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Series 24 Study Guide

This document provides information to study for the Series 24 exam, including definitions of key terms related to initial public offerings (IPOs) and follow-on offerings. It discusses the roles and responsibilities of the syndicate manager in underwriting deals. It also outlines the main types of underwriting agreements (firm commitment, best efforts, all-or-none, standby underwriting, mini-max) and notes that market out clauses are common. Pricing occurs the night before the offering. The SEC does not approve deals but will be quiet if satisfied. Managers overallocate shares and may have a short position initially to stabilize the offering.

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Akash Tewari
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1K views63 pages

Series 24 Study Guide

This document provides information to study for the Series 24 exam, including definitions of key terms related to initial public offerings (IPOs) and follow-on offerings. It discusses the roles and responsibilities of the syndicate manager in underwriting deals. It also outlines the main types of underwriting agreements (firm commitment, best efforts, all-or-none, standby underwriting, mini-max) and notes that market out clauses are common. Pricing occurs the night before the offering. The SEC does not approve deals but will be quiet if satisfied. Managers overallocate shares and may have a short position initially to stabilize the offering.

Uploaded by

Akash Tewari
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Series 24 Study Guide

Akash
IPO Scenario
Follow on = still providing primary shares
4/5 years down the road, the company = a
Well-known seasoned Issuers (WKSI)
• The company many do a
shelf distribution where the
company register the shares
they intend to over a 3 year
period by issuing a Form S-3
• These are primary shares
• Actively traded stock
These terms are
used
interchangeably
• Primary distribution can be both an IPO or a follow
on offering
If a client wants to by on margin a combination offering they need to make sure they are buying only the
secondary offering since primary shares cannot be bought on margin
What does the syndicate manager do?
• Forms the underwriting syndicate
• Leads the stabilization in the aftermarket if needed
• Appoints the selling group
• Allocates the issue among selling syndicate members
• May release the underwriting syndicate from its obligation to offer the
stock at a fixed price and then the selling group could sell the shares at
whatever price can be realized – the only one that may do this!
• Receives the management fee which is pat of the gross spread
• Acts as an agent for the syndicate
The pricing also
happens on the
night before

This is for
corporate
agreements
1. Firm Commitment – one of the most risky
• when the syndicate buy the entire commitment themselves and put in into its own inventory and then resells it into the
public. Here the syndicates acts in a dealer capacity
2. Best Efforts Agreement
• The syndicate acts as an agent in trying to distribute a new issue to the public on the company’s behalf BUT does not put the
new issue into its own inventory
3. All or none
• The offering is canceled unless it can be completely sold by the specified closing date of the offering. There is always an
escrow account established in case the issue is not completely sold to provide for prompt return of investor funs. The
syndicate acts in an agency capacity
4. Standby Underwriting - Used only with a rights offering (offered to existing shareholders first)
• The syndicate agrees to purchase and distribute any part of an issue not purchased by stockholders who have received
preemptive rights. Used only with a rights offering. The syndicate acts in a dealer capacity
5. Mini-Max Agreement – Also a best efforts agreement
• Is a best efforts agreement under which if a minimum (mini) percentage is distributed, the issue is not canceled even if the
entire issue (maxi) is not distributed
• Market Out Clause – All 5 of these agreements may have this
• An escape claque that relives an underwriter of the responsibility to sell shares due to an adverse change in economic
conditions or market conditions during the cooling off period
Test will try an make it seem
that the company pays for the
advertising costs BUT really
the underwriter does!!
Previously it
used to be 1
year
SEC does NOT care about
estimate, ONLY look at
estimates during pricing. But
we DO NOT include estimate
in the actual filing!!!
• If Q asks about % of the spread
– that = compensation
• If Q asks about what’s the
biggest $ part of the spread
being paid out –that’s the
selling group concession
SEC NEVER approves or
disapproves anything, if they
are satisfied, they are just
quiet.
Manager will always overallocated shares by 15%, will go
into issue with a short position. If offering is going well and
does not have to stabilize, the green shoe comes into play

SRO is interchangeable with FINRA


PM’s can’t buy the shares for
themselves into their PA’s
Sell Side

Buy Side
So what would be allowed?
This is key – the shares are not
being directed to the public!!!
NOT IN THEIR INVENTORY BUT IN THEIR INVESTMENT ACCOUNT
Private placement
of a member firm
Information that must be filed to the FINRA
Committee

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