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Question 1 of 10
1. Question
Regarding Non-Cash Compensation, which of the following is not the meaning of the terms “compensation,” “non-cash compensation” and “offeror”?
Correct
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Non-Cash Compensation: Definitions
The terms “compensation,” “non-cash compensation” and “offeror” as used in this paragraph (i) shall have the following meanings:
(A) “Compensation” shall mean cash compensation and non-cash compensation.
(B) “Non-cash compensation” shall mean any form of compensation received in connection with the sale and distribution of securities that is not cash compensation, including but not limited to merchandise, gifts and prizes, travel expenses, meals and lodging.
(C) “Offeror” shall mean an issuer, an adviser to an issuer, an underwriter and any affiliated person of such entities.Incorrect
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Non-Cash Compensation: Definitions
The terms “compensation,” “non-cash compensation” and “offeror” as used in this paragraph (i) shall have the following meanings:
(A) “Compensation” shall mean cash compensation and non-cash compensation.
(B) “Non-cash compensation” shall mean any form of compensation received in connection with the sale and distribution of securities that is not cash compensation, including but not limited to merchandise, gifts and prizes, travel expenses, meals and lodging.
(C) “Offeror” shall mean an issuer, an adviser to an issuer, an underwriter and any affiliated person of such entities. -
Question 2 of 10
2. Question
Regarding Non-Cash Compensation: Restrictions on Non-Cash Compensation, which of the following statement(s) is/are true for non-cash compensation arrangements?
Correct
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Non-Cash Compensation: Restrictions on Non-Cash Compensation
In connection with the sale and distribution of a public offering of securities, no member or person associated with a member shall directly or indirectly accept or make payments or offers of payments of any non-cash compensation, except as provided in this provision. Non-cash compensation arrangements are limited to the following:
(A) Gifts that do not exceed an annual amount per person fixed periodically by the Board of Governors1 and are not preconditioned on achievement of a sales target.
(B) An occasional meal, a ticket to a sporting event or the theater, or comparable entertainment which is neither so frequent nor so extensive as to raise any question of propriety and is not preconditioned on achievement of a sales target.
(C) Payment or reimbursement by offerors in connection with meetings held by an offeror or by a member for the purpose of training or education of associated persons of a member,
(D) Non-cash compensation arrangements between a member and its associated persons or a company that controls a member company and the member’s associated persons, provided that no unaffiliated non-member company or other unaffiliated member directly or indirectly participates in the member’s or non-member’s organization of a permissible non-cash compensation arrangement.Incorrect
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Non-Cash Compensation: Restrictions on Non-Cash Compensation
In connection with the sale and distribution of a public offering of securities, no member or person associated with a member shall directly or indirectly accept or make payments or offers of payments of any non-cash compensation, except as provided in this provision. Non-cash compensation arrangements are limited to the following:
(A) Gifts that do not exceed an annual amount per person fixed periodically by the Board of Governors1 and are not preconditioned on achievement of a sales target.
(B) An occasional meal, a ticket to a sporting event or the theater, or comparable entertainment which is neither so frequent nor so extensive as to raise any question of propriety and is not preconditioned on achievement of a sales target.
(C) Payment or reimbursement by offerors in connection with meetings held by an offeror or by a member for the purpose of training or education of associated persons of a member,
(D) Non-cash compensation arrangements between a member and its associated persons or a company that controls a member company and the member’s associated persons, provided that no unaffiliated non-member company or other unaffiliated member directly or indirectly participates in the member’s or non-member’s organization of a permissible non-cash compensation arrangement. -
Question 3 of 10
3. Question
Regarding Non-Cash Compensation: Restrictions on Non-Cash Compensation, which of the following is untrue when payment or reimbursement by offerors in connection with meetings held by an offeror or by a member for the purpose of training or education of associated persons of a member?
