Syndicate Flashcards

A type of firm commitment that applies when additional shares are issued and current shareholders have pre-emptive rights. In this arrangement the shares are offered exclusively to existing shareholders for a two to four week standby period.-Process if referred to as a rights offering. The underwriter will purchase or resale any unsold shares

All or none

A type of best efforts underwriting agreement in which the underwriters attempt to sell all the shares within a certain period

Minimum-maximum

A type of best efforts offering that will be cancelled unless a minimum amount is raised. Once the minimum is reached it becomes a traditional best efforts underwriting. Also called part or none

Rule SEC 10b-9

Issuers and brokers must be truthful with the public about the type of underwriting commitment.-The issuer could not decide to purchase all unsold shares in a mini-max, that would make it a firm commitment

SEC Rule 15c2-4

Requires that broker dealers participating in all or none or mini-max offerings deposit investor funds in a separate escrow account.

Negotiated Underwriting

The terms of the offering are determined between the issuer and a single underwriter. This is the majority of corporate underwritings

Competitive Bid process

Underwriters submit sealed bids to the issuer to sell securities

Syndicate Desk

-also called capital markets desk is tasked with marketing, selling, and possibly stabilizing the new issue-Typically doesn't help prepare registration and FWPs

Agreement Among Underwriters

Assigns lead underwriter, and allocates liability among underwriters and portion of the issue to a selling group

Selling Group

Sell an allotment of newly issued securities on behalf of an underwriter. -The selling group buys the securities at a mark-up from its price but at less than the public offering price-not financially responsible for any unsold shares

Selected Dealer Agreement

-Stipulates terms for selling group:-Affirmation the firm is in good standing with its regulators-Agreement by the selected dealer to follow all applicable SEC regulations-Payment terms-Circumstances under which the agreement will terminate

Reallowance

When the selling group sells shares but the syndicate member keeps a small percentage of the selling concession

Building the Book

IOIs become orders on effective sate unless canceled. -verifies that a market exists for the shares-Stirs up interest among large institutions-Determines public offering price based on demand

Circling Shares

Committing allocations of shares to investors

Returned Shares

Shares that are allocated (circled) but not purchased by customers, and become a liability in a firm commitment underwriting.-Each underwriter is responsible

Fixed Pot arrangement

Allocation of sales credits is predetermined among the underwriters and does not depend on who originates institutional sales.

Jump Ball Pot Arrangement

The credits may go on a first come first served basis to any underwriter that places institutional orders through the por.

Book runner

-lead manager, determines pricing and scheduling -determines how hot or cold demand is-Tries to prevent flipping, the immediate selling of IPO shares allocated through the syndicate

Lock up agreement

-typically lasts 180 days-contract between shareholders and the underwriterNot required by law but very common-help maintain a stable share price and avoid negative perception of the company-An underwriter must notify the issuer at least 2 days before a lock up period on that issuer's shares expires

Deal File

-After an offering is completed the underwriters are responsible for accurately documenting communications, transactions, and compliance-communications with the issuer-Copies of correspondence with the underwriting group and selling group-Archives of road show materials and other marketing materials and correspondance-Book Building records-Copies of all filed communications and responses from the SEC

Suitability

-Applies to both recommended securities transactions and investment strategies-reps must do due diligence to understand customer needs

Reasonable Basis Suitability

- A rep must have a reasonable basis to believe the recommendation is suitable for at least some investors.-Firms must separately determine whether an investment is suitbale

Quantitative suitability

An underwriter or rep must have a reasonable basis for believing that a series of recommended transactions is not excessive or unsuitable even if all transactions in isolation are suitable

Retentions

Securities available for allocation to syndicate members, without regard for allocations

Corporate Financing Rule

-Requires filing of specific documents with FINRA's corporate financing department including a registration statement-Before a deal can become effective the managing underwriter must file documents with FINRA within one day of filing with the SEC-includes three copies of UA, AAU, and any related documents-final registration statement-a list of underwriting syndicate members-statement of any association by a member with any officer or director of the issuer. Disclosure by any member of any beneficial ownership of 5% or more-An explanation of any arrangements entered into by the member firm and issuer during the 180 day period preceding required filing date

Prohibited Compensation by FINRA

-reimbursement by issuer to underwriter for general overhead, salaries, and normal business expenses-Any right of first refusal extending more than 3 years-Any warrants, options, or convertible securities exerciseable more than 5 years from effective date or have a strike price below the offering price-tail fee arrangement going longer than 2 years.

