For a number of securities exams, you should understand the term “tender.” Solomon explains what the term means and how it’s used in the securities industry. Continue reading
When studying for a securities exam such as the FINRA Securities Industry Essentials (SIE) exam and the Series 7, Series 14, Series 24, Series 79, or the MSRBSeries 50, Series 52, Series 53, or Series 54, it’s likely you will encounter the word “tender.” This bit of terminology may be confusing at first. But learning the ways “tender” is commonly used in the securities industry will prevent you from getting tripped up when you see it on an exam.
You may have heard this word in connection with stock buybacks. When a company offers to buy its shares back from stockholders, the company is said to be conducting a tender offer. The stockholders who take the company up on the offer are said to be tendering their shares. A company may also make a tender offer to a different company’s shareholders, for example if it wants to acquire the other company. The word “tender” comes from the field of law. To tender is to make a binding offer to enter into an agreement. (It also has a second meaning of presenting payment, which is why your dollar bill has the phrase “legal tender” on it.) So when you tender a security you own, you are offering to sell it on terms that have been spelled out between you and the other party. In the case of a tender offer, the company must specify these terms when it makes the offer and shareholders must take them or leave them. In many cases, the U.S. Securities and Exchange Commission (SEC) requires that these terms include a window of time during which shareholders who tendered their shares may change their minds. In that case, the “binding offer” is not binding right away. Another securities-related use of “tender” is when a security gives its owner the right to sell it back to the issuer. Exercising this right is sometimes called tendering the security. For example, a municipal bond might have a tender option that gives the bondholder the right to sell it back to the municipality at a certain time for a certain price. Additionally, some variable-rate municipal securities come with a mandatory tender that is triggered when the rate is adjusted. When this happens, the bondholder must choose between tendering the bond or accepting the new rate. So if you see the word “tender” on a securities exam, it means that the owner of a security is offering to sell it under specific terms and conditions, and the owner’s ability to back out of the offer may be limited.
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If you’re studying for securities licensing exams, such as the SIE or the Series 7, then you should understand the terms “accredited investor” and “QIB.” Continue reading
If you’ve been studying for the Series 7, 6, 14, 22, 24, 65, 79, or 82, or the Securities Industry Essentials (SIE), then you’ve had to learn about Regulation D private placements and Rule 144A sales. Regulation D private placements are securities offerings that are exempt from the normal SEC registration process and in many cases are sold only to “accredited investors” or limit the involvement of investors who are not accredited. Rule 144A sales are sales of unregistered securities to large institutional investors known as “qualified institutional buyers” or QIBs for short.
You may have wondered about the difference between accredited investors and QIBs. On the surface, these may seem similar. Each refers to a category of investor with resources and/or knowledge above and beyond the average retail investor. So why not just have one standard for buyers under both Rule 144A and Regulation D? After all, the purpose of both Regulation D and Rule 144A is the same: to allow wealthier and more sophisticated investors easier access to investments that may be too risky for the average investor.
To begin to answer this question, we have to start with the fact that wealth and sophistication fall on a spectrum. Investors aren’t neatly divided between small retail investors and huge financial institutions that move millions around without blinking an eye.
You could think of accredited investors as a middle ground between these two extremes. Accredited investors are investors whose financial status or investment knowledge may give them a greater ability to handle the risks inherent in a private placement. There are many ways to qualify as an accredited investor but they all have one thing in common, which is that the SEC believes they indicate an ability to take on risks that regulators believe are unsuitable for most retail investors.
Accredited investors are investors whose financial status or investment knowledge may give them a greater ability to handle the risks inherent in a private placement.
