Securites Essentials Industry Exam
Study Guide+Questions and Answers
Verified 100% Correct
What can underwriters do during cooling-off period with regard to investors? -
ANSWER Underwriters can obtain indications of interest from investors who may want
to purchase the issue.
Agents (Brokers) scramble to get indications of interest from prospective purchasers
of the securities.
Is an indication of interest binding on customers or underwriters? - ANSWER No,
customers can change their mind and underwriters may not have enough shares
available to meet everyone's needs.
Tombstone ad - ANSWER An announcement appearing in financial publications such
as the Wall Street Journal announcing a company's Initial Public Offering (IPO).
Are optional
Due Diligence Meeting - ANSWER A meeting at which an issuing corporation's
officials and representatives of the underwriting group present information on and
answer questions about a pending issue of securities. The meeting is held for the
benefit of brokers, securities analysts, and institutional investors.
underwriting agreement - ANSWER A contract between a group of investment
bankers who form an underwriting group or syndicate and the issuing corporation of a
new securities sale
,Purpose is to ensure that all players understand their responsibility in the process, thus
minimizing potential conflict.
"Blue Skys" Laws - ANSWER State laws applying to security offerings and sales
Who does issuer register with w/ regard to issuance or sales of security? - ANSWER SEC
and State Administrator in each state which the securities will be sold.
What are the methods of state security registration? - ANSWER Notification (registration
by filing w/ state)
Coordination (registering w/ SEC at same time, SEC helps companies meet blue sky
laws by notifying all states in which security will be sold)
Qualification (For securities exempt from SEC but require registration w/ state)
Investment banking firm - ANSWER An institution (broker-dealer) that helps issuers
raise money
Underwriter - ANSWER a broker/dealer that specializes in investment banking and
the distribution of new issues
They purchase securities from issuer and sell them to public at profit (spread)
Syndicate - ANSWER Underwriter group for when one issue is too large for one firm
to handle
Each member is responsible for selling portion of securities to the public
,Managing Underwriter - ANSWER Lead financial firm in selling stock to the public in
relation to underwriting syndicate
Selling group - ANSWER A large number of brokerage firms that join the originating
investment banker(s); each accepts responsibility for selling a certain portion of a
new security issue on a commission basis.
Negotiated Offering - ANSWER When an issuer picks an underwriter for their
security directly
Competitive Offering - ANSWER When an issuer picks an underwriter for their security
through a bidding process (common among municipalities)
firm commitment underwriting - ANSWER Where the lead underwriter and syndicate
members agree to purchase all the securities that remain unsold after an offering.
The underwriter(s) assume all financial risk
Stand-by underwriter - ANSWER An underwriter who signs an agreement with the issuer
to purchase any stock not purchase any stock not purchased by the public if/when an
issuer has a rights offering
Rights offering - ANSWER A group of rights offered to existing shareholders to
purchase additional stock shares in proportion to their existing holdings
It gives a company's stockholders the right, but not the obligation, to
purchase additional shares in the company
, Best efforts underwriting - ANSWER The underwriter agrees to make their best effort
to sell all issued securities to the public. In the even securities are not sold, the issuer
has the right to either cancel the offering or take back some of the unsold securities
depending on whether it is an All or None offering or a Mini-Max offering
Purchasers' money is held in escrow until the terms of the offering are met or the deal
is canceled
All or Non Offering - ANSWER A best efforts underwriting in which all securities must
be sold by the deadline or the deal is canceled
Mini-Max offering - ANSWER a best efforts underwriting in which a specified minimum
number of securities must be sold in order for the deal to not be canceled.
If the minimum threshold is reached, the issuer will take back any securities that
remain unsold.
Bona fide offering - ANSWER All securities offered must be sold in good faith
Final offering price - ANSWER Public offering price (POP)
Effective date - ANSWER Date that the issue will first be sold
preliminary prospectus - ANSWER a.k.., "red herring," a prospectus that lacks the
"POP" and the effective date. Used to solicit indications of interest.
