A corporation is issuing 5,000,000 shares of stock at a public offering price of $13 per share. The manager of the underwriting syndicate receives $0.15 per share. The syndicate members' compensation is $0.65 per share for each share they sell. The selling group's concession is $0.40 per share for each share they sell. The syndicate is allocated 4,000,000 shares and the selling group is allocated 1,000,000 shares. When the issue is completely sold, the managing underwriter's fee will total: Show a. $150,000 A new issue of municipal bonds has an aggregate par value of $10,000,000. The syndicate received $5,000,000 in designated orders, $5,000,000 in group orders, and $5,000,000 in member orders. How will the issue be allocated? a. $5 MM group and $5 MM designated An investor owns 12,000 shares of restricted stock. There are 1,000,000 shares outstanding and the stock's average weekly trading volume over the previous four weeks is 4,000 shares. After filing Form 144, if the client had sold 2,000 shares one month ago, how many shares could be sold today? a. 2,000 c (After filing Form 144, an investor has 90 days to sell the greater of 1% of the outstanding shares or the average weekly trading volume over the previous four weeks. In this example, 1% of the 1,000,000 outstanding shares is 10,000 shares, which is greater than the average weekly trading volume for the past four weeks of 4,000 shares. As a result, the investor is able to sell an additional 8,000 shares after having sold 2,000 shares in the previous month.) An issuing company has hired an investment banking firm to act as an agent in its initial public offering. Subject to certain terms and conditions, the investment banking firm has agreed to sell a minimum of 3,000,000 shares up to a maximum of 4,000,000 shares on a best-efforts basis. Which of the following statements is TRUE? a. The offering proceeds will go directly to the investment banking firm A new municipal bond issue has a total par value of $80,000,000. A member of the underwriting syndicate has sold its entire commitment of $10,000,000. If the syndicate is organized as a divided (western) account and there is an unsold balance of $2,000,000, what is the member's remaining liability? a. 0 d (To qualify as an accredited investor, an individual must have $1,000,000 net worth or $200,000 annual income ($300,000 for a married couple) in each of the last two years, with the anticipation that income will continue at that level. The type of security offered is not relevant to the classification of accredited investor. 501(c)(3) organizations, charities, and trusts are required to have at least $5,000,000 of total assets to be considered an accredited investor.)
Terms in this set (27)Underwriting syndicate group members: share in both selling responsibility for the new issue and liability for any unsold portion of the new issue Syndicate members in the underwriting group share in both the selling responsibility for the issue and in liability for any unsold shares (or bonds). The person who shares in selling responsibility and liability, but who does not have decision making authority in a new issue syndicate, is known as the: syndicate member The managing underwriter forms the syndicate and selling group, establishes the spread and the portions of the spread to be earned by each member of the underwriting group, and manages the offering of the securities. For this work, the manager earns the management fee out of the spread. The syndicate members share in the financial liability and profit potential for selling the issue. For selling his or her allotment, the syndicate member earns the "underwriter's concession." The selling group members help the syndicate find purchasers for the issue, but take no financial liability. For this work, the selling group members earn the "selling concession." When a selling group member sells securities in a corporate underwriting, which of the following is earned? Concession Selling group members help the syndicate find customers, acting as agent only. For this, the selling group member earns the selling concession. In an underwriting, which of the following is earned by a syndicate member who sells the issue directly to the public? Underwriter's Concession The spread is the gross compensation earned by the syndicate. Out of this gross amount, portions can be earned by the members of the underwriting group. The syndicate manager earns the management fee - typically the smallest portion of the spread. Once the management fee is deducted from the spread, this leaves the underwriter's concession. This is the amount earned by a syndicate member who sells the issue to the public. Out of the underwriter's concession, the syndicate member can give up a selling concession to a selling group member for helping find a customer for the issue. Also out of the underwriters concession, a syndicate member can give up a reallowance (a small amount) to a non-member of the selling group who sells some of the issue. In a corporate underwriting, which of the following is earned by the lead underwriter on each security sold? Management Fee The spread is the gross compensation earned by the syndicate. Out of this gross amount, portions can be earned by the members of the underwriting group. The syndicate manager earns the management fee for running the syndicate - typically the smallest portion of the spread. Once the management fee is deducted from the spread, this leaves the underwriter's concession. This is the amount earned by a syndicate member who sells the issue to the public. Out of the underwriter's concession, the syndicate member can give up a selling concession to a selling group member for helping find a customer for the issue. Also out of the underwriters concession, a syndicate member can give up a reallowance (a small amount) to a non-member of the selling group who sells some of the issue. Corporate syndicate member "A" has oversold its allotment. The manager covers from another syndicate member who has