Securities Industry Essentials Exam 2023 -
2024 For Dummies CHAPTER 5 - Securities
Underwriting (The Process and Team Players)
Corporate Charter (bylaws) -✔✔Needed for an entity to become a corporation, this must be filed in
the home state of the business.
What is included in a corporate charter? -✔✔names of the founders, the type of business, the
location of business, the number of shares (authorized shares) that can be issued
Securities Act of 1933 -✔✔(Also known as the Truth in Securities Act) regulates new issues of
corporate securities. It requires issuers to provide a full and fair disclosure about themselves and the
offering (Prospectus)
The Securities Exchange Act of 1934 -✔✔Established the SEC, regulates over-the-counter (OTC)
market and exchanges
The Trust Indenture Act of 1939 (TIA) -✔✔prohibits bond issues valued at more than $50 million
from being offered to investors without an indenture. As part of this act, all companies must hire a
trustee who's responsible for protecting the rights of bondholders
Trust Indenture -✔✔A written agreement that protects investors by disclosing the particulars of the
issue (coupon rate, maturity date, any collateral backing the bond, and so on)
Registering securities with the SEC -✔✔When a company wants to go public and sell stock to the
public, it has to file a registration statement and a prospectus with the SEC.
Parts of a Registration Statement -✔✔the issuer's name, address, and description of business, the
company's articles of incorporation, the names and addresses of the underwriters and all
commissions or discounts they will get from the sale directly or indirectly, the price at which the
security will be offered to the public, the names and addresses of all the company's control
personnel, estimated net proceeds of the sale from the security to be issues and what the proceeds
will be used for (including property or other businesses to be purchased if any), the company's
capitalization, complete financial statements including balance sheets and income statements, any
legal proceedings against the corporation that may affect it, any net proceeds derived from any
, security sold by the issuer in the previous two years, along with the underwriter's particulars, the
names and addresses of the attorneys who have passed on the legality of the issue and a copy of
their opinion(s) on the legality of the issue, any agreements or indentures that might affect the
securities being offered
The cooling-off period -✔✔After filing a registration statement this 20 day period begins, where the
SEC reviews the registration statement. After the period, an issue can be cleared for sale to the
public, but if amendments or additional information are needed, the SEC issues a deficiency letter. (If
the SEC finds that the registration statement is misleading, it issues a stop order to suspend the
effectiveness of the registration statement)
Does the SEC approve issues? -✔✔No, the SEC only clears the issue for sale
What is a tombstone ad? -✔✔A(n) (news) ad that is an official announcement (but not an offer) of a
new security for sale. These ads do NOT have to be filed with the SEC. They are a statement of facts
about the new issue and how to receive a prospectus. They must provide a disclaimer stating that
the advertisement isn't an offer to sell or a solicitation of an offer fr any of these securities (that offer
is only made through a prospectus)
preliminary prospectus -✔✔Underwriters and selling group members use this to obtain indications
of interest from prospective customers. It must be made available to all customers who are
interested in the new issue during the cooling-off period
Due-Diligence Meeting -✔✔Towards the end of the cooling-off period, the underwriters holds this
event that is required by law. The underwriter provides information about the issue and what the
issuer will use the proceeds of the sale for. It is designed to provide such information to syndicate
members, selling group, brokers, analysts, institutions and so on, and allows them to ask questions
When is the last time syndicate members can back out of an underwriting agreement? -✔✔Toward
the end of the cooling-off period (You can assume that if syndicate members are backing out, the
reason is most likely negative market conditions
Blue Sky Laws -✔✔state laws that apply to securities offerings and sales. For example, the issuer is
responsible for registering the security in each state in which the securities are to be sold.
Notification (Registration by filing) -✔✔the simplest form of registration for established companies.
Companies that previously sold securities in a state can renew their previous application
2024 For Dummies CHAPTER 5 - Securities
Underwriting (The Process and Team Players)
Corporate Charter (bylaws) -✔✔Needed for an entity to become a corporation, this must be filed in
the home state of the business.
What is included in a corporate charter? -✔✔names of the founders, the type of business, the
location of business, the number of shares (authorized shares) that can be issued
Securities Act of 1933 -✔✔(Also known as the Truth in Securities Act) regulates new issues of
corporate securities. It requires issuers to provide a full and fair disclosure about themselves and the
offering (Prospectus)
The Securities Exchange Act of 1934 -✔✔Established the SEC, regulates over-the-counter (OTC)
market and exchanges
The Trust Indenture Act of 1939 (TIA) -✔✔prohibits bond issues valued at more than $50 million
from being offered to investors without an indenture. As part of this act, all companies must hire a
trustee who's responsible for protecting the rights of bondholders
Trust Indenture -✔✔A written agreement that protects investors by disclosing the particulars of the
issue (coupon rate, maturity date, any collateral backing the bond, and so on)
Registering securities with the SEC -✔✔When a company wants to go public and sell stock to the
public, it has to file a registration statement and a prospectus with the SEC.
Parts of a Registration Statement -✔✔the issuer's name, address, and description of business, the
company's articles of incorporation, the names and addresses of the underwriters and all
commissions or discounts they will get from the sale directly or indirectly, the price at which the
security will be offered to the public, the names and addresses of all the company's control
personnel, estimated net proceeds of the sale from the security to be issues and what the proceeds
will be used for (including property or other businesses to be purchased if any), the company's
capitalization, complete financial statements including balance sheets and income statements, any
legal proceedings against the corporation that may affect it, any net proceeds derived from any
, security sold by the issuer in the previous two years, along with the underwriter's particulars, the
names and addresses of the attorneys who have passed on the legality of the issue and a copy of
their opinion(s) on the legality of the issue, any agreements or indentures that might affect the
securities being offered
The cooling-off period -✔✔After filing a registration statement this 20 day period begins, where the
SEC reviews the registration statement. After the period, an issue can be cleared for sale to the
public, but if amendments or additional information are needed, the SEC issues a deficiency letter. (If
the SEC finds that the registration statement is misleading, it issues a stop order to suspend the
effectiveness of the registration statement)
Does the SEC approve issues? -✔✔No, the SEC only clears the issue for sale
What is a tombstone ad? -✔✔A(n) (news) ad that is an official announcement (but not an offer) of a
new security for sale. These ads do NOT have to be filed with the SEC. They are a statement of facts
about the new issue and how to receive a prospectus. They must provide a disclaimer stating that
the advertisement isn't an offer to sell or a solicitation of an offer fr any of these securities (that offer
is only made through a prospectus)
preliminary prospectus -✔✔Underwriters and selling group members use this to obtain indications
of interest from prospective customers. It must be made available to all customers who are
interested in the new issue during the cooling-off period
Due-Diligence Meeting -✔✔Towards the end of the cooling-off period, the underwriters holds this
event that is required by law. The underwriter provides information about the issue and what the
issuer will use the proceeds of the sale for. It is designed to provide such information to syndicate
members, selling group, brokers, analysts, institutions and so on, and allows them to ask questions
When is the last time syndicate members can back out of an underwriting agreement? -✔✔Toward
the end of the cooling-off period (You can assume that if syndicate members are backing out, the
reason is most likely negative market conditions
Blue Sky Laws -✔✔state laws that apply to securities offerings and sales. For example, the issuer is
responsible for registering the security in each state in which the securities are to be sold.
Notification (Registration by filing) -✔✔the simplest form of registration for established companies.
Companies that previously sold securities in a state can renew their previous application