Final Prospectus - ANSWER part of the final registration statement prepared by a
company prior to an IPO that contains all the details of the offering, including the
Study Guide+Questions and Answers
Verified 100% Correct
What can underwriters do during cooling-off period with regard to investors? -
ANSWER Underwriters can obtain indications of interest from investors who may want
to purchase the issue.
Agents (Brokers) scramble to get indications of interest from prospective purchasers
of the securities.
Is an indication of interest binding on customers or underwriters? - ANSWER No,
customers can change their mind and underwriters may not have enough shares
available to meet everyone's needs.
Tombstone ad - ANSWER An announcement appearing in financial publications such
as the Wall Street Journal announcing a company's Initial Public Offering (IPO).
Are optional
Due Diligence Meeting - ANSWER A meeting at which an issuing corporation's
officials and representatives of the underwriting group present information on and
answer questions about a pending issue of securities. The meeting is held for the
benefit of brokers, securities analysts, and institutional investors.
underwriting agreement - ANSWER A contract between a group of investment
bankers who form an underwriting group or syndicate and the issuing corporation of a
new securities sale
,Purpose is to ensure that all players understand their responsibility in the process, thus
minimizing potential conflict.
"Blue Skys" Laws - ANSWER State laws applying to security offerings and sales
Who does issuer register with w/ regard to issuance or sales of security? - ANSWER SEC
and State Administrator in each state which the securities will be sold.
What are the methods of state security registration? - ANSWER Notification (registration
by filing w/ state)
Coordination (registering w/ SEC at same time, SEC helps companies meet blue sky
laws by notifying all states in which security will be sold)
Qualification (For securities exempt from SEC but require registration w/ state)
Investment banking firm - ANSWER An institution (broker-dealer) that helps issuers
raise money
Underwriter - ANSWER a broker/dealer that specializes in investment banking and
the distribution of new issues
They purchase securities from issuer and sell them to public at profit (spread)
Syndicate - ANSWER Underwriter group for when one issue is too large for one firm
to handle
Each member is responsible for selling portion of securities to the public
,Managing Underwriter - ANSWER Lead financial firm in selling stock to the public in
relation to underwriting syndicate
Selling group - ANSWER A large number of brokerage firms that join the originating
investment banker(s); each accepts responsibility for selling a certain portion of a
new security issue on a commission basis.
Negotiated Offering - ANSWER When an issuer picks an underwriter for their
security directly
Competitive Offering - ANSWER When an issuer picks an underwriter for their security
through a bidding process (common among municipalities)
firm commitment underwriting - ANSWER Where the lead underwriter and syndicate
members agree to purchase all the securities that remain unsold after an offering.
The underwriter(s) assume all financial risk
Stand-by underwriter - ANSWER An underwriter who signs an agreement with the issuer
to purchase any stock not purchase any stock not purchased by the public if/when an
issuer has a rights offering
Rights offering - ANSWER A group of rights offered to existing shareholders to
purchase additional stock shares in proportion to their existing holdings
It gives a company's stockholders the right, but not the obligation, to
purchase additional shares in the company
, Best efforts underwriting - ANSWER The underwriter agrees to make their best effort
to sell all issued securities to the public. In the even securities are not sold, the issuer
has the right to either cancel the offering or take back some of the unsold securities
depending on whether it is an All or None offering or a Mini-Max offering
Purchasers' money is held in escrow until the terms of the offering are met or the deal
is canceled
All or Non Offering - ANSWER A best efforts underwriting in which all securities must
be sold by the deadline or the deal is canceled
Mini-Max offering - ANSWER a best efforts underwriting in which a specified minimum
number of securities must be sold in order for the deal to not be canceled.
If the minimum threshold is reached, the issuer will take back any securities that
remain unsold.
Bona fide offering - ANSWER All securities offered must be sold in good faith
Final offering price - ANSWER Public offering price (POP)
Effective date - ANSWER Date that the issue will first be sold
preliminary prospectus - ANSWER a.k.., "red herring," a prospectus that lacks the
"POP" and the effective date. Used to solicit indications of interest.
Final Prospectus - ANSWER part of the final registration statement prepared by a
company prior to an IPO that contains all the details of the offering, including the
