During the cooling off period, underwriters would be allowed to do all of the following except

What Is the Cooling-Off Rule?

The phrase "cooling-off rule" is actually applied to three specific yet unrelated situations in the business world. The first usage of the phrase refers to the Securities and Exchange Commission (SEC) Regulation M, which specifies key points in the process of floating stock shares or issuing bond offerings. It stipulates a restriction on activity and communication during the period just before these issues are offered for sale to the public.

The second more common usage refers to a long-standing requirement regulated by the vendors to provide consumers with a three-day return period. A third usage refers to a period of time when government employees (specifically SEC or FINRA employees) who join the private sector should be prohibited from engaging in lobbying activities with the agency where they were formerly employed.

Key Takeaways

• This phrase gets used in multiple ways that have unrelated meanings so context is important for understanding the implication.
• The period between issuing prospectus and selling new stock or bond offerings is a cooling-off period where communication between underwriter and issuing company must be minimized or silenced altogether.
• Consumers who make purchases for hundreds of dollars or more are allowed a cooling-off period where they can return their purchase within three days.
• Government agencies also expect former employees not to lobby their old agency for a cooling-off period after employment.

Understanding the Cooling-Off Rule

When someone refers to the cooling-off rule regarding the issuance of new securities, they may loosely be referring to the SEC's Regulation M, so called because it refers to a "cooling-off period." The restriction is not officially known as the cooling-off rule; it is known as the SEC's Regulation M (not to be confused with a different Regulation M issued by the IRS).

The SEC's regulation refers to the time in between the day the preliminary prospectus is filed with the SEC and the day when the new security is actually available for sale or trade. This is also known as a quiet period because the underwriter and the issuing company are not allowed to discuss the issue with investors during this time.

Three-Day Return Policy

In consumer-facing businesses, the cooling-off rule more commonly refers to a consumer protection law regulated by the Federal Trade Commission (FTC) that allows a buyer to release themselves from a purchase agreement within a set number of days of a purchase. The number of days the buyer has to change their mind without incurring any penalty is different for various products and situations. Many businesses will allow for a longer grace period than three days, but they are not required to do so.

One particular exception to this cooling-off rule comes to bear in the purchase of motor vehicles. If a person buys a car from a dealership and completes the transaction at the physical location of the dealer's business address, then the three-day right of rescission is waived. The sale is final from the moment the contract of sale is signed.

However, if someone were to buy a car from an auto show or in any other location that was not the primary business location of the dealer, then the three-day cooling-off rule actually does apply. Since auto auction houses are actually dealers themselves, the location of the auction is their place of business, which is how such transactions are also considered final once purchased.

Lobbying Restrictions

The third usage for the phrase "cooling-off rule" refers to an expected practice that is much less concrete in nature. Government agencies, particularly those involved in finance, such as the SEC, FINRA, the U.S. Treasury Department, or other similar organizations, may find that many of their employees find their way into finance or investment banking careers.

In this capacity, their new employer might find an employee's former connections to government agencies quite valuable when it comes to getting clarification on rules and regulations. However, firms are expected to refrain from sending former employees into lobbying activities immediately after employing them. A one-year cooling-off period is expected.

1. Question #1 of 122Question ID: 1269358
   Ensuring that the investing public is fully informed about a security and its issuing company when shares are first sold in the primary market is covered under which of the following federal acts?
   
   
   
   

   • A)
   • Explanation

   Companies looking to offer securities to the public must provide a prospectus to those who are approached to purchase the shares. This requirement ensures that the investing public is fully informed about a new security and its issuing company.

2. Question #2 of 122Question ID: 1269407
   Which of the following would not be expected to be found in a tombstone advertisement for a new issue?

   • D)
   • Explanation

   While the intended purpose for which to use the sales proceeds would be expected to be found in a prospectus, it would not be found in a tombstone advertisement permitted to offer only bare bones facts about the new issue.

3. Question #3 of 122Question ID: 1269439
   Shelf offerings are covered under which if the following?

   • B)
   • Explanation
   • The shelf offering (registration) provision under the Securities Act of 1933 allows issuers to quickly raise capital when needed or when market conditions are favorable.

4. Question #4 of 122Question ID: 1269367
   Rules regarding restricted persons state that each of the following is considered immediate family except

   • D)
   • Explanation

   Rules regarding restricted persons define immediate family as spouses, parents, siblings, in-laws, and children. Aunts and uncles and grandparents are excluded (not considered immediate family).

5. Question #5 of 122Question ID: 1269359
   The ATOP Company is planning to offer shares of both common and preferred stock to the investing public in order to raise operating capital intended to be used for expansion. Which of the following laws enacted by Congress would be the most relevant when issuing these equity securities to the public?

   • C)
   • Explanation

   The Securities Act of 1933, is also known as the Paper Act, Prospectus Act, or New Issues Act. This federal law requires that issuers who want to raise capital by making a public offering of securities to the public, provide full and fair disclosure of all material facts about the company and the securities being offered.

6. Question #6 of 122Question ID: 1269349
   Private placements are primarily sold to

   • C)
   • Explanation

   Although private placement securities may be sold to small numbers of wealthy individuals who meet certain net worth and income criteria (accredited investors), most investors are institutional investors.

7. Question #7 of 122Question ID: 1269420
   During the cooling-off period, underwriters may not

   • A)
   • Explanation

   During the cooling-off period, underwriters may not distribute sales or advertising literature regarding the securities to be offered. However, they may distribute a preliminary prospectus intended to gather indications of interest and place tombstone ads.

8. Question #8 of 122Question ID: 1307511
   Securities sold in an issuer-related transaction would best be described as

   • C)
   • Explanation

   When an issuer offers stock and the proceeds from the sale are added to the company's capital, it is called a primary offering. By contrast, a secondary offering is one in which one or more shareholders in the corporation sell all or a portion of their equity holdings to the public. The proceeds of a secondary offering are paid to the selling shareholder(s), not the company.

9. Question #9 of 122Question ID: 1269438
   An issuer that is already a publically traded company wants to register new securities without selling any of the shares until later when it anticipates it will be retooling all of its existing manufacturing plants. Which of the following applies?

   • D)
   • Explanation

   A shelf offering (registration), allows an issuer that is already a publically traded company to register new securities without selling any of the shares until later or waiting to sell a portion of the shares later when the capital might be needed.

10. Question #10 of 122Question ID: 1269383
    In an underwriting where fixing a minimum dollar amount to be sold in order to move forward with the entire offering is most commonly referred to as

    • B)
    • Explanation

    A mini-max offering is a best efforts underwriting setting a floor or minimum, which is the least amount the issuer needs to raise in order to move forward with the underwriting, and a ceiling or maximum on the dollar amount of securities the issuer is willing to sell.