undersold. On the oversale, corporate syndicate member "A" earns: the concession When a syndicate member sells its own allotment, the syndicate member earns the underwriter's concession (for a corporate underwriting) or the "takedown" (for a municipal underwriting). In a Western account, in theory, once the syndicate member has sold his allotment, it has no more profit potential. However, the manager will permit this syndicate member to help other syndicate members, if it looks like there will be an undersale on their portion of the issue. The manager allows this syndicate member to place orders filled out of the other members' allotments as a "selling group" member, and for these orders, this syndicate member earns the selling concession. In a corporate underwriting, a syndicate member that has sold its portion, wishes to place additional orders to be filled from the unsold allocations of other members. These orders: will be filled by the manager with the ordering member receiving the selling concession When a syndicate member sells its own allotment, the syndicate member earns the underwriter's concession (for a corporate underwriting) or the "takedown" (for a municipal underwriting). In a Western account, in theory, once the syndicate member has sold his allotment, it has no more profit potential. However, the manager will permit this syndicate member to help other syndicate members, if it looks like there will be an undersale on their portion of the issue. The manager allows this syndicate member to place orders filled out of the other members' allotments as a "selling group" member, and for these orders, this syndicate member earns the selling concession. In corporate underwritings, if there are unfilled orders placed by a syndicate member that has completed its participation; and securities remain unsold in the syndicate account; then these orders will be filled and the syndicate member placing the order will earn the: selling concession When a syndicate member sells its own allotment, the syndicate member earns the underwriter's concession (for a corporate underwriting) or the "takedown" (for a municipal underwriting). In a Western account, in theory, once the syndicate member has sold his allotment, it has no more profit potential. However, the manager will permit this syndicate member to help other syndicate members, if it looks like there will be an undersale on their portion of the issue. The manager allows this syndicate member to place orders filled out of the other members' allotments as a "selling group" member, and for these orders, this syndicate member earns the selling concession. In a new issue underwriting, which of the following is typically the smallest? Management Fee The spread is the gross compensation earned by the syndicate. Out of this gross amount, portions can be earned by the members of the underwriting group. The syndicate manager earns the management fee - typically the smallest portion of the spread. Once the management fee is deducted from the spread, this leaves the underwriter's concession. This is the amount earned by a syndicate member who sells the issue to the public. Out of the underwriter's concession, the syndicate member can give up a selling concession to a selling group member for helping find a customer for the issue. Arrange the following from smallest to largest? I Underwriter's Concession IV, II, I, III The spread is the gross compensation earned by the syndicate. This is the largest amount of compensation in an underwriting, and it is out of this that portions are paid to the various participants in the offering. The manager retains a management fee (typically the smallest amount), giving up the underwriter's concession to the syndicate. The underwriter's concession is earned by a syndicate member that sells directly to the public. Out of the underwriter's concession, the syndicate member can give up a selling concession to a selling group member for helping to find a customer. Also out of the underwriter's concession, a syndicate member can give up a reallowance (a smaller amount than a selling concession) to a non-member of the selling group who finds a customer for some of the issue. ABC Corporation stock is being sold in a primary offering. The total offering is $10,000,000, of which $7,000,000 is allocated to the syndicate and $3,000,000 is allocated to the selling group. The public offering price is set at $10.00 per share. The issuer received $9.00 per share from the underwriters. The management fee has been set at $.10 per share; the selling concession is $.30 per share. The issuer will receive: $9,000,000 The underwriter is paying the issuer $9.00 per share for 1,000,000 shares = $9,000,000 received by the issuer in total. The issuer is responsible for all of the following in a new corporate offering EXCEPT: selling the securities to the investment community In a new corporate offering, the issuer is responsible for printing the certificates; printing the prospectus; and registering the issue with SEC and each state in which the issue will be sold. The underwriter is responsible for all selling expenses incurred in completing the offering. In a corporate new issue offering, the underwriter's responsibilities include which of the following? I Managing the syndicate account I and II only The manager runs the syndicate account and determines each member's participation in the underwriting's profit or loss. In a new issue offering, the issuer is responsible for originally printing and delivering the shares. These shares go to the transfer agent, who transfers the shares into the names of the purchasers of the new issue. Corporate new issues must be registered with the SEC under the Securities Act of 1933, unless an exemption is available. These securities must also be registered in each state under that state's "Blue Sky Laws". Both registrations are the responsibility of the issuer. During the 20-day "cooling-off" period when a new issue is in registration, which of the following is