S79 Key Concepts Upload

Rule 144A

Rule 144A allows QIBS >$100MM AUM to freely purchase unregistered securities [cite: 13]

The preliminary proxy

Must be filed with the SEC at least 10 calendar days prior to filing a definitive proxy with the SEC DEF14A [cite: 69]

The definitive proxy

Must be filed with the SEC and sent to shareholders at least 20 calendar days prior to the shareholder meeting [cite: 69]

Tender offer

Must be made available to shareholders for at least 20 business days [cite: 69]

14D-9 target board response

Due within 10 business days of Schedule TO filing and reflects the opinion of the board not company management [cite: 69]

Final syndicate settlement

Must occur within 90 days following the syndicate settlement date which is the date the issuer delivers the securities to the syndicate members [cite: 69]

Research Analyst Regulations

Make sure to review the research analyst regulations discussed in Lesson 1 online and in this document [cite: 71]

Exemptions from Registration

Make sure to review the exemptions from registration discussed in Lesson 1 online and in this document [cite: 71]

Fairness Opinions

Make sure to review the fairness opinion rules and disclosures discussed in Lesson 3 online and in this document [cite: 71]

Important computations to review

Discount purchasing questions synergies adjusted multiples and maximum leverage for company purchase [cite: 71]

Bond interest rates

The most common benchmark rate that issuers use to determine interest is based off US Treasury securities not the Federal Reserves interest rate [cite: 75]

Bond pricing near maturity

As a bond reaches maturity the price will revert toward par where a discount bonds price will appreciate toward $1000 and a premium bonds price will decline toward $1000 [cite: 75]

Holding bonds until maturity

An investor who purchases a 10 year bond and expects to hold until maturity would be more concerned about credit risk as compared to interest rate risk [cite: 75]

Bond investments in rising-interest-rate environment

Investors with maturing bonds who reinvest the returned principal at higher interest rates will see increased interest income [cite: 75]

Rising interest rates

An investor concerned about rising rates would likely invest in short term debt securities or equities [cite: 75]

Bonds and inflation

As inflation CPI increases interest rates will increase and bond prices fall [cite: 75]

Falling interest rates

An investor who expects interest rates to fall would purchase a bond with a long duration such as zero coupon bonds and long term bonds [cite: 75]

Bond pricing increasing market demand

If an issuer is disappointed with the amount raised in a debt offering it could increase the interest rate to try to attract more interest [cite: 75]

Price Talk

When underwriters determine pricing of a bond during the cooling off period they may discuss a yield range above treasuries [cite: 80]

Bond Spreads

High yield bonds have wider spreads than investment grade or Treasury bonds [cite: 80]

Bond yields

For a discount bond the current yield is higher than the nominal yield while for a premium bond the current yield is lower than the nominal yield [cite: 80]

Bond trade confirmation

Must include yield to worst which is the lower of yield to call or yield to maturity [cite: 80]

New Bond Issues

An automobile company similar to competitors would use the competitor bond yield for pricing a new issue [cite: 80]

Internal rate of return

The timing of cash flows is significant and greater total cash flow does not mean a greater IRR [cite: 80]

Repricing risk

A sub category of interest rate risk that can be reduced by issuing bonds with a floating interest rate based on a benchmark [cite: 80]

Yield curves

Graphs a bonds yield against its maturity and types include normal inverted and humped [cite: 84]

Book-entry bonds

US Treasury and US government agency securities are not issued in physical certificates as ownership is recorded via a book entry system [cite: 84]

T-bills

Treasury bills have maturities of one year or less and are the most liquid US Treasury security appropriate for money market funds [cite: 84]

Bond equivalent yield

A T-bills bond equivalent yield will always be greater than its discounted yield [cite: 84]

Money market fund

Primarily holds short term debt securities including Treasury bills and commercial paper with a $100000 minimum denomination [cite: 84]

Agency bonds

Includes bonds issued by US federal government agencies and government sponsored enterprises like GSEs which have credit risk [cite: 84]

Asset-backed securities

Consist of loans that are pooled together and securitized where underlying assets are financial instruments not hard corporate assets [cite: 88]