11. Question #11 of 122Question ID: 1269368
    Under the de minimis exemption, an initial public offering of common stock may be sold to an account where restricted persons have a beneficial interest as long as their interest in the account does not exceed

    • B)
    • Explanation

    If the beneficial interests of restricted persons do not exceed 10% of an account, the account may purchase a new equity issue.

12. Question #12 of 122Question ID: 1269401
    Tombstone ads

    • A)
    • Explanation

    Tombstone ads are the only form of advertising that is permitted from the time the registration statement is filed with the Securities and Exchange Commission (SEC) and the effective date of the offering. While they are not mandatory for new issues, they can be used as an announcement and description of the securities to be offered, showing only minimal information. They are not an offer to sell the securities.

13. Question #13 of 122Question ID: 1269444
    For a new issue that qualifies for listing on an exchange, a prospectus must be provided to all purchasers for how many days after the effective date?

    • C)
    • Explanation

    For new issues that qualify for listing on an exchange or Nasdaq, the prospectus delivery requirement period in the aftermarket (after the effective date) is 25 days. For nonlisted and non-Nasdaq securities the period is 40 days. If the new issue will be specifically quoted on the OTCBB or the electronic OTC Pink, the period is 90 days.

14. Question #14 of 122Question ID: 1269396
    If it finds that the registration statement needs revision, expansion, or to have corrections made, the Securities and Exchange Commission (SEC) may suspend the review of the new issue and issue a deficiency letter. Once the issuer submits a corrected registration statement, the 20-day cooling-off period

    • C)
    • Explanation

    If the SEC issues a deficiency letter suspending its review of the new issue, the 20-day cooling-off period is halted and resumes where it had left off once the corrected registration statement is received.

15. Question #15 of 122Question ID: 1269379
    A company that offers sales of another company's securities would best be described as

    A)a transfer agent.
    B)a market maker.
    C)an underwriter.
    D)an issuer.

    • C)
    • Explanation

    A broker-dealer (investment banker) that works with an issuer to bring the issuer's securities to the market by offering the securities for sale to investors is best described in this context as an underwriter.

16. Question #16 of 122Question ID: 1269397
    Six days into the cooling-off period, an issuer receives a deficiency letter from the Securities and Exchange Commission (SEC) requesting clarification and corrections. Once the issuer submits these, and assuming that they satisfy the deficiency, the cooling-off period will resume. With no other deficiencies arising, the issue should become effective in

    • A)
    • Explanation
    • When the issuer submits the corrections necessary to satisfy the deficiency letter, the 20-day cooling-off period picks up where it left off; in this case, from six days, which means that the issue should be effective 14 days later.

17. Question #17 of 122Question ID: 1269382
    A corporate issuer of common stock has decided that it wants an agreement that its underwriter must either raise all of the capital needed or cancel the underwriting. To best accommodate this the underwriting should be

    A)a firm commitment.
    B)an immediate of cancel.
    C)an all or none (AON).
    D)a mini-max.

    • C)
    • Explanation

    In an AON underwriting, the issuing company has determined that it wants the underwriter to sell all of the shares required to raise all of the capital needed or cancel the underwriting. Because of the uncertainty over the outcome of an AON offering, any funds collected from investors during the offering period must be held in escrow pending final disposition of the underwriting.

18. Question #18 of 122Question ID: 1269378
    A person who looks to provide advice to a city government concerning the issuance of municipal debt securities would best be described as

    A)a market maker.
    B)a municipal advisor.
    C)an investment adviser.
    D)a municipal securities representative.

    • B)
    • Explanation

    A municipal advisor is a person that provides advice to or on behalf of a municipal entity with respect to municipal products or the issuance of municipal securities.

19. Question #19 of 122Question ID: 1269338
    Raising funds is generally accomplished by corporations through the issuance of stock (equity) or bonds (debt). This is done in

    • A)
    • Explanation

    The issuance of stock or bonds by corporations to raise new funds takes place in the capital market.

20. Question #20 of 122Question ID: 1269385
    Which of the following would be applicable to nonexempt securities (those that must be registered) being offered to the public by a corporate issuer?

    Securities Act of 1933
    Prospectus
    Securities Act of 1934
    Secondary market
    
    
    
    

    • C)
    • Explanation

    Offering nonexempt securities [those that must be registered with the Securities and Exchange Commission (SEC)] such as common stock to the public requires the registration of the securities under the Securities Act of 1933. The offering must be made by prospectus.

21. Question #21 of 122Question ID: 1280006
    A municipal advisor does which of the following activities?

    A)Advises institutions on selling municipal bonds
    B)Advises municipalities on buying securities
    C)Advises municipalities on selling securities
    D)Advises institutions on buying municipal bonds

    • C)
    • Explanation

    A municipal advisor acts under contract with a municipality, providing advice on the structure and sale of the municipality's securities. A municipal advisor may not switch from that role to the role of an underwriter on an issue the advisor has consulted on.

22. Question #22 of 122Question ID: 1269410
    An indication of interest given by an investor during the cooling-off period is

    • C)
    • Explanation
    • An indication of interest given by an investor during the cooling-off period is the investor's declaration of a nonbinding potential interest to purchase some of the issue after the security comes out of registration (after the effective date).

23. Question #23 of 122Question ID: 1269362
    Assets offered and traded in the securities markets can include all of the following except

    • D)
    • Explanation

    Equities (stocks), bonds, currencies, and derivative products like options can be offered and traded in the financial markets. Insurance is not an asset that can be traded in the financial markets.

24. Question #24 of 122Question ID: 1269394
    After the issuer files a registration statement with the Securities and Exchange Commission (SEC), the time known as the cooling-off period begins. This allows a registration to become effective as early as

    • C)
    • Explanation

    Once the registration statement has been received by the SEC, a cooling-off period begins and it must last at least 20 calendar days. This allows the registration to become effective as early as 20 calendar days after the date the SEC has received it.

25. Question #25 of 122Question ID: 1307599
    The prospectus delivery requirement, access equals delivery, is satisfied when

    • C)
    • Explanation

    Beyond physical delivery of a paper prospectus, access equals delivery is the industry standard for meeting the final prospectus delivery requirements. It is deemed to be satisfied when the final prospectus has been filed with the SEC and is therefore available on the SEC's website for investors to log in and see. This standard does not apply to delivery of a preliminary prospectus before the effective date.

26. Question #26 of 122Question ID: 1269347
    A company is considering raising capital without going through the registration process requirements mandated by the Securities Act of 1933. To be exempt from the act, which of the following offerings might they employ?

    A)Additional public offering (APO)
    B)Initial public offering
    C)Shelf offering
    D)Private (nonpublic) securities offering

    • D)
    • Explanation

    Issuers wanting relief (exemption) from the registration provisions of the Securities Act of 1933 can offer securities privately. These securities offerings are often called private placements.

