Practice: 1.4 Offerings | In Depth Academics

Section 1: Knowledge of Capital Markets. 12 question(s) in this unit's pool (2 above the exam). Free up to ten a day; the coach picks which ones based on what you have already answered and when each is next due.

Section 1: Knowledge of Capital MarketsSIE outline 1.4

Today's practice

Pick an answer, say how sure you are, then reveal. Every wrong choice gets its own explanation. Questions you have already answered correctly and confidently stay out of the way until they are due for review again.

Question 1Exam level

Bramwell Foods has been listed for 7 years. It sells 3,000,000 newly issued shares and receives the proceeds. The same week, its CFO sells 400,000 of his own existing shares to the public. How should the two blocks be classified?

A. Both blocks are the company's IPO. Bramwell has been public 7 years; there is only ever one IPO. B. Block A is a follow-on offering, primary market; Block B is a secondary offering, and the issuer receives nothing from it C. Block A is secondary; Block B is a follow-on offering. Reverses the two classifications. D. Both blocks are ordinary secondary-market trades. Block A pays the issuer directly, which no ordinary secondary-market trade does.

How sure are you?

Sure Fairly sure Guessing

Correct: B. Block A is new shares with the issuer paid, a follow-on offering and a primary-market event. Block B is existing shares sold by the CFO, a secondary offering, a distribution; the company receives nothing from it.

A. Bramwell has been public 7 years; there is only ever one IPO.

C. Reverses the two classifications.

D. Block A pays the issuer directly, which no ordinary secondary-market trade does.

Unit: SIE outline 1.4

Question 2Exam level

Vantage Rail runs a best-efforts offering of 1,000,000 shares at $18.00. The underwriter places 720,000. Who holds the remaining 280,000 shares, and what did Vantage Rail raise?

A. The underwriter holds 280,000; Vantage Rail raised $18,000,000 B. The issuer holds 280,000; Vantage Rail raised $12,960,000 C. The underwriter holds 280,000; Vantage Rail raised $12,960,000 D. The issuer holds 280,000; Vantage Rail raised $18,000,000

How sure are you?

Sure Fairly sure Guessing

Correct: B. In best efforts, unsold shares stay with the issuer, never left. Proceeds are only on shares actually placed: 720,000 x $18.00 = $12,960,000.

A. Puts the shares with the underwriter, which only happens in a firm commitment, and overstates proceeds as if all 1,000,000 sold.

C. Correct proceeds figure, wrong holder of the unsold shares.

D. Correct holder, but overstates proceeds as if the full 1,000,000 shares sold.

Unit: SIE outline 1.4

Question 3Exam level

After an issuer files its registration statement, how long is the default cooling-off period before the statement can become effective?

A. 20 days B. 90 days C. 6 months D. There is no default period; the SEC sets a new one for every filing

How sure are you?

Sure Fairly sure Guessing

Correct: A. Section 8-A sets the effective date at the twentieth day after filing, or such earlier date as the Commission may determine.

B. 90 days appears nowhere in the offering timeline the outline names.

C. 6 months is a Rule 144 resale holding-period figure, not the registration cooling-off period.

D. 20 days is the outline's own stated default, though the SEC may move it earlier.

Unit: SIE outline 1.4

Question 4Exam level

Under Regulation D Rule 504, what is the cap on the aggregate offering price, and over what period is it measured?

A. $10,000,000, on a rolling 12-month basis B. $5,000,000, on a rolling 12-month basis C. $10,000,000, as a one-time lifetime allowance D. $1,000,000, on a rolling 90-day basis

How sure are you?

Sure Fairly sure Guessing

Correct: A. Rule 504 caps the aggregate offering price at $10,000,000, measured on a rolling basis, less whatever was already sold in the twelve months before and during the offering.

B. $5,000,000 was Rule 504's cap before it was raised; the current cap is $10,000,000.

C. The cap is measured on a rolling basis, not a one-time lifetime allowance.

D. $1,000,000 and a 90-day window appear nowhere in Rule 504's own cap.

Unit: SIE outline 1.4

Question 5Exam level

Under Regulation D Rule 506(b), how many non-accredited purchasers may an issuer sell to, without general solicitation?

A. Up to 35, in any 90-day period B. Up to 100, with no time limit C. None; 506(b) only permits accredited purchasers D. Up to 35, with no general-solicitation restriction

How sure are you?

Sure Fairly sure Guessing

Correct: A. 506(b) allows no general solicitation, but permits up to 35 non-accredited purchasers in any 90-day period.

B. 100 does not appear in Rule 506(b)'s own text; the limit is 35.

C. 506(b) does allow a limited number of non-accredited purchasers; it is not accredited-only.

D. Correctly states the 35-purchaser number but drops the no-general-solicitation condition that defines 506(b) against 506(c).

Unit: SIE outline 1.4

Question 6Exam level

What is a tombstone advertisement, in an offering's own document set?

A. An announcement of the deal; it is not itself an offer to sell B. The final prospectus, carrying the price and shipped with the security C. The preliminary prospectus, used during the cooling-off period D. A registration statement filed directly with the SEC

How sure are you?

Sure Fairly sure Guessing

Correct: A. The tombstone ad only announces the deal; it is not an offer at all.

B. That describes the final prospectus, a separate document that does carry a price.

C. That describes the red herring, used before effectiveness, not the tombstone ad.

D. A registration statement is the issuer's own filing, not an advertisement.

Unit: SIE outline 1.4

Question 7Exam level

What are blue sky laws?