All of the following are considered accredited investors:
Banks, broker-dealers, investment advisers, insurance companies, and investment companies
Corporations, trusts, partnerships, and LLCs with more than $5 million in assets
Most employee benefit plans with more than $5 million in assets
The issuer’s directors, executive officers, and general partners
If the issuer is a privately owned fund, (such as a hedge fund), a knowledgeable employee of the fund, which means an employee with at least 12 months’ experience working on the fund’s investment activities
Individuals with income of $200,000 in each of the last two years, or $300,000 in combination with a spouse or spousal equivalent such as a domestic partner
Individuals with a net worth more than $1 million, alone or with a spouse or spousal equivalent, not including primary residence
Individuals who hold any of these three designations in good standing:
Licensed General Securities Representative (Series 7)
Any firm where all owners are accredited investors (e.g., venture capital firms)
Any other entity with more than $5 million in investments that was not formed specifically to qualify as an accredited investor; the purpose of this category is to include entities that don’t neatly fit into any of the above categories, such as:
Native American tribes
Government bodies, including those of foreign governments
Investment funds created by government bodies
New types of business entities that may be introduced by new laws
An accredited investor that is not an individual—such as a business, governmental, or nonprofit entity—is sometimes called an institutional accredited investor (IAI).
Qualified Institutional Buyers
QIBs are a narrower group of large institutional investors. A QIB is a large institutional investor that owns at least $100 million worth of securities, not counting securities issued by its affiliates. For registered broker-dealers, the threshold is lower, just $10 million. A bank must also have a net worth of at least $25 million in order to be considered a QIB.
If a firm has discretionary authority to invest securities owned by a QIB, those securities count toward whether the firm itself is considered a QIB. So if a broker-dealer has $9 million worth of securities in its own accounts, and holds $1 million worth of securities in a discretionary account belonging to a QIB, then the broker-dealer is itself a QIB.
Common examples of QIBs include broker-dealers, insurance companies, investment companies, pension plans, and banks. However, any corporation, partnership, or LLC could qualify as a QIB. So can an IAI that owns at least $100 million in securities. Individuals can never be QIBs, regardless of their assets or financial sophistication.
Individuals can never be QIBs, regardless of their assets or financial sophistication.
Rule 144A allows QIBs to buy unregistered securities at any time, and freely trade these shares to other QIBs. In effect, QIBs can trade unregistered shares among themselves with almost the same ease as trading registered shares. Selling unregistered securities to anyone other than a QIB commonly requires a the seller to hold the securities for a period of up to 12 months.
A QIB will virtually always meet the criteria to be an accredited investor, whereas an accredited investor may fall well short of QIB status.
Over time, other securities laws and regulations have made use of these two well-known categories. For example, in 2019 the SEC gave issuers more flexibility to test the waters with potential investors before deciding whether to go through with a public offering. When deciding which investors were sophisticated enough to receive test-the-waters communications, the SEC limited these communications to QIBs and institutional accredited investors. Additionally, references to institutional accredited investors have become more common, such as when the SEC revamped its rules around integration of offerings in March 2021.
Know your QIBs from your accredited investors and be ready to pass your securities exam with Solomon Exam Prep.
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Looking to become a compliance officer for a broker-dealer? Read Solomon Exam Prep’s guide to effective preparation for the FINRA Series 14 exam. Continue reading
What does the FINRA Series 14 allow me to do?
The FINRASeries 14, also known as the Compliance Officer Exam, is a principal-level exam that qualifies you to serve as a compliance officer for a broker-dealer, including being designated as the Chief Compliance Officer (CCO) of a broker-dealer in its SEC registration. The Series 14 was designed to make sure that individuals who have day-to-day compliance responsibilities or supervise others engaged in compliance activities have the knowledge necessary to carry out their job responsibilities.
There are two ways to achieve the Compliance Officer qualification: pass the SIE, Series 7, and Series 24 exams, or pass just the Series 14 exam. In other words, by taking the Series 14, you get to take one exam instead of three. For this reason, the Series 14 is broader, deeper, and more difficult than most FINRA exams. Passing the Series 14 requires knowledge of compliance issues related to a broad range of broker-dealer activities, from the mechanics of trading to the details of the underwriting process to the publication of research reports.
You must be associated with a FINRA member firm in order to take the Series 14.
About the Exam
The Series 14 exam consists of 110 multiple-choice questions covering the nine sections of the FINRA Series 14 exam outline. FINRA updates its exam questions regularly to reflect the most current rules and regulations.
