What is the primary market?

Where securities are created and sold for the first time by issuers.

True or False: In the primary market, the issuer receives proceeds from security sales.

True. Unlike secondary markets, issuers get money from primary market sales.

Who are the main participants in primary markets?
A) Only corporations
B) Issuers, underwriters, investors, regulators
C) Only investment banks
D) Only retail investors

B) Issuers, underwriters, investors, regulators

Fill in the blank: Securities sold in the primary market have _____ been traded before.

Never

What does IPO stand for?

Initial Public Offering

True or False: A follow-on offering can be either dilutive or non-dilutive.

True. Dilutive creates new shares; non-dilutive involves existing shareholders selling.

In firm commitment underwriting, who assumes the risk?
A) The issuer
B) The underwriter
C) The investors
D) The regulators

B) The underwriter

What is the cooling-off period minimum duration?

20 days between filing registration statement and effectiveness.

Fill in the blank: The preliminary prospectus is also called the _____.

Red herring

True or False: Tombstone advertisements are offers to sell securities.

False. They are factual announcements only, not solicitations or offers.

What document must be filed for IPOs?
A) Form 10-K
B) Form S-1
C) Form 8-K
D) Form S-3

B) Form S-1

Why do companies typically underprice IPOs?

To ensure strong demand and reduce risk of unsold shares.

What is the green shoe option?

Right to sell additional 15% more shares if demand exceeds expectations.

Fill in the blank: Lock-up periods typically last _____ to _____ days.

90 to 180

True or False: The SEC approves the investment merit of securities offerings.

False. SEC reviews for completeness and compliance, not investment merit.

What is book building?
A) Construction financing
B) Collecting investor interest to set price
C) Building underwriter syndicates
D) Creating prospectus documents

B) Collecting investor interest to set price

During which period can indications of interest be collected?

During the cooling-off period before registration becomes effective.

What happens in a rights offering?

Existing shareholders get rights to buy additional shares at discount.

Fill in the blank: Shelf registration under Rule 415 is valid for _____ years.

3

True or False: Best efforts underwriting guarantees sale of all shares.

False. Underwriter only agrees to sell as much as possible.

What is the largest component of underwriting spread?
A) Management fee
B) Underwriting fee
C) Selling concession
D) Legal fees

C) Selling concession

Who regulates broker-dealers in primary market activities?

SEC and FINRA regulate broker-dealers and their representatives.

What makes a security exempt from registration?

Government securities, municipal bonds, bank securities, or short-term commercial paper.

Fill in the blank: Commercial paper must have maturity of _____ days or less.

270

True or False: Private placements require full SEC registration.

False. They are exempt from full registration under Regulation D.

What defines an accredited investor?
A) $200k+ income or $1M+ net worth
B) Professional license only
C) $100k+ income
D) Any sophisticated investor

A) $200k+ income or $1M+ net worth

How many non-accredited investors are allowed in Rule 506(b)?

Up to 35 sophisticated investors maximum.

What is the key difference between Rule 506(b) and 506(c)?

Rule 506(c) allows general solicitation but requires accredited investor verification.

Fill in the blank: Rule 144 requires _____ month holding period for reporting companies.

6

True or False: Form D must be filed before selling private placement securities.

False. Form D must be filed within 15 days after first sale.

What is the maximum offering amount for Regulation A Tier 2?
A) $20 million
B) $50 million
C) $75 million
D) $100 million

C) $75 million

When does primary residence value get excluded?

When calculating net worth for accredited investor qualification.

What makes an investor sophisticated but not accredited?

Financial knowledge without meeting income or net worth thresholds.

Fill in the blank: QIBs must own at least $_____ million in securities.

100

True or False: Rule 144A sales require a holding period.

False. Rule 144A allows immediate resale to qualified institutional buyers.

What characterizes a dilutive follow-on offering?
A) Existing shareholders sell
B) Company issues new shares
C) No proceeds to company
D) Share count stays same

B) Company issues new shares

Why do follow-on offerings typically trade at discount?

To incentivize purchase and ensure successful offering completion.

What triggers enhanced disclosure in Rule 506(b) offerings?

Presence of any non-accredited investors in the offering.

Fill in the blank: Regulation S exempts offerings made _____ the United States.

Outside

True or False: Shelf registration means securities are immediately available for sale.

False. It registers securities but actual sale occurs later via takedown.

What is an at-the-market offering?
A) Market-priced IPO
B) Gradual sale into secondary market
C) Exchange-traded offering
D) Options-based offering

B) Gradual sale into secondary market

When must final prospectus be delivered to purchasers?

At or before confirmation of sale to all purchasers.

What prevents market flooding after IPOs?

Lock-up agreements that restrict insider selling for specified periods.

Fill in the blank: Underwriting spreads for IPOs typically range from _____% to _____%.

5 to 7

True or False: Secondary market trading provides proceeds to the issuing company.

False. Secondary market trades occur between investors, not involving issuer.

What allows companies to time offerings favorably?
A) IPO timing
B) Shelf registration
C) Rights offerings
D) Lock-up periods

B) Shelf registration

How does ownership dilution occur in follow-on offerings?

New share issuance reduces existing shareholders' ownership percentage.

What document replaces full registration for Regulation A?

Form 1-A offering statement with offering circular.

Fill in the blank: Rule 504 allows maximum $_____ million in 12 months.

10

True or False: Regulation A securities are restricted securities.

False. Regulation A securities are freely tradable and unrestricted.

What characterizes a bought deal offering?
A) Slow execution
B) Lead underwriter buys before syndicate
C) Best efforts structure
D) Retail-only distribution

B) Lead underwriter buys before syndicate

When can rights in rights offerings be exercised?

During limited exercise period, typically 30-45 days.

What creates theoretical value in a right?

Difference between market price and subscription price.

Fill in the blank: Non-affiliates can sell freely after _____ month holding period.

6

True or False: All Regulation D offerings prohibit general solicitation.

False. Rule 506(c) permits general solicitation with verification requirements.