27. Question #27 of 122Question ID: 1280008
    A final prospectus contains all of the following except

    A)description of the management.
    B)the use of the proceeds.
    C)history of the business.
    D)SEC approval.

    • B)
    • Explanation

    The SEC neither approves nor disapproves a final prospectus; they allow the issue to become effective. Beware of any approval language when referring to a regulator.

28. Question #28 of 122Question ID: 1280014
    Which of the following would be allowed during the cooling off period?

    • B)
    • Explanation

    No selling or soliciting is allowed during the cooling off period. Taking indications of interest is permitted.

29. Question #29 of 122Question ID: 1269334
    For the primary market, which of the following is true?

    • D)
    • Explanation

    The primary market, regulated by the 1933 Securities Exchange Act, is where securities are offered by issuers (issuer transactions) at an offering price. The sales proceeds of these transactions go to the issuer.

30. Question #30 of 122Question ID: 1269331
    Which of the following statements is true?

    • B)
    • Explanation

    Capital markets are a source of financing for corporations, municipalities, and governments.

31. Question #31 of 122Question ID: 1269344
    A company with previously issued shares outstanding wants to issue more shares to the public. These new shares are issued in what is known as

    A)a secondary market offering.
    B)a secondary registration.
    C)An additional public offering (APO).
    D)an initial public offering (IPO).

    • C)
    • Explanation

    The first time that a company issues shares to the public, it engages in an IPO. Later offerings are known as subsequent primary offerings (SPOs) or APOs. The IPO and any SPO or APO are all issuer transactions and are, therefore, done in the primary market.

32. Question #32 of 122Question ID: 1269408
    A tombstone advertisement would be expected to include all of the following information except

    A)the price or price range at which the securities are expected to be offered.
    B)any inherent risks associated with the offering or the issuer offering the securities.
    C)an advisory that the advertisement is neither an offer to sell nor a solicitation of an offer for any of these securities.
    D)the name of the issuer and underwriters if they are being used to assist in the offering.

    • B)
    • Explanation

    While any inherent risks associated with the issuer or the securities the issuer is offering would be expected to be shown in a prospectus, they would not be expected to be found nor is it required that they be shown in a tombstone advertisement. Each of the remaining answer choices shows information expected to be shown in these ads.

33. Question #33 of 122Question ID: 1307558
    A company is already public with several major stockholders. Sale proceeds for shares being sold to the investing public will go to some of the existing stockholders who want to divest of their shares. This is

    a secondary offering.
    a primary offering.
    an additional public offering (APO).
    an initial primary offering (IPO).
    A)I and IV
    B)II and III
    C)II and IV
    D)I and III

    • D)
    • Explanation

    Anytime proceeds are going to the selling shareholders rather than the issuer, it is a secondary offering. Because the company is already public (has shares in the hands of stockholders), this offering of those shares to the investing public would be an APO rather than an IPO.

34. Question #34 of 122Question ID: 1280007
    Primary market transactions would include which of the following?

    • C)
    • Explanation

    Market makers are broker-dealers who sell out of their own account in the secondary market. Underwriters are broker-dealers who help issuers bring their securities to market in the primary market.

35. Question #35 of 122Question ID: 1269442
    For a new issue that qualifies for Nasdaq listing, a prospectus must be provided to all purchasers within how many days after the effective date?

    • B)
    • Explanation

    For new issues that qualify for listing on an exchange or Nasdaq, the prospectus delivery requirement period in the aftermarket is 25 days. For nonlisted and non-Nasdaq securities, the period is 40 days. If the new issue will be specifically quoted on the OTCBB or the electronic OTC Pink, the period is 90 days.

36. Question #36 of 122Question ID: 1269366
    Member firms violate rules regarding sales of new equity issues to restricted persons when they do which of the following?
    Sell a new issue to one of their own customers.
    Sell blocks of the new issue to accounts of partners or officers of the member firm.
    Sell shares to the grandparent of a member affiliate.
    Sell to accountants or attorneys acting on behalf of the underwriters.
    
    
    
    

    • A)
    • Explanation

    Rules prohibit the sale of a new equity issue to other brokers, partners, officers, employees of firms in the syndicate or selling group offering the issue, and their immediate or supported family members. For purposes of this rule, aunts, uncles, and grandparents are not considered immediate family.

37. Question #37 of 122Question ID: 1269404
    Securities regulations that are called blue-sky laws refer to those at

    • A)
    • Explanation

    These are state laws that pertain to the issuance and trading of securities within that state. They are known as blue-sky laws because of a statement made by a Kansas Supreme Court justice who referred to "speculative schemes that have no more basis than so many feet of blue sky."

38. Question #38 of 122Question ID: 1269411
    Regarding the issuance of new securities to the public, which of the following is true?

    • C)
    • Explanation

    The Securities Act of 1933, which provides for criminal penalties for fraud in the issuance of new securities, ensures that investors are fully informed about a security and its issuer when the security is offered to the public. The SEC review or cooling-off period must last a minimum of 20 days before the SEC releases the securities for sale to the public (effective date). Solicitations and the acceptance of orders may never occur before the effective date.

39. Question #39 of 122Question ID: 1269348
    A private securities transaction

    is nonexempt and must be register under the Act of 1933.
    is exempt from registration under the Act of 1933.
    can be sold to individual accredited investors.
    can be sold to institutional investors only.
    A)II and IV
    B)II and III
    C)I and IV
    D)I and III

    • B)
    • Explanation

    A private securities offering, sometimes called a private placement, is exempt from registration. While securities offered in a private securities transaction are generally sold to institutional investors, they can also be sold to small groups of wealthy individuals who meet net worth and income criteria, known as accredited investors.

40. Question #40 of 122Question ID: 1269426
    Sales for new issues of securities may be solicited

    • D)
    • Explanation

    Sales can only be solicited after the cooling-off period (upon the effective date). Solicitations of all sales must be done with a final prospectus.

41. Question #41 of 122Question ID: 1280010
    During the cooling off period, underwriters would be allowed to do all of the following except

    • D)
    • Explanation

    During the cooling off period sales, solicitations and advertising are not allowed.

42. Question #42 of 122Question ID: 1269372
    All of the following are restricted persons except

    • B)
    • Explanation

    Rules prohibit member firms from selling public offering stock in equities to any account in which restricted persons are beneficial owners. Restricted persons include Financial Industry Regulatory Authority (FINRA) members, employees of member firms, finders and fiduciaries acting on behalf of the underwriters, portfolio managers, and any person owning 10% or more of a member firm. Also included are the immediate family members of any restricted persons.