Correct
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Non-Cash Compensation: Restrictions on Non-Cash Compensation
Payment or reimbursement by offerors in connection with meetings held by an offeror or by a member for the purpose of training or education of associated persons of a member, provided that:
(i) associated persons obtain the member’s prior approval to attend the meeting and attendance by a member’s associated persons is not conditioned by the member on the achievement of a sales target or any other incentives pursuant to a non-cash compensation arrangement permitted by paragraph (h)(2)(D);
(ii) the location is appropriate to the purpose of the meeting, which shall mean an office of the issuer or affiliate thereof, the office of the member, or a facility located in the vicinity of such office, or a regional location with respect to regional meetings;
(iii) the payment or reimbursement is not applied to the expenses of guests of the associated person; and
(iv) the payment or reimbursement by the issuer or affiliate of the issuer is not conditioned by the issuer or an affiliate of the issuer on the achievement of a sales target or any other non-cash compensation arrangement permitted by paragraph (h)(2)(D).Incorrect
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Non-Cash Compensation: Restrictions on Non-Cash Compensation
Payment or reimbursement by offerors in connection with meetings held by an offeror or by a member for the purpose of training or education of associated persons of a member, provided that:
(i) associated persons obtain the member’s prior approval to attend the meeting and attendance by a member’s associated persons is not conditioned by the member on the achievement of a sales target or any other incentives pursuant to a non-cash compensation arrangement permitted by paragraph (h)(2)(D);
(ii) the location is appropriate to the purpose of the meeting, which shall mean an office of the issuer or affiliate thereof, the office of the member, or a facility located in the vicinity of such office, or a regional location with respect to regional meetings;
(iii) the payment or reimbursement is not applied to the expenses of guests of the associated person; and
(iv) the payment or reimbursement by the issuer or affiliate of the issuer is not conditioned by the issuer or an affiliate of the issuer on the achievement of a sales target or any other non-cash compensation arrangement permitted by paragraph (h)(2)(D). -
Question 4 of 10
4. Question
Regarding Non-Cash Compensation: Restrictions on Non-Cash Compensation, which of the following is untrue when payment or reimbursement by offerors in connection with meetings held by an offeror or by a member for the purpose of training or education of associated persons of a member?
Correct
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Non-Cash Compensation: Restrictions on Non-Cash Compensation
Payment or reimbursement by offerors in connection with meetings held by an offeror or by a member for the purpose of training or education of associated persons of a member, provided that:
(i) associated persons obtain the member’s prior approval to attend the meeting and attendance by a member’s associated persons is not conditioned by the member on the achievement of a sales target or any other incentives pursuant to a non-cash compensation arrangement permitted by paragraph (h)(2)(D);
(ii) the location is appropriate to the purpose of the meeting, which shall mean an office of the issuer or affiliate thereof, the office of the member, or a facility located in the vicinity of such office, or a regional location with respect to regional meetings;
(iii) the payment or reimbursement is not applied to the expenses of guests of the associated person; and
(iv) the payment or reimbursement by the issuer or affiliate of the issuer is not conditioned by the issuer or an affiliate of the issuer on the achievement of a sales target or any other non-cash compensation arrangement permitted by paragraph (h)(2)(D).Incorrect
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Non-Cash Compensation: Restrictions on Non-Cash Compensation
Payment or reimbursement by offerors in connection with meetings held by an offeror or by a member for the purpose of training or education of associated persons of a member, provided that:
(i) associated persons obtain the member’s prior approval to attend the meeting and attendance by a member’s associated persons is not conditioned by the member on the achievement of a sales target or any other incentives pursuant to a non-cash compensation arrangement permitted by paragraph (h)(2)(D);
(ii) the location is appropriate to the purpose of the meeting, which shall mean an office of the issuer or affiliate thereof, the office of the member, or a facility located in the vicinity of such office, or a regional location with respect to regional meetings;
(iii) the payment or reimbursement is not applied to the expenses of guests of the associated person; and
(iv) the payment or reimbursement by the issuer or affiliate of the issuer is not conditioned by the issuer or an affiliate of the issuer on the achievement of a sales target or any other non-cash compensation arrangement permitted by paragraph (h)(2)(D). -
Question 5 of 10
5. Question
Regarding Public Offerings of Securities With Conflicts of Interest: Requirements for Participation in Certain Public Offerings, which of the following statement(s) is/are true?