A. State-level securities registration requirements, on top of federal registration B. A federal exemption that replaces state registration entirely C. FINRA's own rules for municipal securities D. A nickname for Regulation D's private-placement exemption

How sure are you?

Sure Fairly sure Guessing

Correct: A. Blue sky laws are state-level securities registration requirements, on top of anything the SEC requires; federal registration does not excuse a state filing.

B. Blue sky laws sit on top of federal registration; they do not replace it.

C. FINRA does not write blue sky laws; NASAA's own state-regulator members administer them.

D. Blue sky laws are a state registration layer, not a private-placement exemption.

Unit: SIE outline 1.4

Question 8Exam level

An underwriter sells an issue as the issuer's agent for a commission and places only part of it. Who holds the unsold shares?

A. The issuer, the underwriter never bought them B. The underwriter, at its purchase price C. The syndicate manager, personally D. The SEC, until the registration lapses

How sure are you?

Sure Fairly sure Guessing

Correct: A. As agent, the underwriter never took title, so unsold shares never left the issuer.

B. Describes a firm commitment, where title actually passes.

C. Invents personal liability no underwriting agreement creates; a manager organizes and allocates, it does not own shares personally.

D. The SEC never owns a registered security; Section 23 says its process is not even an approval, let alone ownership.

Unit: SIE outline 1.4

Question 9Exam level

What can a red herring, the preliminary prospectus, not carry?

A. The risk factors B. A description of the business C. The final offering price D. The financial statements

How sure are you?

Sure Fairly sure Guessing

Correct: C. The price is not fixed until the registration is effective, so a red herring, circulated during the cooling-off period, cannot carry it.

A. Risk factors are part of what a red herring is written to disclose.

B. The business description is also part of a red herring's content.

D. Financial statements are included as well; only the final price is missing.

Unit: SIE outline 1.4

Question 10Harder

In an all-or-none offering that falls short by a single share, what happens, and does the underwriter absorb the unsold shares?

A. The deal closes anyway; the underwriter absorbs nothing. All-or-none specifically requires the full amount to sell; a single-share shortfall does not close the deal. B. The whole offering is cancelled and funds are returned; the underwriter never held any shares to absorb C. The underwriter must buy the shortfall itself. Invents an obligation that would make this a firm commitment; all-or-none is a best-efforts variant, and the underwriter never buys the shortfall. D. The issuer must lower the price until it sells. Invents a repricing mechanism the structure does not have; the offering simply cancels.

How sure are you?

Sure Fairly sure Guessing

Correct: B. All-or-none means the deal only happens if the entire issue sells; falling short by any amount cancels it and returns investor funds, and since it is a best-efforts variant, the underwriter never took title to anything.

A. All-or-none specifically requires the full amount to sell; a single-share shortfall does not close the deal.

C. Invents an obligation that would make this a firm commitment; all-or-none is a best-efforts variant, and the underwriter never buys the shortfall.

D. Invents a repricing mechanism the structure does not have; the offering simply cancels.

Unit: SIE outline 1.4

Question 11Above the exam

A company sells 2,000,000 newly issued shares for the first time to the public, while a founder simultaneously sells 500,000 of her own already-held shares in the same prospectus, through an underwriter on a firm-commitment basis. If 100,000 of the combined 2,500,000 shares go unsold, whose shares are they, and what is the founder's own portion of the offering called?

A. The underwriter's own unsold shares, drawn proportionally from the whole pool it bought; the founder's portion is a secondary offering B. The issuer's unsold shares only; the founder's portion is an IPO C. The founder's own unsold shares only; her portion is a follow-on offering D. Nobody's; unsold shares in a firm-commitment deal are automatically canceled

How sure are you?

Sure Fairly sure Guessing

Correct: A. In a firm-commitment underwriting the underwriter buys the whole combined offering and bears the resale risk on whatever remains unsold; the founder's own shares, already outstanding before this sale, make her portion a secondary offering, while the company's new shares are its IPO.

B. Firm commitment puts unsold-share risk on the underwriter, not the issuer, and mislabels the founder's already-outstanding shares as an IPO rather than a secondary offering.

C. Firm commitment means the underwriter, not the founder, carries any unsold-share risk.

D. No automatic-cancellation mechanism exists in a firm-commitment deal; the underwriter owns what it does not resell.

Unit: SIE outline 1.4

Question 12Above the exam

A company that has been public for 4 years files an automatic shelf registration and, 18 months later, takes down 2 million new shares. A single underwriter buys the whole 2 million at $24 and offers them at $26; 50,000 do not sell. Is the shelf still usable, and who holds the 50,000 unsold shares?

A. The shelf expired at 18 months; nobody may use it B. The shelf is still usable, inside the 3-year window; the underwriter holds the 50,000 unsold shares, since it purchased the whole issue C. The shelf is still usable; the issuer holds the 50,000 unsold shares, since best efforts always applies to shelf takedowns D. The shelf is still usable; the SEC holds the unsold shares until resold

How sure are you?

Sure Fairly sure Guessing

Correct: B. Eighteen months is well inside Rule 415(a)(5)'s three-year window, so the shelf is usable. The underwriter bought the entire 2 million shares outright, a firm commitment, so title passed to it and the 50,000 unsold shares are the underwriter's own, at its own cost.

A. Eighteen months is well under the three-year limit; the shelf has not expired.

C. A shelf is a timing mechanism, not an underwriting structure; this takedown was distributed firm commitment, so the issuer does not hold the unsold shares.

D. The SEC never owns a registered security; Section 23 states its process is not even an approval.

Unit: SIE outline 1.4

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