43. Question #43 of 122Question ID: 1307535
    Mrs. Jones is an employee of a member firm and as such is a restricted person regarding the purchase of new issues. She belongs to an investment club and has a 1% interest in the club's brokerage account. The investment club

    • B)
    • Explanation

    Because the restricted person's interest in the club's brokerage account does not exceed 10%, the investment club account is not considered a restricted account. If not restricted, the club can purchase shares of an equity issue at the public offering price if it chooses to.

44. Question #44 of 122Question ID: 1269345
    Which of the following offerings is most likely exempt from the registration requirements of the Securities Act of 1933?

    • D)
    • Explanation

    Public securities offerings must be registered under the Securities Act of 1933. These would include IPOs, APOs, and shelf offerings. Issuers choosing to offer securities privately may find relief (are exempt) from the registration provisions of the Securities Act of 1933.

45. Question #45 of 122Question ID: 1269339
    An offering is defined as the sale of a security. Regarding offerings, all of the following are true except

    • B)
    • Explanation

    Both stocks and bonds can be made available to the investing public through an offering. Different types of offerings are identified by who is selling the securitiesjQuery112402982315874909125_1614393964138an issuer or another investor. Securities offered by corporations for sale to the investing public are sold to investors through either public or private securities offerings.

46. Question #46 of 122Question ID: 1269427
    Which of the following best describes a final prospectus?

    • C)
    • Explanation

    A prospectus is a disclosure document meant for distribution to the public. It must constitute full and fair disclosure of all material facts about the issuer and the security. Only a preliminary prospectus or tombstone ads can be used during the cooling-off period.

47. Question #47 of 122Question ID: 1269416
    Regarding a shelf registration filed with the Securities and Exchange Commission (SEC), which of the following statements are true?

    A supplemental prospectus must be filed before each sale.
    This registration is for issuers who want to issue securities for the first time.
    Portions of a shelf offering can be sold over a 10-year period without having to reregister the security.
    Portions of a shelf offering can be sold over a three-year period without having to reregister the security.
    A)I and IV
    B)I and III
    C)II and IV
    D)II and III

    • A)
    • Explanation

    Shelf offerings are for issuers who already have publicly traded securities in the marketplace. This type of offering registration allows the issuers to register additional shares to be offered and then issue the securities when the need for raising capital arises??taking the securities off the shelf and selling them when needed. While portions of the issue can be sold over a three-year period, a supplemental prospectus must be filed with the SEC before each sale.

48. Question #48 of 122Question ID: 1269336
    A corporation needs to build a new manufacturing facility costing several hundred million dollars. In which of the following markets could this new capital be raised?

    A)Municipal bond market
    B)Secondary market
    C)Government bond market
    D)Capital market

    • D)
    • Explanation

    Capital markets are a source of financing for corporations, municipalities, and governments. Capital can be raised by issuing equities or debt and offering the securities to investors in an initial public offering (IPO) or an additional public offering (APO). Note that bonds might be issued by a municipality or the federal government to raise money, but corporations (as noted in this question) do not issue government bonds, either federal or municipal.

49. Question #49 of 122Question ID: 1269415
    The federal law requiring companies offering public equity or debt securities to provide a prospectus to investors is known as

    • A)
    • Explanation

    The Securities Act of 1933 is also known as the Prospectus Act. With limited exceptions, companies looking to offer securities to the public must provide a prospectus to those who are approached about purchasing those securities. A prospectus is a disclosure document that provides key information about the company.

50. Question #50 of 122Question ID: 1307507
    Regarding primary offerings, which of the following is true?

    • C)
    • Explanation

    While a corporation can have only one IPO, there is no limit to the number of SPOs or APOs it can issue. IPOs, SPOs, and APOs are all primary offerings??those where the offering proceeds go to the issuer.

51. Question #51 of 122Question ID: 1269374
    An officer of a broker-dealer firm would be categorized as a restricted person if that individual attempted to purchase

    • C)
    • Explanation

    As restricted persons, officers of broker-dealer firms or other institutional investors are prohibited from purchasing a new issue (IPO) at the public offering price.

52. Question #52 of 122Question ID: 1269412
    An investor requests a preliminary prospectus for a new issue. Regarding the document which of the following is true?

    • A)
    • Explanation

    The preliminary prospectus (red herring) is a prospecting tool used to gauge indications of interest. It is made available to those who request it between the registration date and the effective date (cooling-off period). Receiving it is not a commitment to purchase shares and making it available is not a commitment to sell shares to the recipient. No final price would be found on a preliminary prospectus.

53. Question #53 of 122Question ID: 1269373
    Regarding the sale of a new issue, a customer is considered a restricted person if the person is

    • C)
    • Explanation

    Restricted persons include Financial Industry Regulatory Authority (FINRA) member firms and their associated persons, such as a salesperson working for an underwriter, plus immediate family members. Immediate family members do not include aunts and uncles or grandparents.

54. Question #54 of 122Question ID: 1280005
    Which of the following would take place in the primary market?

    • A)
    • Explanation

    When an issuer is selling its securities, that is a primary market transaction.

55. Question #55 of 122Question ID: 1269363
    Each of the following may be traded on an exchange except

    • C)
    • Explanation

    All types of financial assets and investment instruments are traded among buyers and sellers on securities exchanges. Stocks (equity securities), bonds (debt securities), options (derivative securities), currencies, and more are traded on exchanges and other securities markets every business day. Life insurance is not a security and may not be traded.

56. Question #56 of 122Question ID: 1269405
    State registration is not required if the transaction is exempt. An example of an exempt transaction would be

    • D)
    • Explanation

    Purchases and sales that are unsolicited (unsolicited transactions) are exempt under the blue-sky (state securities) laws. Municipal bonds and U.S. government bonds are examples of exempt securities, not transactions.

57. Question #57 of 122Question ID: 1307561
    A company's management team has agreed to issue additional shares of common stock in part to provide an employee stock ownership plan. It is agreed the issuance of the stock is not urgent and can wait until more favorable market conditions exist. What type of registration is most suitable under these conditions?

    A)A shelf registration
    B)An employee stock ownership plan (ESOP) registration
    C)An expansion registration
    D)A shadow registration

    • A)
    • Explanation

    The Securities Act of 1933 permits issuers to quickly raise money in the capital markets when needed or when market conditions are just right. For example, if a company files a shelf registration statement with the Commission, there is no intention to immediately sell the securities. However, when the right time arrives??either interest rates are at a likely low point or funds are needed to complete a project??the company can in essence, take the securities from the shelf without the delay of registering with the Securities and Exchange Commission (SEC), as that has already been done. Shelf registration (shelf offering) is available for both primary and secondary offerings.

58. Question #58 of 122Question ID: 1307598
    The access equals delivery rule applies to

    • A)
    • Explanation

    The access equals delivery rule applies to the final prospectus and aftermarket prospectus delivery obligations. It does not apply to preliminary prospectuses. No prospectus can be delivered before the registration date.