Tail Fee Arrangement

An underwriter receives underwriting fees if the issuer cancels the offering and subsequently does a similar transaction with another firm

-a firm or person under common control with the broker dealer-securities cannot be offered to related persons at a discount

Discount Securities

- treasury, municipal bonds, registered investment companies are not subject to this rule and can be sold at a discount

Fully Marketed Offering

Consists of a one to two week road show run by senior management of the issuer and the lead underwriter.-Carries greatest risk that issuer and underwriter will not be able to get enough interest in the shares

One-day Marketed Offering

-Registration is filed 24hrs prior to anticipated effective date, and prices the deal after the close of trading the next day-follow on offerings

Overnight marketed offering

-Issuer might file a registration within an even shorter period-Investment grade debt-least risk

Conflict of Interest

-Issuer is a broker dealer-Issuer is owned at least 10% by a broker dealer-Issuer is owned at least 10% by an associated persons-Issuer will use 5% of proceeds to pay a broker dealer a loan-Issuer intends to become a broker dealer

In order to participate with a conflict of interest

-Nature of conflict is prominently disclosed-Member complies with certain net capital filings-Qualified independent underwriter participates (only necessary if firm is the syndicate manager)

Rule 5130

Bonafide public offerings

Restricted persons

-FINRA member firms and their employees-Finders and fiduciaries of the management underwriter-Portfolio managers in their personal investment accounts-Immediate family members of restricted persons

Control Relationship

Broker dealers must disclose a control relationship with the issuer verbally at the point of offer and written disclosure at or before completion of transaction

Due Diligence

Investment bankers and equity research analysts cannot participate in joint due diligence prior to bake off. Unless the company is an EGC

Communication between IB and research

must be chaperoned by legal and compliance, whether written or oral

Rules for EGC

-Research analyst can attend the pitch or bake off-Research analyst can conduct joint due diligence with an investment banker-A research analyst can publish research on the issuer immediately after the effective date, with no holding period

Final prospectus

Must be filed within 15 days of effective date. 10 copies delivered to SEC including final offering price

Subject Security

The security being sold

Reference Security

The security into which the subject security can be converted

Regulation M Rule 101

Prohibits a distribution participant from attempting to bid for or purchase or induce any other person to bid for a covered security during the applicable period

Distribution Participants

Underwriters, prospective underwriters, broker dealers, or other persons who have agreed to participate in a distribution

Actively traded security treatment

-no restricted period-securities where ADTV is greater than one million, and public float of at least 150 million

Middle tier treatment

-ADTV of at least $100,000-public float of at least $25 million-Restricted period begins one business day prior to the determination of the offering price, and ends when that person's participation in the distribution is complete

All other securities treatment

-Restricted period begins five business days prior to the determination of the offering price and ends when that persons participation in the distribution is complete

Notification of restricted period

Lead underwriter must notify FINRA of the restricted period and its length-no later than the business day before the first trading session of restricted period-Even though the lead manager files the other members are still responsible

Securities not subject to Rule 101

-investment grade non-convertable securities-asset backed securities-face amount certificates issued by open end management

Rule 102

Issuers must refrain from bidding for, purchasing, or attempting to induce any person to bid for or purchase a covered security during the applicable restricted period

Rule 103

-Allows broker dealers to engage in passive market making transactions in Nasdaq securities that are the subject of a securities offering-Can occur during restricted period-Passive market maker cannot purchase the securities at a price exceeding the highest independent bid-Passive market maker's net purchases (purchases minus sales) cannot exceed 30% of daily trading volume in two full months preceding, or 200 shares

Rule 104

-Stabilization allows the underwriter to bid on a new issue in the secondary market in order to prevent a decline in price

Stabilization agent

-firm that stabilizes on behalf of the syndicate, usually the syndicate manager

Stabilization regulations

-stabilization agent must give priority to an independent bid at the same price, regardless of size-only one stabilization bid can be entered in at any one time-The stabilization agent cannot bid on the stick in addition to its stabilization bid-the entity engaged in stabilizing must give prior regulatory notice-always below public offering price-Stabilization can occur at the current best asked price or the last independent transaction price, whichever is lower-can last indefinitely but SEC must be notified each day stabilization is in effect

Principal Market

-defined as the securities market with the largest reported trading volume for that security during the prior 12 calendar months

Penalty bid

-imposed usually by lead manager against a syndicate member when offered securities allotted to the members are flipped-concessions granted to the member are forfeited-Broker dealers must notify FINRA of the intention to impose penalty bids on OTC equity securities prior to imposing the bids

SEC Rule 17a-2

-defines record-keeping requirements for stabilization-following records must be maintained for 3 years, and 2 years in easily accessable places: name and class of security, price, date and time, names and addresses

Rule 105

-prohibits anyone from purchasing securities in a public offering and simultaneously selling short the same securities

Syndicate Flashcards ionicons-v5-c