allowed? Sending a preliminary prospectus During the 20-day "cooling-off" period when a new issue is in registration, a new issue cannot be sold, offered, recommended, or advertised. However, it is permitted to send preliminary prospectuses to any interested investors (legally, these are not an advertisement). The sending of a research report is prohibited - this would be advertising. By sending out preliminary prospectuses, the underwriters can gauge investor interest in the issue, and can determine the final size and Public Offering Price for the deal. Distribution of a preliminary prospectus during the 20-day cooling off period for a new issue that is in registration with the SEC is: used to determine the level of investor interest in the issue A "red herring" preliminary prospectus may be sent to any prospective purchaser of that new issue once the issue has entered into the "20-day cooling off" period that commences upon filing of the registration statement with the SEC. The use of the "preliminary prospectus" does not constitute an offer, solicitation, or recommendation under the '33 Act, and the red ink statement on the cover of the preliminary prospectus states this (hence the name "red herring"). The red herring is used to obtain non-binding indications of interest in the issue, and may be sent to anyone during the cooling off period, whether or not that person has previously expressed any interest in the issue. Which of the following can be found in an initial public offering preliminary prospectus? The financial statements of the issuer The preliminary prospectus contains the financial statements of the issuer. It does not contain the Public Offering Price - this is not known until just before the offering is made, and is only found in the Final Prospectus. The current market price of the stock has no relevance to an initial public offering because there is no current market for the stock, thus there is no current market price. The SEC never approves, nor disapproves, of an issue. Which of the following statements are TRUE about the acceptance of an "indication of interest" for a registered offering during the 20 day cooling off period? I The indication cannot be canceled by the customer III and IV Indications of interest which are accepted prior to the effective date of an issue in registration are not binding. The customer or the firm can cancel the indication at any time without penalty. During the cooling off period, orders cannot be accepted (these are binding) because the final prospectus is not yet available. Under the Securities Act of 1933, an offer or sale can only be made with the final prospectus. The final prospectus is available and sales commence as of the effective date. When purchasing a new registered securities offering from the underwriter, the customer will pay the: Public Offering Price stated in the prospectus New issues that are registered with the Securities and Exchange Commission are offered only at the Public Offering Price as stated in the prospectus. The underwriter's spread is already included in this price. Tombstones are: primary distribution For companies in which there is worldwide interest, it is common for underwriters to sell the issue in both the U.S. market and foreign markets. Since this is the first issue of these securities, this is a primary distribution. Secondary distributions are "managed offerings" of shares that are already issued and outstanding - such as the offer through underwriters of a large block of shares held by a founding stockholder. This cannot be a private placement, since the offering has been registered and is being sold under a prospectus. All of the following information would be found in a new issue "tombstone" announcement EXCEPT the: net proceeds to the issuer A tombstone announcement is published once a new issue's registration is effective. Under SEC rules, the announcement is very limited in scope, since it cannot be considered to be an "offer or advertisement," as these can only be made through the prospectus.The information in the Tombstone is limited to: Name of issuer; names of underwriters; type of security; public offering price of security; aggregate public offering price of issue; nature of the issuer's business.Any additional information is not allowed. Therefore, the net proceeds received by the issuer after the underwriter's spread is paid, is not found in the Tombstone. Please note, however, that this information is found on the front cover of the prospectus. The self-supporting spouse of a registered representative has an account with your firm. Your firm is underwriting the initial public offering (IPO) of ACME Co. common stock, and the spouse inquires about whether it is possible to receive an allocation. The registered representative should inform the spouse that the issue: cannot be purchased through the IPO FINRA prohibits the purchase of equity IPOs (Initial Public Offerings) by industry "insiders." The list of prohibited purchasers includes FINRA member firms for their own accounts, officers and employees of member firms (and their immediate family members), fiduciaries to member firms (such as accountants and lawyers that are retained by FINRA member firms); and investment managers for investment companies, insurance companies, pension plans, who want to buy personally, etc. The prohibited practice of "spinning" is defined under FINRA rules as an arrangement where a: member firm gives officers of public companies IPO allocations in return for receiving underwriting business from that company FINRA prohibits the "spinning" of IPO shares. This is a "quid pro quo" arrangement where a member firm gives officers of public companies IPO allocations in return for receiving underwriting business from that company (since the officers are in a position to direct that business to the member firm). Stabilizing bids are permitted: at, or below, the Public Offering Price Stabilizing bids can only be entered at, or below, the public offering price - never above.