59. Question #59 of 122Question ID: 1269423
    A preliminary prospectus is used to solicit

    A)sales after the effective date.
    B)indications of interest before the registration filing date.
    C)indications of interest before the effective date.
    D)sales before the effective date.

    • C)
    • Explanation

    A preliminary prospectus cannot be distributed before the registration date. Between the registration and effective dates, it is used to solicit or gauge indications of interest. After the effective date, sales can be solicited and a final prospectus would be available and must be used to do so.

60. Question #60 of 122Question ID: 1269417
    When an investor receives a final prospectus, the expectation should be that one of the following would not be found. Which is it?

    • D)
    • Explanation

    The SEC does not verify the adequacy or accuracy of any information found in the prospectus. To the contrary, the prospectus will contain the SEC disclaimer which reads: "These securities have not been approved or disapproved by the SEC nor have any representations been made about the accuracy or the adequacy of the information."

61. Question #61 of 122Question ID: 1269375
    If an officer of a bank with the authority to purchase and sell securities on behalf of the bank wants to purchase new issues, which of the following statements is true?

    • D)
    • Explanation

    Under the rules regarding the purchase of new issues, bank officers would generally be characterized as restricted persons. They may not, therefore, purchase new issues.

62. Question #62 of 122Question ID: 1307522
    Which of the following choices would best describe a follow-on offering?

    • C)
    • Explanation

    A follow-on public offer (FPO) is an issue of shares by a public company [registered and reporting to the Securities and Exchange Commission (SEC)] that is currently listed on an exchange and has previously gone through the IPO process. FPOs are popular methods for companies to raise additional equity capital in the capital markets through a stock issue.

63. Question #63 of 122Question ID: 1307551
    Underwriters acting as principals and committing to purchase any unsold shares for the syndicate account would best be described as being engaged in

    • C)
    • Explanation

    In a firm commitment underwriters contract with the issuer to buy its securities, acting as principals rather than agents. They are committing to purchase any unsold shares for the syndicate account. In this type of underwriting, it is the underwriters who are at risk for any shares they cannot sell to the public, not the issuer. The issuer knows that ultimately all of the securities will be sold, and all of the capital needed will be raised.

64. Question #64 of 122Question ID: 1269437
    The requirement for a supplemental prospectus to be filed before each sale is applicable to

    • C)
    • Explanation

    Through a shelf offering, an issuer who is already a publically traded company can register new securities without selling any of the shares until later or waiting to sell a portion of the shares. For securities offered via a shelf registration, a supplemental prospectus must be filed with the Securities and Exchange Commission (SEC) before each sale.

65. Question #65 of 122Question ID: 1269369
    Regarding the purchase of a new equity issue, an account where a restricted person has a beneficial interest would be allowed to purchase the new shares at the public offering price

    • C)
    • Explanation

    Restricted persons will be able to have an interest in an account (one that is not wholly their own) that purchases new equity issues as long as no more than 10% of the account's beneficial owners are restricted persons.

66. Question #66 of 122Question ID: 1269445
    An investor is viewing a company's prospectus on the Securities Exchange Commission's (SEC's) website. Which of the following is true?

    • D)
    • Explanation

    A prospectus will be deemed to precede or accompany a security for sale if the final prospectus has been filed with the SEC and can be viewed on the SEC website. The access equals delivery model applies to the final prospectus and aftermarket prospectus delivery obligations but not to the preliminary prospectus delivery obligations.

67. Question #67 of 122Question ID: 1326369
    The aftermarket prospectus requirement following an APO for exchange-listed securities is

    • D)
    • Explanation

    For exchange-listed additional public offerings, there is no aftermarket prospectus requirement.

68. Question #68 of 122Question ID: 1269390
    Which of the following would most closely match the meaning of a red herring?

    • C)
    • Explanation

    A preliminary prospectus is also known as a red herring. The red herring does not include key information about the issue such as price and the number of shares offered. The term is derived from the disclaimer printed in red on the cover page.

69. Question #69 of 122Question ID: 1269353
    Restricted persons are not allowed to purchase an IPO of common stock. All of the following are restricted persons except

    • C)
    • Explanation

    Immediate family to a restricted person is a restricted person. This includes parents, in-laws, spouses, siblings, children, or any other individual to whom the person provides material support. Aunts and uncles as well as grandparents are not considered immediate family. If, however, one of these individuals lives in the same household as a restricted person, that individual would be a restricted person.

70. Question #70 of 122Question ID: 1307621
    Which of the following prospectus delivery requirements for negotiable securities sold in the secondary markets is not accurate?

    • C)
    • Explanation

    For an additional issue, if the security is non-Nasdaq the delivery requirement is 40 days.

71. Question #71 of 122Question ID: 1307529
    Regarding the purchase of new equity issues by restricted persons, which statements are true?

    An investment club is permitted to buy a new equity issue at the offering price.
    An investment club is not permitted to buy a new equity issue at the offering price.
    An investment club that has eight members with equal ownership, one of which is a registered representative, is permitted to buy a new equity issue at the offering price.
    An investment club that has 12 members with equal ownership, one of which is a registered representative, is permitted to buy a new equity issue at the offering price.
    
    
    
    

    • D)
    • Explanation

    As long as an investment club has no restricted persons as members, it may purchase new equity issues at the public offering price. An investment club that has restricted persons as members may still participate in an initial public offering (IPO) so long as the total ownership of the club's assets by restricted persons does not exceed 10%. A registered representative is a restricted person under the rules regarding the purchase of new equity issues. In III the registered representative owns 12 ? % (100% ?? 8 = 12 ?) of club's assets. In IV the registered representative owns 8 1/3% (100% ?? 12 = 8 1/3), under the 10% maximum allowed.

72. Question #72 of 122Question ID: 1307508
    When choosing to issue additional bonds to the general public in order to raise more capital, a corporate issuer is engaging in

    • B)
    • Explanation

    A primary corporate offering is one in which the proceeds raised go to the issuing corporation. Primary offerings of bonds may be made by an issuer to the general public as an initial public offering (IPO) or, as is the case here, in an additional public offering (APO). Both are primary offerings.

73. Question #73 of 122Question ID: 1269380
    A select pair or group of companies organized to underwrite corporate or municipal securities is best known as

    A)an investment club.
    B)an introducing broker-dealer.
    C)a syndicate.
    D)a market maker.

    • C)
    • Explanation

    A syndicate is two or more broker-dealers (investment bankers) which work with an issuer through, for example, the registration process in the case of corporate securities and bring the issuer's securities to the market by selling them to investors. There are syndicates that specialize in underwriting municipal bonds. The members of a syndicate are also known as the underwriters or collectively the underwriting group.

74. Question #74 of 122Question ID: 1280012
    Which of the following would be allowed during the cooling off period?

    • C)
    • Explanation

    No selling or soliciting is allowed during the cooling off period. Publishing a tombstone is considered an announcement, not a solicitation. The final prospectus is not available during the cooling off period.

