FINRA SERIES 7 UNIT 7 EXAM QUESTIONS WITH VERIFIED SOLUTIONS
Securities Act of 1933 - Answers Federal legislation requiring the full fair disclosure of all
material information about the issuance of new securities.
Securities Exchange Act of 1934 - Answers Federal legislation that established the Securities
and Exchange Commission. The act aims to protect investors by regulating the exchanges, the
over-the-counter market, the extension of credit by the Federal Reserve Board, broker/dealers,
insider transactions, trading activities, client accounts, and net capital
Securities and Exchange Commission (SEC) - Answers Commission created by Congress to
regulate the securities markets and protect investors. it is composed of five commissioners
appointed by the President of the United States and approved by the Senate. The SEC enforces,
among other acts, the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust
Indenture Act of 1939, the Investment Company Act of 1940, and the Investment Advisers Act
of 1940.
Maloney Act - Answers In 1938, the Securities Exchange Act of 1934 was amended by the
_________________ which provides for the establishment of self-regulatory bodies to help police
the industry
Paper Act, Full Disclosure Act, New Issues Act, Truth in Securities act, Truth in Securities Act,
Prospectus Act - Answers Other names for the Securities Act of 1933
Require Registration of New Issues Distributed Interstate, Require Issuer to Provide Full and Fair
Disclosure About Itself and the Offering, Require Issuer to Make Available All Material
Information Necessary for an Investor to Judge the Issue's Merit, Regulate Underwriting and
Distribution of Primary and Secondary Issues, Provide Criminal Penalties for Fraud in the
Issuance of New Securities - Answers The 1933 Act protects investors who buy new issues by
Registration Statement - Answers An issuer must file with the SEC a _______________________
disclosing material information about the issue.
Prospectus - Answers The legal document that states a new issue security''s price, delivery date,
and underwriting spread as well as other material information. It must be given to every investor
who purchases a new issue of registered securities.
Description of Issuer's Business, Names and Addresses of Company Officers and Directors,
Their Salaries, and a Five-Year Business History of Each, Amount of Corporate Securities
Company Officers and Directors Own and Identification of Investors Who Own 10% or More of
the Company, Company's Capitalization (including equity and debt), Description of How the
Proceeds Will be Used, Whether the Company is Involved in any Legal Proceedings - Answers
The registration statement must contain
Cooling-Off Period - Answers The period (a minimum of 20 days) between a registration
,statement's filing date and the registration's effective date. In practice, the period varies in
length
Stop Order - Answers 1) A directive from the SEC that suspends the sale of new issue securities
to the public when fraud is suspected or filing materials are deficient 2) A customer order that
becomes a market order when the market price of the security reaches or passes a specific
price
Preliminary Prospectus (red herring) - Answers An abbreviated prospectus that is distributed
while the SEC is reviewing an issuer's registration statement. It contains all of the essential
facts about the forthcoming offering except the underwriting spread, final public offering price,
and date on which the shares will be delivered
Effective Date - Answers The date the registration of an issue of securities becomes effective,
allowing the underwriters to sell the newly issued securities to the public and confirm sales to
investors who have given indications of interest.
Make Offers to Sell Securities, Take Orders, Distribute Sales Literature or Advertising Material -
Answers During the cooling-off period, underwriters may not...
Take Indications of Interest, Distribute Preliminary Prospectuses, Publish Tombstone
Advertisements (to provide information about the potential availability of the securities) -
Answers During the cooling-off period underwriters may...
Advertising - Answers __________________ and sales literature include any notice, circular,
advertisement, letter, or other communication published or transmitted to any person.
Sales Literature - Answers Any written material a firm distributes to customers or the public in a
controlled manner. Examples include circulars, research reports, form letters, market letters,
performance reports, and text used for seminars
Tombstone - Answers A printed advertisement that solicits indications of interest in a securities
offering. The text is limited to basic information about the offering, such as the name of the
issuer, type of security, name of the underwriters, and where a prospectus is available
Due Diligence - Answers The careful investigation by the underwriters that is necessary to
ensure that all material information pertinent to an issue has been disclosed to prospective
investors
Examine the use of the Proceeds, Perform Financial Analysis and Feasibility Studies, Determine
Company's Stability, Determine If Risk is Reasonable - Answers As part of due diligence process,
investment bankers must...
