Series 24 – General Securities Principal Exam Underwriting & Securities Offerings 3

Question 1

Under FINRA Rule 5130, 'free-riding and withholding' occurs when a member firm:

Accepted Answer

Retains hot-issue IPO shares in its own accounts or sells them to restricted persons instead of bona fide public customers

Answer

Fails to deliver securities to customers within the standard T+1 settlement period

Answer

Charges excessive markups on secondary market transactions in newly issued securities

Answer

Allocates IPO shares to foreign institutional investors without proper written disclosure

Question 2

Under Regulation M, the restricted period for a security with an average daily trading volume below $100,000 begins:

Accepted Answer

Five business days before the pricing of the offering

Answer

On the day the registration statement is initially filed with the SEC

Answer

One business day before the pricing of the offering

Answer

Twenty calendar days before the effective date of the registration statement

Question 3

SEC Rule 144A provides a safe harbor that allows the resale of restricted securities:

Accepted Answer

To qualified institutional buyers (QIBs) without triggering SEC registration requirements

Answer

To any accredited investor without SEC registration if the issuer consents

Answer

To retail investors once the holding period exceeds six months from original issuance

Answer

Only in private transactions not exceeding $5 million in aggregate offering size

Question 4

In a 'mini-max' offering structure:

Accepted Answer

A minimum amount must be sold before proceeds are released from escrow, with a maximum cap on total offering size

Answer

The underwriter commits to purchase a minimum number of shares but may sell up to a stated maximum

Answer

FINRA approval is required for all offerings sized between $1 million and $10 million

Answer

Each investor must commit to purchasing between a stated minimum and maximum number of shares

Question 5

Lock-up agreements entered into in connection with an IPO typically:

Accepted Answer

Prevent company insiders and pre-IPO shareholders from selling their shares for a defined period, typically 90–180 days

Answer

Require the underwriter to maintain the offering price for 30 days after the IPO date

Answer

Prohibit the company from issuing any additional shares of stock for one full year after the IPO

Answer

Require all institutional purchasers to hold their allocated shares for at least 90 days

Question 6

Form S-1 is the SEC registration form used for:

Accepted Answer

General registration of securities in IPOs and other offerings when no specialized form applies

Answer

Annual reports filed by reporting companies under the Securities Exchange Act of 1934

Answer

Registration of investment company securities under the Investment Company Act of 1940

Answer

Shelf registration of securities by well-known seasoned issuers (WKSIs)

Question 7

Under FINRA Rule 5110, which of the following underwriter warrants would most likely be deemed unfair and unreasonable compensation?

Accepted Answer

Warrants exercisable at a price 20% below the offering price, expiring five years after the effective date

Answer

Warrants exercisable at the IPO offering price, expiring five years after the effective date

Answer

Warrants that become exercisable 180 days after the effective date of the offering

Answer

Warrants covering 5% of the total shares sold in the offering, exercisable at the offering price