Series 24 Error Log - Investment
Banking
Which of the following are characteristics of the Securities Act of 1933?
Requires registration of exchanges.
Called the Truth in Securities Act.
Requires full and fair disclosure of material facts.
Enabled the Federal Reserve Board to determine margin requirements. -
correct answer ✔The Securities Act of 1933 regulates new issues of
corporate securities sold to the public. The act is also referred to as the Full
Disclosure Act, the Paper Act, the Truth in Securities Act, and the Prospectus
Act. The purpose of the act is to require full, written disclosure about a new
issue. The Securities Exchange Act of 1934 requires registration of
exchanges with the SEC and enabled the FED to set margin requirements.
Which of the following securities issues must be registered with the SEC
under the Securities Act of 1933?
Public DPPs.
Variable annuities.
Open-end funds.
Closed-end funds. - correct answer ✔The Securities Act of 1933 requires the
registration of all new nonexempt issues of securities sold to the public. In
general, exempt issues include municipal securities, U.S. government
securities, bank issues, and nonprofit organization securities. The securities in
this question are all nonexempt.
The Trust Indenture Act of 1939 applies to which of the following?
,Corporate bonds.
Corporate stock.
Sold interstate.
Sold intrastate. - correct answer ✔The Trust Indenture Act of 1939 applies to
corporate bond issues sold interstate in which the dollar amount to be sold is
$5 million or more. The act requires issuers, prior to issuance, to appoint a
trustee whose job is to protect the bondholders.
The term offering at the market refers to a distribution in which the price to the
public on the offering date is set:
A) based on the DJIA or other index price during the day.
B) more than once during the day.
C) once during the day.
D) no more than three times during the day. - correct answer ✔An offering at
the market occurs when the offering price is not fixed, meaning that it can
change many times daily. This public offering pricing technique applies only to
additional issue offerings, in which case the open market price for existing
stock (which will fluctuate during the day) is used to price the new stock on the
offering date.
The letter of intent in a corporate underwriting is typically signed by which of
the following parties?
Issuer.
Managing underwriter.
Syndicate members.
Selling group members. - correct answer ✔The letter of intent initiates the
underwriting process and is signed by the issuer and managing underwriter.
,Under SEC rules, customer checks deposited into an escrow account in
connection with a contingent offering may be invested in all of the following
EXCEPT:
A) a deposit obligation of a bank.
B) a money market fund.
C) securities guaranteed by the U.S. government.
D) a negotiable CD. - correct answer ✔Deposited proceeds may be held in
cash, invested in a money market fund, or invested in any security with
guaranteed principal and interest by the U.S. government.
SEC Rule 15c2-4 deals with:
A) notification of customer free credit balances.
B) hypothecation of customer securities.
C) custody of customer securities.
D) escrow of customer checks in contingent offerings. - correct answer
✔This SEC rule requires that customer checks subscribing to contingent
offerings be placed in an escrow account pending completion or cancellation
of the underwriting.
Which of the following stipulations must be contained in agreements among
underwriters and in selling group agreements between members?
To whom and under what circumstances selling concessions will be allowed.
Price at which the securities will be sold to the public or the formula by which
the price will be determined.
Financial liability each selling group member incurs.
, Maximum duration that the agreement will be in effect. - correct answer
✔The only requirements for both syndicate and selling group agreements are
the concession amounts and the selling price. Selling group members take no
financial responsibility and hence have no liability. These agreements are
extendable.
A Green Shoe clause in an underwriting agreement allows the syndicate to
sell up to:
A) 20% more shares than registered.
B) 15% more shares than originally planned.
C) 5% more shares than registered.
D) 10% more shares than registered. - correct answer ✔A Green Shoe over
allotment option in an underwriting agreement allows the underwriters to sell
up to 15% more shares than registered. The additional shares are provided by
the issuer. Over-allotment provisions must be disclosed in both the
registration statement and the final prospectus.
If an event affects the investment merit of a security during the registration
process, the syndicate may invoke the:
A) severance clause.
B) market-out clause.
C) penalty-bid clause.
D) hold-harmless clause. - correct answer ✔A market-out clause, contained
in the letter of intent executed by both the syndicate manager and the issuer,
allows the syndicate manager to back away from a firm commitment if an
event occurs affecting the investment merit of the securities.
A corporation plans to issue stock to the public at $10 per share. If the
manager's fee is $0.10 per share, the underwriting fee is $0.25 per share, the
Banking
Which of the following are characteristics of the Securities Act of 1933?