75. Question #75 of 122Question ID: 1269424
    Which of the following will not be found in a final prospectus?

    • C)
    • Explanation

    The agreement among underwriters is not a part of a prospectus.

76. Question #76 of 122Question ID: 1269398
    During the 20-day cooling-off period,

    solicitations of sales can be made.
    solicitations of sales may not be made.
    deficiency letters, if issued, are sent to the issuer.
    deficiency letters, if issued, are sent to the underwriters.
    
    
    
    

    • A)
    • Explanation

    No solicitations of sales are permitted during the cooling-off period. If a deficiency letter is issued by the Securities and Exchange Commission (SEC) halting the review of the registration, it is sent to the issuer who is responsible for correcting the deficiency.

77. Question #77 of 122Question ID: 1269443
    For nonlisted and non-Nasdaq securities, a prospectus must be provided to all those who purchase securities for how many days after the effective date?

    • A)
    • Explanation

    For nonlisted and non-Nasdaq securities, the prospectus delivery requirement period in the aftermarket is 40 days, 25 days for Nasdaq or exchange listed, and 90 days for issues quoted OTCBB or the electronic OTC Pink.

78. Question #78 of 122Question ID: 1269351
    Public offerings of securities are regulated under

    • C)
    • Explanation

    In a public offering, securities are offered and sold to the investing public. Public offerings of securities are regulated under the Securities Act of 1933.

79. Question #79 of 122Question ID: 1307557
    Regarding primary and secondary offerings, which of the following are true?

    An offering can only be either a primary or secondary.
    An offering can be a combination of primary and secondary.
    An initial public offering (IPO) is a secondary offering.
    An additional primary offerings (APO) is a primary offering.
    
    
    
    

    • B)
    • Explanation

    An offering can be a combination of primary and secondary. These are known as split offerings. Both IPOs and APOs are primary offerings, where the issuer receives the sale proceeds.

80. Question #80 of 122Question ID: 1269409
    A tombstone advertisement placed before the effective date can

    A)only be placed by the issuing company.
    B)be placed by the issuer directly or by the underwriters.
    C)only be placed by those assisting the issuing company in the underwriting.
    D)always be deemed to be an offer to sell the securities.

    • B)
    • Explanation

    Tombstone advertisements can be placed by either the issuer or the underwriters and are the only ads that can be placed before the registration's effective date. They are not an offer or solicitation to sell the securities.

81. Question #81 of 122Question ID: 1269393
    Regarding the registration statement filed with the Securities and Exchange Commission (SEC) when new securities are to be issued, all of the following are true except

    • B)
    • Explanation

    While underwriters (broker-dealers and investment bankers) may assist the issuer in preparing and filing the registration statement, the accuracy and adequacy of the registration documents is the responsibility of the issuer. Full disclosure is also made on a number of issues, including but not limited to names and addresses of company officers and a description of how the sale proceeds will be used.

82. Question #82 of 122Question ID: 1269389
    An underwriter is placing a tombstone advertisement for a company's new issue. A prospective investor might expect to see all of the following information on the advertisement except

    • B)
    • Explanation

    Information on a tombstone, those advertisements allowed to be placed prior to the effective date, is limited to; name of issuer, type of security, number of shares to be sold, public offering price or expected range, and names of the underwriters or group.

83. Question #83 of 122Question ID: 1280015
    A tombstone announcement may contain all of the following except

    A)an offer to sell the securities.
    B)names of the underwriters.
    C)number of shares offered.
    D)type of security.

    • A)
    • Explanation

    No offer to sell can be made with a tombstone announcement. A tombstone is just information that an offer is coming to the market.

84. Question #84 of 122Question ID: 1307521
    A company is looking to raise additional capital to fund an expansion plan. The company's senior management chooses to issue additional bonds to the general public. The best expression to explain this type of offering would be

    A)an initial public offering (IPO).
    B)a primary offering.
    C)a secondary offering.
    D)a private securities offering.

    • B)
    • Explanation

    A primary offering is one in which the proceeds raised go to the issuing corporation, municipality, or government. The corporation in this case looks to increase its liquid capital by offering bonds. Primary offerings of bonds may be made by an issuer publicly, as is the case, or privately. This question points to an additional public offering (APO) of securities, not an initial public offering.

85. Question #85 of 122Question ID: 1269392
    During the cooling-off period of a new registration filed with the Securities and Exchange Commission (SEC)

    • C)
    • Explanation

    During the minimum 20-day cooling-off period, tombstone ads may be published, and a preliminary prospectus, also known as a red herring, may be distributed to prospective investors. Sales literature may not be distributed and indications of interest are not binding on either the investor or broker-dealer.

86. Question #86 of 122Question ID: 1269335
    A corporation sells shares to the investing public in order to raise capital. This is known as

    A)a secondary market transaction.
    B)an exchange market execution.
    C)a primary, or investor-to-investor, transaction.
    D)an issuer transaction.

    • D)
    • Explanation

    The primary market is where securities are sold to the investing public by the issuer wishing to raise capital. These are known as primary market or issuer transactions.

87. Question #87 of 122Question ID: 1269402
    All of the following are true of tombstone advertisements except

    • D)
    • Explanation

    Tombstone advertisements are not mandatory. They can be placed by the issuer or the underwriters and contain only bare bones facts about the new issue that is limited in scope and detail. However, expected information to be found there would include the name of the issuer and underwriters, type of security, number of shares to be offered, and the offering price or expected price range. All must have a disclosure or advisory that the ad is not an offer to sell or solicit sales for the shares.

88. Question #88 of 122Question ID: 1269440
    A company's board of directors has agreed that the company should be prepared to have shares of common stock ready to be issued that are intended to be distributed in the form of a one-time employee bonus. Not knowing exactly when the one-time bonus plan will be implemented and the shares will be needed, the type of registration or offering that would best suit the scenario is

    A)an ESOP registration.
    B)a shelf registration.
    C)a shadow registration.
    D)a bonus share plan.

    • B)
    • Explanation

    The Securities Act of 1933 permits issuers to quickly raise money in the capital markets when needed via a shelf registration. This type of registration allows the company to, in essence, take the securities from the shelf without the delay of registering with the Securities and Exchange Commission (SEC), because the actual registration has already been done ahead of time.

89. Question #89 of 122Question ID: 1307556
    An offering in which one or more stockholders in the corporation are selling all or a portion of their own shares to the investing public for the first time is known as

    • C)
    • Explanation

    A secondary offering is one in which one or more stockholders in the corporation are selling all or some of their shares to the public. The sale proceeds for these shares are paid to the selling stockholders rather than to the corporation.