Convertible bonds

Would increase an issuers public float once they are converted [cite: 88]

Convertible bond advantages

Includes lower borrowing costs and tax deductibility of interest expense though issuing converts increases leverage [cite: 88]

Trust Indenture Act

Requires corporate bonds to be issued with a trust indenture and names a trustee to safeguard bondholder rights [cite: 88]

Tools of the Fed

If investors believe the Fed will slow a rapidly expanding economy fed funds futures would likely decrease [cite: 88]

Strengthening dollar

Could make a US manufacturers product less competitive compared to new competition abroad [cite: 88]

Weakening dollar

For a company that heavily exports to foreign countries a weakening dollar would result in higher revenue [cite: 88]

Carry trade

When an investor borrows money in a currency with a low interest rate and uses it to invest in a currency with high rates [cite: 88]

Credit arbitrage

Occurs when an investor borrows money at a low rate and invests it to earn a higher return [cite: 92]

Quant trader

Would make investment decisions based on trading data such as average daily trading volume [cite: 92]

Aggressive growth strategy

An investor with a portfolio of 100 percent equities who reinvests all dividends in additional shares [cite: 92]

Growth at a reasonable price

Investors purchase securities with growth rates expected to exceed the market but valued below the market [cite: 92]

Price momentum investing

Investors buy securities that have seen substantial gains over the past year or longer [cite: 92]

Distressed and special situation funds

Invest in companies experiencing operational or financial challenges such as recent operating losses [cite: 92]

Systematic Risk

Reflects the fact that performance of an individual security will be impacted by the performance of the overall market [cite: 92]

Company pausing dividends

Income seeking investors will generally sell their positions in the company [cite: 92]

Mezzanine Debt

Type of debt lower in priority than other debt but higher than equity claims and has less risk than preferred equity [cite: 92]

Credit Ratings

An announcement of a lawsuit is not likely to cause a downgrade in an issuers credit rating [cite: 92]

Credit Risk

Reduced by avoiding putting too much capital into high risk debt or in any single issuer [cite: 96]

Bank Leverage

Regulators seeking to reduce bank failures would seek to reduce the amount of leverage banks can take on [cite: 96]

Forward Contract

A contract to buy or sell an asset at a specific price at a specific time [cite: 96]

Weighted Average Maturity

Used as a measure of sensitivity to interest rate changes and market changes where longer maturity means greater sensitivity [cite: 96]

Short-duration high-yield bonds

An example of a bond that carries high investment risk but low interest rate risk [cite: 96]

Underwriter due diligence

Underwriters must conduct due diligence on all new security offerings whether they are IPOs or follow ons [cite: 97]

Misleading statements

An investor harmed by misleading statements in a registration statement should sue the company to be made whole [cite: 97]

Reviewing a registration statement

If an issuer determines its registration statement may be delayed the company should promptly notify the SEC [cite: 102]

Registration statement review

SEC review considers filing adequacy and completeness and does not confirm deal quality or integrity [cite: 102]

Signatures on a registration statement

Must be signed by the issuers CEO CFO controller and by a majority of the board [cite: 102]

Gun-jumping

It would not be a violation for an issuer to engage in normal course of business activities such as product marketing [cite: 102]

Use of Proceeds

If a company plans to use proceeds to pay down debt extended by an underwriter it must be disclosed in the registration statement [cite: 102]

Filing the preliminary prospectus

Five copies of each version must be filed with the SEC no later than when each copy is first distributed [cite: 102]

Free writing prospectus

Prepared and filed with the SEC by the issuer attorneys and accountants but never by the underwriter [cite: 102]

Using FWPs

FWPs are prepared by the issuer and filed with the SEC but would never be prepared or filed by the underwriter [cite: 106]

Effectiveness

Once the SEC declares the registration statement effective the underwriter can confirm indications of interest [cite: 106]

Delayed filing

Issuers may file the final prospectus with the SEC up to 15 business days after the effective date [cite: 106]