The Public Offering Price for a new issue is set at $25 per share. Which of the following are likely to be stabilizing bids? I $20.00 II and III Stabilizing bids are entered at or just below the public offering price, never above. If the public offering price is $25 per share, bids of $25 and $24.88 can be stabilizing bids. A bid of $20 is too low; a bid of $30 is too high. All of the following statements are true regarding new issue offerings EXCEPT the: syndicate agreement includes a clause that releases the syndicate member from liability if all of the securities are not sold Syndicates are permitted to stabilize the price of the issue in the aftermarket by having the manager maintain a stabilizing bid. To discourage the syndicate members from selling the issue to customers that would be likely to "dump" their shares if the market price does not rise after issuance, the manager can insert a "penalty bid" clause into the syndicate agreement. The "penalty bid clause" states that if too many customers of a single syndicate member "hit" the stabilizing bid; the manager knows that this syndicate member sold to speculators - not to long term investors - and the syndicate manager penalizes the syndicate member on these orders. Underwriting syndicates typically have an "escape" clause written into the underwriting agreement with the issuer that the proposed offering will be canceled if a calamity occurs (e.g., an act of war, etc.) An integral part of the syndicate agreement is the fact that the syndicate members share liability for unsold securities, either on an "Eastern" or "Western" account basis. To set the price for a new corporate stock issue, the syndicate manager will consider all of the following EXCEPT: expected spread to be earned by the syndicate The public offering price is set by the manager based on his expectations of the highest price the issue can get in the markets. To determine this, he examines expectations about earnings, demand for the issue and share prices of similar companies. The spread is not a determinant in setting the market price. Which statement(s) is (are) TRUE regarding new issue offerings? I A clause is included in the underwriting agreement that releases the syndicate if a calamity occurs affecting the financial markets I, II, III Syndicates are permitted to stabilize the price of the issue in the aftermarket by having the manager maintain a stabilizing bid. To discourage the syndicate members from selling the issue to customers that would be likely to "dump" their shares if the market price does not rise after issuance, the manager can insert a "penalty bid" clause into the syndicate agreement. The "penalty bid clause" states that if too many customers of a single syndicate member "hit" the stabilizing bid; the manager knows that this syndicate member sold to speculators - not to long term investors - and the syndicate manager penalizes the syndicate member on these orders. Underwriting syndicates typically have an "escape" clause written into the underwriting agreement with the issuer that the proposed offering will be canceled if a calamity occurs (e.g., an act of war, etc.) Sets with similar termsChapter 6: New Issues62 terms jschlan886 New issues: Corporate Underwritings39 terms MorganKulp22 New Issues90 terms adaig25 New Issues Questions36 terms nickrosti Other sets by this creatorSeries 66: Financial Profile and Retirement Edu Sa…60 terms sarah_hardWICK_haha Series 66: Financial Profile and Ret Quiz30 terms sarah_hardWICK_haha Series 66: Financial Profile / Ret. and Educ. Savi…30 terms sarah_hardWICK_haha Series 66: Financial Profile / Ret. and Educ. Savi…86 terms sarah_hardWICK_haha Recommended textbook solutions
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Which of the following can be found in an initial public offering preliminary prospectus quizlet?
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