Requires registration of exchanges.
Called the Truth in Securities Act.
Requires full and fair disclosure of material facts.
Enabled the Federal Reserve Board to determine margin requirements. -
correct answer ✔The Securities Act of 1933 regulates new issues of
corporate securities sold to the public. The act is also referred to as the Full
Disclosure Act, the Paper Act, the Truth in Securities Act, and the Prospectus
Act. The purpose of the act is to require full, written disclosure about a new
issue. The Securities Exchange Act of 1934 requires registration of
exchanges with the SEC and enabled the FED to set margin requirements.
Which of the following securities issues must be registered with the SEC
under the Securities Act of 1933?
Public DPPs.
Variable annuities.
Open-end funds.
Closed-end funds. - correct answer ✔The Securities Act of 1933 requires the
registration of all new nonexempt issues of securities sold to the public. In
general, exempt issues include municipal securities, U.S. government
securities, bank issues, and nonprofit organization securities. The securities in
this question are all nonexempt.
The Trust Indenture Act of 1939 applies to which of the following?
,Corporate bonds.
Corporate stock.
Sold interstate.
Sold intrastate. - correct answer ✔The Trust Indenture Act of 1939 applies to
corporate bond issues sold interstate in which the dollar amount to be sold is
$5 million or more. The act requires issuers, prior to issuance, to appoint a
trustee whose job is to protect the bondholders.
The term offering at the market refers to a distribution in which the price to the
public on the offering date is set:
A) based on the DJIA or other index price during the day.
B) more than once during the day.
C) once during the day.
D) no more than three times during the day. - correct answer ✔An offering at
the market occurs when the offering price is not fixed, meaning that it can
change many times daily. This public offering pricing technique applies only to
additional issue offerings, in which case the open market price for existing
stock (which will fluctuate during the day) is used to price the new stock on the
offering date.
The letter of intent in a corporate underwriting is typically signed by which of
the following parties?
Issuer.
Managing underwriter.
Syndicate members.
Selling group members. - correct answer ✔The letter of intent initiates the
underwriting process and is signed by the issuer and managing underwriter.
,Under SEC rules, customer checks deposited into an escrow account in
connection with a contingent offering may be invested in all of the following
EXCEPT:
A) a deposit obligation of a bank.
B) a money market fund.
C) securities guaranteed by the U.S. government.
D) a negotiable CD. - correct answer ✔Deposited proceeds may be held in
cash, invested in a money market fund, or invested in any security with
guaranteed principal and interest by the U.S. government.
SEC Rule 15c2-4 deals with:
A) notification of customer free credit balances.
B) hypothecation of customer securities.
C) custody of customer securities.
D) escrow of customer checks in contingent offerings. - correct answer
✔This SEC rule requires that customer checks subscribing to contingent
offerings be placed in an escrow account pending completion or cancellation
of the underwriting.
Which of the following stipulations must be contained in agreements among
underwriters and in selling group agreements between members?
To whom and under what circumstances selling concessions will be allowed.
Price at which the securities will be sold to the public or the formula by which
the price will be determined.
Financial liability each selling group member incurs.
, Maximum duration that the agreement will be in effect. - correct answer
✔The only requirements for both syndicate and selling group agreements are
the concession amounts and the selling price. Selling group members take no
financial responsibility and hence have no liability. These agreements are
extendable.
A Green Shoe clause in an underwriting agreement allows the syndicate to
sell up to:
A) 20% more shares than registered.
B) 15% more shares than originally planned.
C) 5% more shares than registered.
D) 10% more shares than registered. - correct answer ✔A Green Shoe over
allotment option in an underwriting agreement allows the underwriters to sell
up to 15% more shares than registered. The additional shares are provided by
the issuer. Over-allotment provisions must be disclosed in both the
registration statement and the final prospectus.
If an event affects the investment merit of a security during the registration
process, the syndicate may invoke the:
A) severance clause.
B) market-out clause.
C) penalty-bid clause.
D) hold-harmless clause. - correct answer ✔A market-out clause, contained
in the letter of intent executed by both the syndicate manager and the issuer,
allows the syndicate manager to back away from a firm commitment if an
event occurs affecting the investment merit of the securities.
A corporation plans to issue stock to the public at $10 per share. If the
manager's fee is $0.10 per share, the underwriting fee is $0.25 per share, the