90. Question #90 of 122Question ID: 1269354
    The Securities Act of 1933 protects investors who buy new issues by doing all of the following except

    • B)
    • Explanation

    Licensing of individuals associated with broker-dealers is mandated under the Securities Exchange Act of 1934. The Securities Act of 1933 protects investors who buy new issues regulating, among other things, registration of new issues, underwriting, full disclosure, and the potential for fraud in the issuance of securities.

91. Question #91 of 122Question ID: 1269403
    Issuance and trading of securities are regulated at more than one governmental level. These would include regulations at which of the following?

    County level
    City level
    Federal level
    State level
    
    
    
    

    • D)
    • Explanation

    Issuance and trading of securities are regulated at the federal level by the Securities and Exchange Commission (SEC) and the various self-regulatory organizations (SROs) in the securities industry. They are also regulated at the state level through the Uniform Securities Act and state laws regulating securities.

92. Question #92 of 122Question ID: 1307530
    Regarding the purchase of new equity issues (IPOs), restricted persons may

    • D)
    • Explanation

    Persons characterized as restricted persons are prohibited from purchasing shares of new issues in any quantity. If one is already restricted, working for a bank or a broker-dealer does not exempt them from the rule.

93. Question #93 of 122Question ID: 1269377
    Certain investors are deemed accredited when they have a net worth of

    • C)
    • Explanation

    An accredited investor is defined as a natural person who has a net worth of $1 million or more, not including net equity in a primary residence; or has had an annual income of $200,000 or more in each of the two most recent years (or $300,000 jointly with a spouse) and who has a reasonable expectation of reaching the same income level during the current year.

94. Question #94 of 122Question ID: 1269425
    The statement "These securities have not been approved or disapproved nor have any representations been made about the accuracy or the adequacy of the information" is

    • D)
    • Explanation

    Commonly known as the Securities and Exchange Commission's disclaimer, the SEC mandates that it be found in the final prospectus.

95. Question #95 of 122Question ID: 1312238
    The aftermarket prospectus requirement for the IPO of nonlisted securities is

    • C)
    • Explanation

    For the first 90 days following the IPO, a prospectus must be provided to purchasers in the secondary market.

96. Question #96 of 122Question ID: 1269360
    Which of the following best describes a prospectus?

    • A)
    • Explanation

    The Securities and Exchange Commission (SEC) requires full and fair disclosure of all material information and facts regarding the issuance of securities. This disclosure is done via a prospectus, which is required to provide investors enough information to make fully informed buying decisions.

97. Question #97 of 122Question ID: 1269355
    The XYZ Company is looking to offer shares of its common stock to the public. Which of the following laws enacted by Congress would have the most relevance to the issuance of these securities?

    • A)
    • Explanation

    The Securities Act of 1933, also known as the Paper Act or Prospectus Act, is the bedrock of all modern securities law. It requires issuers looking to make a public offering of securities to provide full and fair disclosure of all material facts about the company and the securities being offered. The company does this by registering its securities with the U.S. Securities and Exchange Commission (SEC), often with the aid of accountancy firms, securities attorneys, and underwriters. Part of the registration process for newly offered securities is the publishing of a prospectus which all prospective investors must receive at or prior to purchase.

98. Question #98 of 122Question ID: 1269352
    A corporation increases capitalization by selling shares of stock which can either come from a new issue or previously authorized but unissued shares. Total stock outstanding must

    A)never exceed the number of shares authorized.
    B)always be greater than the number of shares issued.
    C)always equal the number shares authorized.
    D)never equal the number of shares issued.

    • A)
    • Explanation

    A corporation's bylaws state the maximum number of shares authorized to be issued. Therefore, issued shares, those in the hands of public shareholders (outstanding shares) can never exceed the number of shares that were authorized. While those outstanding shares can therefore never be greater than the number of shares issued they could equal the number of shares issued.

99. Question #99 of 122Question ID: 1269332
    In the capital markets, securities such as stocks and bonds can be

    • A)
    • Explanation

    In capital markets, both public and private sectors sell securities in order to raise funds. These securities can be bought and sold (traded) in the capital markets by individuals and institutions alike.

100. Question #100 of 122Question ID: 1269340
     The Securities Act of 1933 requires that

     • D)
     • Explanation

     While some new issues can be exempt from registration, the Securities Act of 1933 requires that a new issue, unless it is specifically exempted from the act, be registered with SEC before public sales can be made.

101. Question #101 of 122Question ID: 1269376
     A registered representative provides financial support and housing at her home for her grandfather. Regarding the purchase of new issues,

     A)the registered representative is restricted, but her grandfather is not.
     B)both persons are considered restricted.
     C)neither are considered restricted.
     D)the grandfather is restricted, but the registered representative is not.

     • B)
     • Explanation

     Working for a broker-dealer, the registered representative is considered restricted. While grandparents of restricted persons are generally not considered restricted, anyone being provided financial support and/or living under the same roof as a restricted person (as is the case here) is also restricted.

102. Question #102 of 122Question ID: 1269418
     A preliminary prospectus (red herring)

     A)will show the final offering price.
     B)if requested by an investor serves as a binding order to purchase shares.
     C)may be used to gather indications of interest.
     D)may not be distributed during the cooling-off period.

     • C)
     • Explanation

     The preliminary prospectus (red herring) can be used as a prospecting tool, allowing issuers and underwriters to gather nonbinding indications of interest. It must be made available and is intended to be distributed to any customer who expresses interest in the securities during the cooling-off period. There is no final price shown in a preliminary prospectus.

103. Question #103 of 122Question ID: 1307536
     A member firm receives an order to purchase shares in a common stock initial public offering (IPO) from another broker-dealer for a customer. Regarding restricted persons, the member must

     A)refuse to accept the order.
     B)obtain a written representation that the buyer is not a restricted person.
     C)obtain a statement witnessed by a notary representing that the buyer is not restricted.
     D)obtain a list of all of the broker-dealer clients to determine eligibility.

     • B)
     • Explanation

     When receiving an order to buy a new equity issue, a member must obtain a written representation that purchasers are in compliance with rules regarding sales of new issues to restricted persons (i.e., they are not restricted persons).

104. Question #104 of 122Question ID: 1269337
     Which of the following is true regarding the primary market?

     • C)
     • Explanation

     The primary market is where securities are sold to the investing public through issuer transactions. It is regulated by the Securities Act of 1933. The NYSE is an example of a secondary market where price is determined by supply and demand.

105. Question #105 of 122Question ID: 1269333
     For primary and secondary markets, which of the following is true?

     • B)
     • Explanation

     In the primary market, the issuer of the securities receives the proceeds generated by the sale of the securities. In the secondary markets, such as an exchange or over-the-counter (OTC) securities trade between investors, one sells securities to another, and the issuer is not involved in the transaction.

