Bringing New Issues to Market — Review for the Series 7 Exam

By Steven M. Rice

Prior to corporations “going public,” they must register and have a way of distributing their securities. The Series 7 exam tests your ability to understand the registration process and the entities involved in bringing new issues to market.

Read the questions and answer choices carefully and make sure that you

  • Watch out for words that can change the answer you’re looking for, such as EXCEPT, NOT, ALWAYS, and so on.

  • Recognize that there’s a difference between exempt securities and exempt transactions.

  • If you’re not certain of the correct answer, try to eliminate any answers that you can. Doing so may make the difference between passing and failing.

Practice questions

  1. The cooling-off period for a new issue lasts approximately how many days?

    A. 20

    B. 30

    C. 40

    D. 60

    Answer: A. 20

    The cooling-off period is when the Securities and Exchange Commission (SEC) is reviewing a company’s registration statement before bringing new issues to market. The cooling-off period typically lasts about 20 days.

  2. What is the underwriting arrangement that allows an issuer whose stock is already trading publicly to time the sales of an additional issue?

    A. shelf registration

    B. a standby underwriting

    C. a negotiated offering

    D. an Eastern account underwriting

    Answer: A. shelf registration

    A shelf registration allows the issuer to sell securities registered with the Securities and Exchange Commission (SEC) for up to three years from the effective (release) date. A shelf registration allows an issuer to time the sale of its securities with market conditions.

  3. Which of the following securities acts covers the registration and disclosure requirements of new issues?

    A. the Securities Act of 1933

    B. the Securities Exchange Act of 1934

    C.the Trust Indenture Act of 1939

    D. all of the above

    Answer: A. the Securities Act of 1933

    The Securities Act of 1933 covers the sale of new issues (primary market). The Securities Act of 1933 was designed to provide more transparency in financial statements and to curb fraudulent activities of issuers. The Securities Act of 1933 also goes by a myriad of other names, such as the Paper Act, New Issues Act, Full Disclosure Act, and Truth in Securities Act.