Delayed final settlement in an underwriting

The syndicate manager must notify FINRA Operations Department of any anticipated delay in the closing of an underwriting [cite: 106]

Prospectus data

Any prospectus more than nine months old may not include financial information that is more than 16 months old [cite: 106]

Prospectus supplement

A prospectus supplement to update financials does not supersede the original prospectus which remains in effect [cite: 106]

Prospectus recordkeeping

Broker dealer is not required to maintain a permanent record of these files because they are considered issuer materials [cite: 110]

Included in a prospectus

Any hyperlinks and the content on linked webpages are deemed to be part of the prospectus [cite: 110]

Disclosing material events

A company could proceed with a new issue after a negative material event but it must be disclosed in the registration statement [cite: 110]

Banking and research

Research analysts and investment bankers may discuss recent transactions in a shared space as long as there is a chaperone [cite: 110]

Verification of facts in a research report

Equity research reports may be reviewed by the subject company solely for the verification of facts excluding ratings and price targets [cite: 114]

Industry Research Reports

If a broker dealer publishes a report covering a sector the client company cannot be given greater prominence than other companies [cite: 114]

Published research

A research analyst is permitted to share a published research report with investment banking personnel with compliance cc'd [cite: 114]

Public Appearance Disclosures

Analyst is not required to disclose whether the firm intends to provide investment banking services in the next three months [cite: 114]

Equity versus debt research analysts

Equity research must notify customers if terminating coverage while debt research does not [cite: 114]

Debt research analyst communications

Any communication by a debt research analyst to internal personnel must be fair balanced and not misleading [cite: 118]

Comparable debt issuances

Investment banker could contact a credit ratings analyst to obtain information on comparable debt issuances without a chaperone [cite: 118]

Promissory note

A short to medium term loan that may be considered a security requiring registration depending on the method of sale [cite: 118]

Additional characteristics of corporate issuers

C corps are state chartered legal entities apart from owners and can have multiple share classes [cite: 118]

S corporation investors

Typically all investors in an S corp must be individuals and an IRA cannot be a shareholder [cite: 118]

Pass-through taxation

Benefit of organizing as an S corp LLC BDC or Limited Partnership where gains and losses pass through to owners [cite: 118]

LLC

An LLC that wished to go public would likely have to reorganize to do so [cite: 122]

REITS

Company that owns or operates income producing real estate and pays no corporate tax if it meets specific income and asset tests [cite: 122]

REIT vs LP

Investor seeking tax deferrals would prefer an LP due to pass through of losses while those seeking income prefer REITs [cite: 122]

Commercial real estate fund

A qualified or accredited investor will most likely invest in a commercial real estate fund set up by a public company [cite: 122]

Bond shelf registration

Company offering bonds in a shelf registration would include the interest rate change in the prospectus supplement [cite: 122]

WKSIs

Issuer with securities trading on a foreign exchange may have WKSI status if they meet the $700mm public float requirement [cite: 122]

Ineligible issuers and WKSIs

Issuer considered ineligible if it violated federal securities law within the past three years [cite: 122]

Forward-looking statements

Projections of revenues and income permitted in SEC filings if they include meaningful cautionary language [cite: 126]

SPACs and forward-looking statements

SPAC typically does include forward looking projections of the target company it plans to merge with [cite: 126]

SPAC acquisitions

SPAC typically must complete an acquisition within 18 to 24 months and invest at least 80 percent of its net assets [cite: 126]

10-K

Annual report providing comprehensive overview of business and financial condition including internal financial controls [cite: 126]

EDGAR

SEC service where one can locate public filings including prospectuses and 10 Ks [cite: 126]

Reg FD

Issuer can satisfy Reg FD by publicly disclosing material information via 8 K press release or webcast [cite: 126]

Identifying large shareholders

SEC filers include a list of large shareholders in their proxy statements which is the best place to find this info [cite: 130]

PRE14A v DEF14A

Preliminary and definitive proxies contain identical information and will not include board meeting minutes [cite: 130]

Sarbanes-Oxley

SOX does not prohibit an executive from borrowing from their 401k as long as they net zero from the loan [cite: 130]