Correct
5121. Public Offerings of Securities With Conflicts of Interest
Requirements for Participation in Certain Public Offerings
No member that has a conflict of interest may participate in a public offering unless the offering complies with subparagraphs (1) or (2).
(1) There must be prominent disclosure of the nature of the conflict of interest in the prospectus, offering circular or similar document for the public offering, and one of the following conditions must be met:
(A) the member(s) primarily responsible for managing the public offering does not have a conflict of interest, is not an affiliate of any member that does have a conflict of interest, and meets the requirement of paragraph (f)(12)(E);
(B) the securities offered have a bona fide public market; or
(C) the securities offered are investment grade rated or are securities in the same series that have equal rights and obligations as investment grade rated securities.
(2) (A) A qualified independent underwriter has participated in the preparation of the registration statement and the prospectus, offering circular, or similar document and has exercised the usual standards of “due diligence” in respect thereto; and
(B) there must be prominent disclosure in the prospectus, offering circular or similar document for the offering of:Incorrect
5121. Public Offerings of Securities With Conflicts of Interest
Requirements for Participation in Certain Public Offerings
No member that has a conflict of interest may participate in a public offering unless the offering complies with subparagraphs (1) or (2).
(1) There must be prominent disclosure of the nature of the conflict of interest in the prospectus, offering circular or similar document for the public offering, and one of the following conditions must be met:
(A) the member(s) primarily responsible for managing the public offering does not have a conflict of interest, is not an affiliate of any member that does have a conflict of interest, and meets the requirement of paragraph (f)(12)(E);
(B) the securities offered have a bona fide public market; or
(C) the securities offered are investment grade rated or are securities in the same series that have equal rights and obligations as investment grade rated securities.
(2) (A) A qualified independent underwriter has participated in the preparation of the registration statement and the prospectus, offering circular, or similar document and has exercised the usual standards of “due diligence” in respect thereto; and
(B) there must be prominent disclosure in the prospectus, offering circular or similar document for the offering of: -
Question 6 of 10
6. Question
Regarding Public Offerings of Securities With Conflicts of Interest: Escrow of Proceeds; Net Capital Computation, which of the following statement(s) is true?
Correct
5121. Public Offerings of Securities With Conflicts of Interest
Escrow of Proceeds; Net Capital Computation
Any member offering its securities pursuant to this Rule shall immediately notify FINRA when the public offering has been terminated and settlement effected and shall file with FINRA a computation of its net capital computed pursuant to the provisions of SEA Rule 15c3-1 (the net capital rule) as of the settlement date. If at such time its net capital ratio as so computed is more than 10:1 or, net capital fails to equal 120 percent of the minimum dollar amountIncorrect
5121. Public Offerings of Securities With Conflicts of Interest
Escrow of Proceeds; Net Capital Computation
Any member offering its securities pursuant to this Rule shall immediately notify FINRA when the public offering has been terminated and settlement effected and shall file with FINRA a computation of its net capital computed pursuant to the provisions of SEA Rule 15c3-1 (the net capital rule) as of the settlement date. If at such time its net capital ratio as so computed is more than 10:1 or, net capital fails to equal 120 percent of the minimum dollar amount -
Question 7 of 10
7. Question
Regarding Public Offerings of Securities With Conflicts of Interest: Discretionary Accounts, which of the following statement(s) is/are true?
