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

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The best answer is C.
SEC Regulation M (Rules 101-105) covers secondary market activities related to registered public offerings, and addresses such items as prohibitions or limits on syndicate members buying the stock in the secondary market during the 20-day cooling off period (this is for add-on offerings); stabilization rules (because stabilizing bids are placed in the secondary market); and also, under Rule 105, addresses a rather nasty market manipulation that occurred in secondary offerings.

Prior to the adoption of this rule, a common trading practice was for overly aggressive independent traders to short that stock in the market - pushing the price down during the 20-day cooling off period. The fall in the market price would force the underwriters to lower the Public Offering Price of the issue. Thus, when registration became effective, the independent trading firms could buy the issue from the underwriters at the lower P.O.P., cover their short positions, and have a nice profit. The problem was, however, that this activity was clearly manipulative. The SEC took a dim view of this activity, and under Rule 105, prohibits broker-dealers from purchasing shares of stock from the underwriters at the offering price to cover short positions established within 5 business days of the effective date.

A client account shows the following activity:
Purch Date Position Price
1/20/2021 200 ABC $42
1/22/2021 300 XYZ $38
1/29/2021 400 DEF $57

Sale Date Position Price
3/21/2021 100 XYZ $72
3/24/2021 200 DEF $55

As of the current date, the market value of:
ABC is $50 per share;
XYZ is at $48 per share and
DEF is at $56 per share.

Based on this activity, as of the current date, the customer has a:

A. realized gain of $3,000 and an unrealized gain of $7,400

B. realized gain of $7,400 and an unrealized gain of $3,000

C. realized gain of $3,000 and an unrealized gain of $3,400

D. realized gain of $3,400 and an unrealized gain of $3,000

The best answer is C.

The customer bought 200 shares of ABC at $42 and still holds the position. Since ABC is now valued at $50, there is an $8 per share unrealized gain x 200 shares = $1,600 unrealized gain on ABC.

The customer bought 300 shares of XYZ at $38 per share. Then the customer sold 100 XYZ shares at $72, for a $34 per share realized gain x 100 shares = $3,400 realized gain on XYZ. The remaining 200 shares of XYZ are now valued at $48 per share, for a $10 per share unrealized gain x 200 shares = $2,000 unrealized gain on XYZ.

The customer bought 400 shares of DEF at $57 per share. Then the customer sold 200 DEF shares at $55, for a $2 per share realized loss x 200 shares = $400 realized loss. The remaining 200 DEF shares are now valued at $56 per share, for a $1 unrealized loss per share x 200 shares = -$200 unrealized loss on DEF.
The total realized gain or loss is: $3,400 realized gain on ABC - $400 realized loss on DEF = $3,000 net realized gain.

The total unrealized gain or loss is: $1,600 unrealized gain on ABC + $2,000 unrealized gain or XYZ - $200 unrealized loss of DEF = $3,400 unrealized gain.

A customer calls her registered representative and says the following: "I'm looking for a safe investment for $100,000 that I have, that will give me a moderate level of income. I have 2 children, ages 12 and 13, and I will need to use these monies to pay for their college education, starting in 5 years." All of the following recommendations would be suitable EXCEPT:

A Treasury bond mutual fund

B Treasury bonds with 5, 6, 7, 8, and 9 year maturities

C GNMA pass-through certificates with 5, 6, 7, 8, and 9 year maturities

D FNMA debentures with 5, 6, 7, 8, and 9 year maturities

The best answer is B.

Rule 144 includes a "de minimis" exemption, permitting the sale every 3 months of 5,000 shares or less, worth $50,000 or less, without having to file a Form 144.

The transfer agent is authorized by the SEC to transfer the shares without a copy of the Form 144.

Because this sale is 5,000 shares @ $8 = $40,000, it can be done under this exemption.

Rule 144 applies to the public resale of restricted (unregistered private placement) stock and to the sale of registered control shares.

Control shares are registered shares owned by a key officer or director.

These do not have to complete the 6 month holding period requirement because they are registered, but to sell them, the officer must file a Form 144 Notice of Sale and is subject to the rule's volume restrictions.

The best answer is C.
This customer with a low risk tolerance is looking for preservation of capital and income in retirement.

While long-term investment grade corporate bonds will give interest income, they are also highly susceptible to interest rate risk - if market interest rates go up, long time bond prices fall faster than short term bond prices - so this does not meet the customer's other objective of preservation of capital.

Preferred stocks of blue chip companies will also provide dividend income that will be taxed at a preferential rate (15%) for this customer in a high federal tax bracket.
However, preferred stock has no stated maturity, so it will pay for as long as the company is in business.
This is the longest maturity, and as a fixed income security, it is subject to the highest level of interest rate risk. So this also does not meet the customer's objective of preservation of capital.

Tax-free municipal bonds would be suitable for a customer is such a high tax bracket.
Pre-refunded municipal bonds have been escrowed by the issuer with Treasury or Agency securities to be retired at the near-term call date.
These are the safest municipal bonds (AAA rated) and also the shortest maturity of the choices offered.
This meets the customer's 2 objectives - income and safety or principal, because the bond's life has been shortened to the nearest call date.

In contrast, a municipal bond that has been escrowed to maturity with Treasury or Agency securities is safe (AAA rated), but it will be redeemed at maturity, not at an earlier call date. It will have a higher level of interest rate risk than a pre-refunded bond.

What can be given to a client during the 20 day cooling off period for a new securities offering quizlet?

Which of the following would be allowed during the cooling off?

Which of the following are prohibited during the 20 day cooling off period for a new issue in registration?

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