Note: Scores are rounded down to the lowest whole number (e.g. 69.9% would be a final score of 69%–not a passing score for the Series 14 exam).
Topics Covered on the Exam
FINRA divides the Series 14 exam into nine areas. These areas are organized by the types of knowledge that a compliance officer will need to know to complete various job functions.
The Series 14 exam covers many topics including the following:
Components of a satisfactory supervisory system as defined by FINRA
Rules and mechanics of the securities markets
Types of brokerage accounts
Separation of research and investment banking
Net capital requirements
Registration requirements for firms and associated persons
Business continuity plans
Customer identification and anti–money laundering compliance
Question Types on the Series 14
The Series 14 exam consists of multiple-choice questions, each with four options. You will see these question structures:
Closed Stem Format:
This item type asks a question and gives four possible answers from which to choose.
Under Rule 144, what is the holding period for stock purchased in the open market by a control person?
No holding period
Incomplete Sentence Format:
This kind of question has an incomplete sentence followed by four options that present possible conclusions.
According to NYSE rules, a block of stock is defined as:
10,000 shares, or a quantity with a market value of $150,000 or more, whichever is less.
10,000 shares, or a quantity with a market value of $200,000 or more, whichever is less.
20,000 shares, or a quantity with a market value of $200,000 or more, whichever is less.
20,000 shares, or a quantity with a market value of $200,000 or more, whichever is more.
This type requires you to recognize the one choice that is an exception among the four answer choices presented.
All of the following require the successful completion of one or more exams except a:
securities lending representative
Complex Multiple-Choice (“Roman Numeral”) Format:
For this question type, you see a question followed by two or more statements identified by Roman numerals. The four answer choices represent combinations of these statements. You must select the combination that best answers the question.
Which two of the following employees of a member organization must be registered and qualified under NYSE Rule 345?
An employee with authority to bind the firm to a contract involving securities activities
An employee who only trades for the firm’s account and does not transact business with the public
An employee with duties and responsibilities similar to those of a registered representative
A supervisor of an employee who solicits business for the firm from another member firm
I and III
I and IV
II and III
II and IV
This format is also used in items that ask you to rank a set of statements from high to low or to place a series of events in the proper sequence.
In which order, from first to last, are the following actions performed during the underwriting of an issue of corporate securities?
The holding of a due diligence meeting
Investigation and analysis of the issuer
The filing of a registration statement
Distribution of the red herring to customers giving indications of interest
I, II, III, IV
II, III, I, IV
III, I, II, IV
IV, II, III, I
Study Strategies for the Series 14
Use all the resources. The Resources folder in your Solomon student account has helpful information, including a detailed study schedule that you can print out – or use the online study schedule and check off tasks as you complete them.
Read and understand. It’s simple: read the Solomon Study Guide, carefully. The Series 14 is a knowledge test, not an IQ test. Many students read the Study Guide two or three times before taking the exam.
Take handwritten notes. As you read the Solomon Series 14 Study Guide, take handwritten notes and review your notes every day for 10 to 15 minutes. Studies show that the act of taking handwritten notes in your own words and then reviewing these notes strengthens learning and memory.
Make flashcards. Making your own flashcards is another powerful and proven method to reinforce memory and strengthen learning.
Research. Research anything you do not understand. Curiosity = learning. Students who take responsibility for their own learning by researching anything they do not understand get a deeper understanding of the subject matter and are much more likely to pass.
Answer practice questions in the Solomon Exam Simulator. When you’re done with a chapter in the Study Guide, take 4 – 6 chapter quizzes in the Solomon Exam Simulator. Use these quizzes to give yourself practice and to find out what you need to study more. Make sure you read and understand the question rationales. When you’re finished reading the entire Study Guide, review your handwritten notes once more. Then, and only then, start taking full practice exams in the Exam Simulator. Aim to pass at least six full practice exams and try to get your average score to at least an 80; when you reach that point, you are probably ready to sit for the Series 14 exam.
