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

FINRA Rule 5130 prohibits member firms from withholding new issue shares in their own accounts or allocating them to restricted persons (industry insiders), ensuring hot IPO shares flow to genuine public customers.

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

For lower-volume securities (ADTV below $100,000 or market cap below $25 million), Regulation M's restricted period begins five business days before pricing to provide greater protection against manipulation.

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

Rule 144A permits the resale of restricted securities to QIBs — institutions that in the aggregate own and invest at least $100 million in securities — without SEC registration, creating a liquid private placement market.

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

A mini-max offering is a best-efforts arrangement requiring a minimum subscription threshold before escrow funds are released, while a maximum cap limits the total offering; this protects investors if insufficient capital is raised.

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

Lock-up agreements contractually prevent insiders, executives, and pre-IPO investors from selling their shares for a set period (commonly 90–180 days) after the offering to prevent immediate selling pressure that could depress the stock price.

Series 24 – General Securities Principal Exam Practice Test

Series 24 – General Securities Principal Exam Practice Test

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