Series 24 – General Securities Principal Exam Underwriting & Securities Offerings 2 — Questions and Answers
Question 1: Under SEC Rule 415, shelf registration allows an eligible issuer to:
- Register securities for immediate sale without any SEC review period
- Register securities in advance and offer them on a delayed or continuous basis for up to three years (Correct answer)
- Avoid paying SEC registration fees through a single consolidated filing
- Sell unregistered securities exclusively to qualified institutional buyers
Correct answer: Register securities in advance and offer them on a delayed or continuous basis for up to three years
Rule 415 permits eligible issuers to register securities in advance and sell them on a delayed or continuous basis over up to three years, providing flexibility to time offerings to favorable market conditions.
Question 2: Regulation M restricts distribution participants primarily from:
- Purchasing the security being offered at any time, both during and after the offering
- Bidding for or purchasing covered securities during the restricted period before and during the distribution (Correct answer)
- Selling shares from their own inventory while participating in an underwritten offering
- Communicating with institutional investors during the SEC's quiet period
Correct answer: Bidding for or purchasing covered securities during the restricted period before and during the distribution
Regulation M prohibits underwriters and other distribution participants from bidding for or purchasing covered securities during specified restricted periods to prevent manipulation of the distribution price.
Question 3: A tombstone advertisement published in connection with a securities offering:
- May solicit purchases if it is accompanied by a copy of the final prospectus
- Is only permitted after the registration statement has been withdrawn or cancelled
- Is a factual announcement of the offering that does not constitute a solicitation to buy (Correct answer)
- Must be pre-approved by FINRA before publication during the cooling-off period
Correct answer: Is a factual announcement of the offering that does not constitute a solicitation to buy
Tombstone advertisements are factual announcements that identify the security, offering size, and underwriters; they are not solicitations to buy and do not require a prospectus to accompany them.
Question 4: In an underwriting syndicate, the managing underwriter is primarily responsible for:
- Providing custody and clearance services for all securities sold in the offering
- Setting the final offering price, allocating shares to syndicate members, and overseeing stabilization (Correct answer)
- Independently conducting due diligence on behalf of each individual syndicate member
- Filing state blue sky registrations in every state where the securities will be sold
Correct answer: Setting the final offering price, allocating shares to syndicate members, and overseeing stabilization
The managing (book-running) underwriter leads the syndicate, negotiates the offering price with the issuer, allocates shares among members, and coordinates any permitted stabilizing transactions.
Question 5: Due diligence in a public securities offering primarily refers to:
- FINRA's pre-offering review of underwriter compensation for fairness
- The underwriter's investigation and verification of material information about the issuer (Correct answer)
- The process of selecting syndicate members based on their investor distribution networks
- The SEC's internal review of the registration statement for accuracy and completeness
Correct answer: The underwriter's investigation and verification of material information about the issuer
Due diligence is the underwriter's investigation of the issuer's business, finances, and disclosures to verify the accuracy of the registration statement and reduce liability exposure under the Securities Act.
Question 6: A registration statement for a securities offering generally becomes effective:
- Immediately upon filing with the SEC if the issuer is a reporting company
- After the SEC issues a formal no-action letter approving the offering terms
- Automatically 20 days after filing, or earlier if the SEC grants acceleration (Correct answer)
- Only after FINRA has reviewed and approved the underwriting compensation arrangements
Correct answer: Automatically 20 days after filing, or earlier if the SEC grants acceleration
Under Section 8(a) of the Securities Act of 1933, a registration statement becomes effective automatically 20 days after filing, although the SEC commonly accelerates the effective date at the issuer's request.
Question 7: The final prospectus for a public offering must be delivered to investors:
- At least 48 hours before the effective date of the registration statement
- No later than the time of confirmation of sale or delivery of the securities, whichever is earlier (Correct answer)
- Within five business days of the customer submitting a purchase request
- Only to retail investors; institutional buyers may waive prospectus delivery
Correct answer: No later than the time of confirmation of sale or delivery of the securities, whichever is earlier
SEC rules require that the final prospectus be delivered no later than confirmation of sale or the physical delivery of securities, whichever occurs first, ensuring investors have material information before completing their purchase.
Series 24 – General Securities Principal Exam Underwriting & Securities Offerings 2
Under SEC Rule 415, shelf registration allows an eligible issuer to: