Series 99 Corporate Actions & Reorganizations 2

Question 1

What is the primary purpose of a 'due bill' in the processing of corporate actions?

Accepted Answer

To ensure a buyer of a security receives a pending corporate action benefit when settlement occurs after the record date

Answer

To document the terms of a tender offer for regulatory filing

Answer

To notify the issuer of a change in beneficial ownership

Answer

To authorize dividend reinvestment on behalf of a client

Question 2

In processing a tender offer, the operations department must primarily ensure:

Accepted Answer

Client shares are tendered and received by the depositary before the offer's expiration deadline

Answer

The acquiring company files the required SEC disclosures on time

Answer

The company's board of directors approves the offer terms

Answer

The tender offer price is set above the current market price

Question 3

What happens to fractional shares that result from a corporate action?

Accepted Answer

They are typically settled in cash based on the market value of the fraction

Answer

They are converted into additional whole shares at no cost to the shareholder

Answer

They are held in suspense indefinitely until the shareholder requests delivery

Answer

They are automatically donated to a charitable fund designated by the company

Question 4

During a rights offering, what is the 'subscription period'?

Accepted Answer

The window of time in which shareholders may exercise their rights to purchase additional shares

Answer

The period during which the company accepts proposals from investment banks

Answer

The time between the announcement and the record date for the offering

Answer

The period after settlement during which shares may be returned

Question 5

What is the role of the Depository Trust Company (DTC) in corporate actions processing?

Accepted Answer

DTC acts as a central record-keeper and distributes corporate action entitlements to participant firms

Answer

DTC sets the terms and pricing for all corporate actions on behalf of issuers

Answer

DTC approves or rejects shareholder elections submitted during voluntary events

Answer

DTC insures shareholders against losses from unfavorable corporate actions

Question 6

In a merger transaction where the acquiring company offers stock consideration, the operations department must:

Accepted Answer

Surrender target company shares and credit acquirer shares to client accounts upon settlement

Answer

File a proxy statement with the SEC on behalf of target shareholders

Answer

Negotiate the exchange ratio between the two companies' investment banks

Answer

Determine the tax treatment of the exchange for each individual client

Question 7

What is a dividend reinvestment plan (DRIP) and how does it affect operations processing?

Accepted Answer

A DRIP automatically uses cash dividends to purchase additional shares for enrolled clients, requiring operations to track fractional share positions

Answer

A DRIP requires operations to short-sell shares each quarter to fund dividend payments

Answer

A DRIP delays dividend payments by 30 days so the company can invest the funds temporarily

Answer

A DRIP converts preferred dividends into common stock on a fixed quarterly schedule