Take regular breaks. Studies show that if you are studying for an exam, taking regular walks in a park or natural setting significantly improves scores. Walks in urban areas or among people did not improve test scores.
Get enough sleep during the period when you are studying. Sleep consolidates learning into memory, studies show. Be good to yourself while you are studying for the Series 14: exercise, eat well, and avoid activities that will hurt your ability to get a good night’s sleep.
You can pass the FINRA Series 14! It just takes work and determination. Solomon Exam Prep is here to support you on your journey to becoming a FINRA-registered Compliance Officer.
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The Series 14 is one of the more difficult FINRA exams, so it’s a good idea to be well-prepared going into test day – Solomon Exam Prep can help! Continue reading
Do you need to know about compliance issues related to a wide range of broker-dealer activities? Do you plan to supervise others engaged in compliance activities? If you said “yes” to these questions, then you probably work for a broker-dealer and need to take the FINRASeries 14 exam. The Series 14 is one of the more difficult FINRA exams, so it’s a good idea to be well-prepared going into test day – Solomon Exam Prep can help!
Solomon is proud to announce the release of the 2nd edition of the Solomon Exam Prep Guide to the Series 14 Compliance Officer Examination. This comprehensive Solomon Study Guide is written in clear English and packed with practice questions, exercises, and visual aids for better understanding. The 2nd edition includes key updates and improvements designed to help Series 14 students prepare for their exam more effectively so that they can pass the first time.
The Solomon Series 14 Study Guide, 2nd edition, includes:
A chapter dedicated to research reports and research analysts, with new practice questions
Expanded and revised discussion of Regulation SHO vs. OTC close-out rules
Streamlined and simplified explanation of margin accounts
Expanded and revised discussion of Regulation M stabilizing activities
New material about tax rules for gifting shares to charity
New material about stock splits for restricted stock
New material about SPACs
New material about categories of issuers, such as WKSIs and EGCs
The SEC’s March rules update regarding Regulation D and Regulation A offerings
Solomon has also updated the Series 14 Online Exam Simulator to reflect the changes made to the Study Guide. The new Series 14 Exam Simulator contains over 2,400 questions written by Solomon content experts. This massive question bank means that you will encounter new questions with each practice quiz or exam you take. Plus, each question provides a robust explanation so that you learn even more as you test yourself.
I would like to say a big thank you to Solomon for helping me pass my Series 14 exam. I took this exam the first time and missed passing by few marks. I was really sad and discouraged so reached out to Jeremy Solomon and he really took the time to talk to me and provide his guidance and advice. He also provided me with additional resources immediately to help with my second attempt. I recently passed this exam. Their study material is easy to understand and the Online Exam Simulator also has a lot of questions chapter-wise which were very helpful. Their customer service has been amazing and very responsive. Thank you Solomon. I will definitely recommend Solomon for anyone planning to take this exam.
CBRE. Beverly Hills, CA
Solomon Exam Prep is committed to providing industry-leading securities licensing materials, which are continuously kept up-to date. If you are an existing Solomon Series 14 customer, the new 2nd edition will be automatically updated in your account, free of charge.
To view samples of the Solomon Series 14 Study Guide and Exam Simulator, visit the Solomon website here.
Question: A Municipal Finance Professional (MFP) hosted a $500 plate fundraiser for a governmental issuer. Does this event trigger a ban on business for two years?
A. Yes, it will trigger a ban because an MFP may not host a fundraiser.
B. Yes, it will trigger a ban because the cost per plate is above the de minimis amount.
C. No, it will not trigger a ban because the MFP did not contribute money, only time and space.
D. No, it will not trigger a ban because the MFP was holding the fundraiser, not the municipal dealer.
Correct Answer: A
Explanation: MFPs are not permitted to solicit funds for municipal issuers or their officials without triggering a two-year ban on business for their firm. Thus, holding fundraisers is not allowed. Municipal dealers are also forbidden from holding fundraisers.
To explore free samples of Solomon Exam Prep’s industry-leading online exam simulators for the SIE, Series 7, Series 14, Series 50, Series 52, Series 54, and other FINRA, MSRB, NASAA, and NFA exams, visit the Solomon website here.