Description of Offering, Offering Price, Selling Discounts, Offering Date, Use of Proceeds,
Description of Underwriting (but not actual contract), Statement of Possibility that the Issue's
, Price May be Stabilized, History of Business, Risk to Purchasers, Description of Management,
Material Financial Information, Legal Opinion Concerning Formation of the Corporation, SEC
Disclaimer - Answers the prospectus must include...
Prospectus Delivery Requirement Period - Answers In certain offerings, a final prospectus must
be delivered by all members to buyer in the secondary market for a specified time following the
effective date.
90 Days - Answers How long is the prospectus delivery requirement period if the security is to
be quoted on the OTC Pink or over the OTCBB (non-Nasdaq)?
25 Days - Answers How long is the prospectus delivery requirement period if the security is to
be listed on an exchange or quoted over Nasdaq?
Public Offering - Answers If the security is listed or quoted over Nasdaq, a prospectus must be
delivered only in connection w/ purchases at the __________________ price. Once the distribution
is complete, there is no obligation to deliver a prospectus in secondary market transactions.
40 - Answers If the security is non-Nasdaq, the prospectus delivery requirement period is
__________ days
Underwriter - Answers An investment baker that works with an issuer to help bring a security to
the market and sell it to the public
Underwriting Syndicate - Answers A group of investment bankers formed to handle the
distribution and sale of a security on behalf of the issuer. Each syndicate member is responsible
for the sale and distribution of a portion of the issue
Investment Bank - Answers A securities broker/dealer that underwrites new issues.
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 - Answers An investment bank's functions may include...
Issuer, Underwriter - Answers Participants in corporate new issue
Issuer - Answers The entity, such as a corporation or municipality that offers or proposes to
offer its securities for sale
Blue Sky - Answers To register a securities offering in a particular state
Tax Consequences of the Offering, Money Market Financing, Capital Market Financing -
Answers The underwriter's considerations include
New Issues, Additional Issues, Primary Offering, Secondary Offering, Split Offering (combined
distribution), Shelf Offering - Answers Types of offerings
Securities Act of 1933 - Answers Federal legislation requiring the full fair disclosure of all
material information about the issuance of new securities.
Securities Exchange Act of 1934 - Answers Federal legislation that established the Securities
and Exchange Commission. The act aims to protect investors by regulating the exchanges, the
over-the-counter market, the extension of credit by the Federal Reserve Board, broker/dealers,
insider transactions, trading activities, client accounts, and net capital
Securities and Exchange Commission (SEC) - Answers Commission created by Congress to
regulate the securities markets and protect investors. it is composed of five commissioners
appointed by the President of the United States and approved by the Senate. The SEC enforces,
among other acts, the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust
Indenture Act of 1939, the Investment Company Act of 1940, and the Investment Advisers Act
of 1940.
Maloney Act - Answers In 1938, the Securities Exchange Act of 1934 was amended by the
_________________ which provides for the establishment of self-regulatory bodies to help police
the industry
Paper Act, Full Disclosure Act, New Issues Act, Truth in Securities act, Truth in Securities Act,
Prospectus Act - Answers Other names for the Securities Act of 1933
Require Registration of New Issues Distributed Interstate, Require Issuer to Provide Full and Fair
Disclosure About Itself and the Offering, Require Issuer to Make Available All Material
Information Necessary for an Investor to Judge the Issue's Merit, Regulate Underwriting and
Distribution of Primary and Secondary Issues, Provide Criminal Penalties for Fraud in the
Issuance of New Securities - Answers The 1933 Act protects investors who buy new issues by
Registration Statement - Answers An issuer must file with the SEC a _______________________
disclosing material information about the issue.
Prospectus - Answers The legal document that states a new issue security''s price, delivery date,
and underwriting spread as well as other material information. It must be given to every investor
who purchases a new issue of registered securities.
