling concessions?
Other member firms
What securities are exempt from the registration provisions of the Securities Act of 1933?
- government securities
- debt offerings with a maturity not exceeding 270 days
- intrastate offerings
When is the SEC disclaimer not required?
- in public communication
- must be included in the prospectus
In a mutual fund, where can the amount of increases and decreases in the NAV over past years can be reviewed?
Prospectus
Who prepares the prospectus?
Issuer
Public appearance
- considered a form of communication with the public
- involves the personal presence of or the possibility of interacting electronically with an officer or other spokesperson of a firm
Under SEC Rule 498, when can a summary prospectus be used in a mutual fund sales presentation resulting in a sale?
Only when the investor is able to access a statutory prospectus online
Generic advertisement
Must include the name of the BD placing the advertisement
Tombstone
Announcement of a new issue that includes the name of the issuer, the price of the security, and the name of the underwriter from whom it can be purchased
Under the intrastate offering rule (Rule 147), when may a resident purchased of securities resell them to a nonresident?
At least 6 months after the date of purchase
What issuers and securities are exempt from registration with the act of 1933?
- US gov
- US municipalities & territories
- nonprofit religious, educational, and charitable organizations
- commercial paper (maturity of 270 days or less)
- BAs (maturity of 270 days or less)
- securities acquired in a private placement (restricted stock)
- public utilities & common carriers whose activities are regulated as to rates and other items by a state or federal regulatory body
What does Regulation A+ exemption cover?
An offering of $50 million or less in 12 months
Rule 3160
Regulates when a BD is in a networking association with a financial institution like a bank
An investment banker is a(n) ________.
Underwriter
What are the functions of an investment banker?
•advising corporations on the best ways to raise long-term capital
•raising capital for issuers by distributing new securities
•buying securities from issuers and reselling them to the public
•distributing large blocks of stock to the public and to institutions
•helping issuers comply with securities laws
**they do NOT loan money
How is an underwriter acting in a firm commitment?
As a principal or dealer
Firm commitment
- most commonly used type of underwriting contract
- underwriter commits to buying the securities from the issuer and reselling them to the public
- the underwriter assumes the financial risk of incurring losses if they’re unable to distribute all the shares to the public
- the underwriter is acting as a principal
What are the 2 types of firm commitments?
- negotiated underwriting contract
* competitive bid arrangement
Negotiated underwriting contract
- used in most corporate issues
* issuer selects an underwriter and they negotiate the conditions of the underwriting contract
Competitive bid arrangement
- standard for new issue offerings in the municipal securities market
- the underwriting contract is awarded to the underwriter who presents the most competitive bid (or lowest net interest cost) to the issuer
- sales begin on the effective date of the offering
How can a managing underwriter share the risk of a firm commitment with other BDs?
By forming a syndicate, in which each member is an underwriter of the issue
Syndicate
•this is a way that a managing underwriter can share the risk of a firm commitment with other BDs
•each syndicate member is an underwriter of the issue
•syndicate members can employ selling groups, but the selling groups are NOT part of the syndicate and do NOT take on any liability for the underwriting
-the selling groups are “helper firms” that act as agents and are paid a selling concession for helping to place the securities
Best efforts
•underwriter acts as an agent for the issuing corporation
•deal is contingent on the underwriter’s ability to sell shares to the public
•underwriter sells as much as possible WITHOUT financial liability for what remains unsold
•underwriter collects customer money into escrow
-if sufficient funds are collected, escrow is broken and the issuer delivers shares in return for the escrowed funds
How is the underwriter acting in a best efforts arrangement?
As an agent