106. Question #106 of 122Question ID: 1269419
     A new registered representative receives a memo discussing the distribution of a red herring. The registered representative knows that the memo is referencing

     A)a final prospectus.
     B)a preliminary prospectus.
     C)a registration statement.
     D)a tombstone advertisement.

     • B)
     • Explanation

     The term red herring is derived from the disclaimer printed in red on the cover page of a preliminary prospectus. Some key information that would be found in a final prospectus, such as price, is not found in the preliminary prospectus.

107. Question #107 of 122Question ID: 1280011
     During the cooling off period, underwriters would be allowed to do all of the following except

     • A)
     • Explanation

     During the cooling off period, sales are not allowed.

108. Question #108 of 122Question ID: 1280003
     All of the following names describe the Securities Act of 1933 except

     • D)
     • Explanation

     The Exchange Act is the Securities Exchange Act of 1934 and covers the secondary markets. The Securities Act of 1933 covers the primary market and requires full and fair disclosure on new issues by providing a prospectus to the investor.

109. Question #109 of 122Question ID: 1269341
     For nonexempt securities being offered to the public for the first time by a corporate issuer, which of the following would be applicable?

     • D)
     • Explanation

     Nonexempt securities are those that must be registered with the Securities and Exchange Commission (SEC) under the Securities Act of 1933. The Securities Act of 1933 mandates that offerings of these securities must be made by prospectus.

110. Question #110 of 122Question ID: 1280013
     Which of the following acts requires the registration of most new issues?

     • A)
     • Explanation

     The Securities Act of 1933 requires the registration of most new issues; the Securities Exchange Act of 1934 created the SEC; the Securities Investor Protection Act of 1970 created the SIPC; the Securities Market Improvement Act of 1975 created the MSRB.

111. Question #111 of 122Question ID: 1269361
     A prospectus displays which of the following?

     A)Performance predictions for a minimum of three years
     B)Description of how the proceeds will be used
     C)A guarantee insuring against loss
     D)The Securities and Exchange Commission (SEC) endorsement

     • B)
     • Explanation

     A prospectus will not contain performance predictions, may not imply endorsement of the SEC, nor will it contain guarantees of gains or guarantees against loss.

112. Question #112 of 122Question ID: 1269395
     Indications of interest taken during the cooling-off period are

     binding on the selling issuer and underwriters.
     nonbinding on the issuer and underwriters.
     binding on the investor.
     nonbinding on the investor.
     
     
     
     

     • D)
     • Explanation

     Indications of interest are binding on neither buyers nor sellers.

113. Question #113 of 122Question ID: 1269381
     Which of the following calls for the underwriters to buy securities from the issuer acting as an agent, not as principal?

     • D)
     • Explanation

     In a best efforts underwriting the underwriters (syndicate) buy securities from the issuer acting simply as an agent, not as principal. This means that the underwriter is not committed to purchasing the shares and is therefore not at risk. The underwriter acts as an agent contingent on its ability to sell shares in either a public offering or a private placement.

114. Question #114 of 122Question ID: 1269400
     After the filing of a registration for a new issue with the Securities and Exchange Commission (SEC), and still in the registration's cooling-off period, broker-dealers may

     • C)
     • Explanation

     During the cooling-off period, red herrings (preliminary prospectuses) may be distributed and tombstone advertisements may be published. Indications of interest can be taken but are nonbinding on all parties. Sales literature may not be distributed during the cooling-off period.

115. Question #115 of 122Question ID: 1307583
     An underwriting group is currently assisting an issuer with the preparation and filing of the registration statement for a new issue. Who is responsible for the accuracy of the information within the registration statement?

     • D)
     • Explanation

     While underwriters can assist with preparation and filing, the accuracy and adequacy of these documents is the responsibility of the issuer.

116. Question #116 of 122Question ID: 1269399
     During the cooling-off period, underwriters of new securities may

     accept orders to purchase shares.
     not accept orders to purchase shares.
     not accept indications of interest regarding potential purchases of shares.
     accept indications of interest regarding potential purchases of shares.
     
     
     
     

     • C)
     • Explanation

     Orders for shares may never be taken before the effective date; therefore, no orders to purchase shares may be taken during the cooling-off period. Indications of interest, however, are allowed to be taken but are not binding on either party.

117. Question #117 of 122Question ID: 1280009
     Which of the following would be allowed during the cooling off period?

     • B)
     • Explanation

     No selling or soliciting is allowed during the cooling off period. Distributing a red herring (a preliminary prospectus) is allowed.

118. Question #118 of 122Question ID: 1269422
     When the Securities and Exchange Commission (SEC) clears securities for sale to the investing public, this is

     • B)
     • Explanation

     The effective date is when the SEC clears an issue to be sold to the public; the registration becomes effective. At no time does the SEC approve, disapprove, or make any representation that the information in the registration documents is accurate.

119. Question #119 of 122Question ID: 1269421
     Underwriters who are assisting an issuer in bringing securities to the investing public can do which of the following between the time the registration was filed with the Securities and Exchange Commission (SEC) and the effective date?

     • D)
     • Explanation

     The time between the registration filing date with the SEC and the effective date is known as the cooling-off period. During this time, a preliminary prospectus may be distributed to gauge investor interest but no offers to sell the securities can be made and no orders to purchase the securities can be taken. While a preliminary prospectus and tombstone ad can be used, sales and advertising literature specific to the securities cannot be.

120. Question #120 of 122Question ID: 1269414
     Which of the following statements with regard to the issuance of securities is true?

     • A)
     • Explanation

     The Securities Act of 1933 (also known as the Paper Act, Full Disclosure Act, New Issues Act, Truth in Securities Act, and Prospectus Act) ensures that the investing public is fully informed about a security and its issuer when the security is offered on the primary market. The act provides criminal penalties for fraud in the issuance of new securities. The SEC review period, known as the cooling-off period, must last a minimum of 20 days before the SEC releases the securities for sale to the public (effective date). Solicitations and the acceptance of orders may never occur before the effective date.

121. Question #121 of 122Question ID: 1280004
     Which type of underwriting is characterized by the broker-dealer buying the entire issue from the issuer and then reoffering it to the public?

     A)Mini max
     B)All-or-none
     C)Firm commitment
     D)Best efforts

     • C
     • Explanation

     In a firm commitment, the underwriter buys the entire offer into inventory and then redistributes it to the public.

122. Question #122 of 122Question ID: 1269350
     The primary purpose of the Securities Act of 1933 is to

     • B)
     • Explanation

     The primary purpose of the Securities Act of 1933 is to require full and fair disclosure in connection with the sale of securities to the public.

Which of the following activities are prohibited during the cooling off period?

What is permitted during the 20 day cooling off period for an initial public offering?

What is the cooling off period for a public offering of securities?

Which type of underwriting is characterized by the broker/dealer buying the entire issue?