This question is relevant to the Series14, 79, 82, and SIE exams.
A research analyst who works for an underwriter that participated in an IPO may not publicly discuss or write a research report about the company until __________________.
A. 30 days after the registration is filed
B. 20 days after the securities are issued
C. 10 days after the date of the IPO
D. 30 days after the date of the IPO
Correct Answer: C – 10 days after the date of the IPO
Explanation: A research analyst who works for an underwriter of an IPO must not discuss or write a research report about the company for 10 days after the IPO. This 10-day period of silence is called a ‘quiet period.’ There is no quiet period for EGCs (emerging growth companies).
To explore free samples of Solomon Exam Prep’s industry-leading online exam simulators for the SIE, Series 14, Series 79, Series 82, and many more exams, visit the Solomon website here.
This question is relevant to the Series 6, 7, 14 and 79 exams.
Which of the following is not typically part of an underwriting agreement?
A. Description of the per-share underwriting spread
B. Description of a Greenshoe option
C. Terms between syndicate members and selling group dealers
D. Terms under which the underwriter can terminate the contract
Correct Answer: C
Explanation: The underwriting agreement, which is typically signed the evening before or the morning of the effective date of a securities issue typically includes the per-share underwriting spread, an over-allotment (Greenshoe) option if granted, and the underwriter’s termination rights. It also is the document that contains the public offering price or a formula to derive it.
On November 2, the SEC announced a collection of rule changes meant to, in the announcement’s words, “harmonize, simplify, and improve” its “overly complex exempt offering framework.” Continue reading
On November 2, the SECannounceda collection of rule changes meant to, in the announcement’s words, “harmonize, simplify, and improve” its “overly complex exempt offering framework.” The changes affect Regulation A, which governs small public offerings; Regulation D, which governs private placements; and Regulation CF, which governs crowdfunding. This system of exemptions allows various small offerings to avoid the normal registration process required by the Securities Act.
The rule changes should provide a clearer choice as to which exemption is most appropriate to an issuer, based on how much the issuer needs to raise and other factors.
The changes also seek to clarify how issuers can avoid “integration” of exempt offerings. Integration is the risk that exempt offerings will be considered a single offering by the SEC, because the offerings are too similar.
Highlights of the changes include:
If two exempt offerings are conducted more than 30 days apart, they are almost always protected from integration.
An issuer can “test the waters” with potential investors before deciding which exemption it will use for an offering.Test-the-waters communications solicit interest in a potential offering before the issuer has filed anything with the SEC.Previously, an issuer could only test the waters after deciding that its potential offering would take place under Regulation A.
Caps on the amount that may be raised through these exemptions have been increased:
Crowdfunding: from $1.07 million to $5 million
Regulation A, Tier 2: from $50 million to $75 million
Regulation D, Rule 504: from $5 million to $10 million
Make “bad actor” exclusions more consistent across different exemptions.
The rule changes will take effect early next year.Until the changes take effect, securities exam questions will continue to be based on the old rules. FINRA Exams affected by these rule changes include the SIE, Series 6, Series 7, Series 14, Series 22, Series 24, Series 65, Series 66, Series 79, and Series 82.
If you’re a newly promoted principal at your firm, FINRA may have just delivered you some good news. Continue reading
If you’re a newly promoted principal at your firm, FINRA may have just delivered you some good news.
In response to current events, FINRA has adopted a temporary rule change giving many new principals until December 31st to complete their FINRA exams.
To qualify for the extension, the principal must have been promoted from representative by her firm before September 3rd.
Among the principals included in the extension are General Securities Principals (Series 24), Financial and Operations Principals (Series 27 or 28), Investment Company/Variable Contract Limited Principals (Series 26), and Compliance Officers (Series 14).
The extension also applies to one rep-level license. Operations Professionals (Series 99) hired before September 3rd also have until December 31st to pass their exams.
The Solomon Exam Prep team is always on the lookout for how current developments affect the securities industry. For more updates from our Industry News blog, use the subscribe form on this page.