Description of Issuer's Business, Names and Addresses of Company Officers and Directors,
Their Salaries, and a Five-Year Business History of Each, Amount of Corporate Securities
Company Officers and Directors Own and Identification of Investors Who Own 10% or More of
the Company, Company's Capitalization (including equity and debt), Description of How the
Proceeds Will be Used, Whether the Company is Involved in any Legal Proceedings - Answers
The registration statement must contain
Cooling-Off Period - Answers The period (a minimum of 20 days) between a registration
,statement's filing date and the registration's effective date. In practice, the period varies in
length
Stop Order - Answers 1) A directive from the SEC that suspends the sale of new issue securities
to the public when fraud is suspected or filing materials are deficient 2) A customer order that
becomes a market order when the market price of the security reaches or passes a specific
price
Preliminary Prospectus (red herring) - Answers An abbreviated prospectus that is distributed
while the SEC is reviewing an issuer's registration statement. It contains all of the essential
facts about the forthcoming offering except the underwriting spread, final public offering price,
and date on which the shares will be delivered
Effective Date - Answers The date the registration of an issue of securities becomes effective,
allowing the underwriters to sell the newly issued securities to the public and confirm sales to
investors who have given indications of interest.
Make Offers to Sell Securities, Take Orders, Distribute Sales Literature or Advertising Material -
Answers During the cooling-off period, underwriters may not...
Take Indications of Interest, Distribute Preliminary Prospectuses, Publish Tombstone
Advertisements (to provide information about the potential availability of the securities) -
Answers During the cooling-off period underwriters may...
Advertising - Answers __________________ and sales literature include any notice, circular,
advertisement, letter, or other communication published or transmitted to any person.
Sales Literature - Answers Any written material a firm distributes to customers or the public in a
controlled manner. Examples include circulars, research reports, form letters, market letters,
performance reports, and text used for seminars
Tombstone - Answers A printed advertisement that solicits indications of interest in a securities
offering. The text is limited to basic information about the offering, such as the name of the
issuer, type of security, name of the underwriters, and where a prospectus is available
Due Diligence - Answers The careful investigation by the underwriters that is necessary to
ensure that all material information pertinent to an issue has been disclosed to prospective
investors
Examine the use of the Proceeds, Perform Financial Analysis and Feasibility Studies, Determine
Company's Stability, Determine If Risk is Reasonable - Answers As part of due diligence process,
investment bankers must...
Description of Offering, Offering Price, Selling Discounts, Offering Date, Use of Proceeds,
Description of Underwriting (but not actual contract), Statement of Possibility that the Issue's
, Price May be Stabilized, History of Business, Risk to Purchasers, Description of Management,
Material Financial Information, Legal Opinion Concerning Formation of the Corporation, SEC
Disclaimer - Answers the prospectus must include...
Prospectus Delivery Requirement Period - Answers In certain offerings, a final prospectus must
be delivered by all members to buyer in the secondary market for a specified time following the
effective date.
90 Days - Answers How long is the prospectus delivery requirement period if the security is to
be quoted on the OTC Pink or over the OTCBB (non-Nasdaq)?
25 Days - Answers How long is the prospectus delivery requirement period if the security is to
be listed on an exchange or quoted over Nasdaq?
Public Offering - Answers If the security is listed or quoted over Nasdaq, a prospectus must be
delivered only in connection w/ purchases at the __________________ price. Once the distribution
is complete, there is no obligation to deliver a prospectus in secondary market transactions.
40 - Answers If the security is non-Nasdaq, the prospectus delivery requirement period is
__________ days
Underwriter - Answers An investment baker that works with an issuer to help bring a security to
the market and sell it to the public
Underwriting Syndicate - Answers A group of investment bankers formed to handle the
distribution and sale of a security on behalf of the issuer. Each syndicate member is responsible
for the sale and distribution of a portion of the issue
Investment Bank - Answers A securities broker/dealer that underwrites new issues.
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 - Answers An investment bank's functions may include...
Issuer, Underwriter - Answers Participants in corporate new issue
Issuer - Answers The entity, such as a corporation or municipality that offers or proposes to
offer its securities for sale
Blue Sky - Answers To register a securities offering in a particular state
Tax Consequences of the Offering, Money Market Financing, Capital Market Financing -
Answers The underwriter's considerations include
New Issues, Additional Issues, Primary Offering, Secondary Offering, Split Offering (combined
distribution), Shelf Offering - Answers Types of offerings