Correct
5121. Public Offerings of Securities With Conflicts of Interest
Discretionary Accounts
Notwithstanding Rule 3260, no member that has a conflict of interest may sell to a discretionary account any security with respect to which the conflict exists, unless the member has received specific written approval of the transaction from the account holder and retains documentation of the approval in its records.Incorrect
5121. Public Offerings of Securities With Conflicts of Interest
Discretionary Accounts
Notwithstanding Rule 3260, no member that has a conflict of interest may sell to a discretionary account any security with respect to which the conflict exists, unless the member has received specific written approval of the transaction from the account holder and retains documentation of the approval in its records. -
Question 8 of 10
8. Question
Regarding Public Offerings of Securities With Conflicts of Interest: Application of Rule 5110, which of the following statement(s) is/are true?
Correct
5121. Public Offerings of Securities With Conflicts of Interest: Application of Rule 5110
Any public offering subject to paragraph (a)(2) is subject to Rule 5110, whether or not the offering would be otherwise exempted from the filing or other requirements of that rule.Incorrect
5121. Public Offerings of Securities With Conflicts of Interest: Application of Rule 5110
Any public offering subject to paragraph (a)(2) is subject to Rule 5110, whether or not the offering would be otherwise exempted from the filing or other requirements of that rule. -
Question 9 of 10
9. Question
Regarding Requests for Exemption from Rule 5121, which of the following statement(s) is/are correct?
Correct
5121. Public Offerings of Securities With Conflicts of Interest: Requests for Exemption from Rule 5121
Pursuant to the Rule 9600 Series, FINRA may in exceptional and unusual circumstances, taking into consideration all relevant factors, exempt a member unconditionally or on specified terms from any or all of the provisions of this Rule that it deems appropriate.Incorrect
5121. Public Offerings of Securities With Conflicts of Interest: Requests for Exemption from Rule 5121
Pursuant to the Rule 9600 Series, FINRA may in exceptional and unusual circumstances, taking into consideration all relevant factors, exempt a member unconditionally or on specified terms from any or all of the provisions of this Rule that it deems appropriate. -
Question 10 of 10
10. Question
Regarding Public Offerings of Securities With Conflicts of Interest: Definitions, which of the following meanings is/are not relevant?
Correct
5121. Public Offerings of Securities With Conflicts of Interest: Definitions
The definitions in Rule 5110 are incorporated herein by reference. For purposes of this Rule, the following words shall have the stated meanings:
(1) Affiliate
The term “affiliate” means an entity that controls, is controlled by or is under common control with a member.
(2) Beneficial Ownership
The term “beneficial ownership” means the right to the economic benefits of a security.
(3) Bona Fide Public Market
The term “bona fide public market” means a market for a security of an issuer that has been reporting under the Exchange Act for at least 90 days and is current in its reporting requirements, and whose securities are traded on a national securities exchange with an Average Daily Trading Volume (as provided by SEC Regulation M) of at least $1 million, provided that the issuer’s common equity securities have a public float value of at least $150 million.
(4) Common Equity
The term “common equity” means the total number of shares of common stock outstanding without regard to class, whether voting or non-voting, convertible or non-convertible, exchangeable or non-exchangeable, redeemable or non-redeemable, as reflected on the consolidated financial statements of the company.Incorrect
5121. Public Offerings of Securities With Conflicts of Interest: Definitions
The definitions in Rule 5110 are incorporated herein by reference. For purposes of this Rule, the following words shall have the stated meanings:
(1) Affiliate
The term “affiliate” means an entity that controls, is controlled by or is under common control with a member.
(2) Beneficial Ownership
The term “beneficial ownership” means the right to the economic benefits of a security.
(3) Bona Fide Public Market
The term “bona fide public market” means a market for a security of an issuer that has been reporting under the Exchange Act for at least 90 days and is current in its reporting requirements, and whose securities are traded on a national securities exchange with an Average Daily Trading Volume (as provided by SEC Regulation M) of at least $1 million, provided that the issuer’s common equity securities have a public float value of at least $150 million.
(4) Common Equity
The term “common equity” means the total number of shares of common stock outstanding without regard to class, whether voting or non-voting, convertible or non-convertible, exchangeable or non-exchangeable, redeemable or non-redeemable, as reflected on the consolidated financial statements of the company.