What is a SPAC and should you care about it for the FINRA Series 79 exam?

SPACs have grown by leaps and bounds in recent years, and the growth is only accelerating. What will this mean for regulations and the Series 79 exam? Continue reading

It sounds like a securities-industry riddle: what do you call a blank check company with no hard assets that holds a multimillion dollar IPO? But the answer is very real: SPACs (special purposes acquisition companies) are an alternative to traditional IPOs that have exploded in popularity.

What’s a “blank check company?”  A blank check company is an exchange-listed shell company that, according to the SEC, has “no specific business plan or…its business plan is to engage in a merger or acquisition.”

The purpose of a SPAC is to raise money to acquire a privately held company. Think of it as crowdfunding on a massive scale. First, the SPAC sells shares of itself in an IPO. Then it uses the IPO proceeds to fund a merger between itself and a target company. When the merger is complete, the SPAC’s shareholders become shareholders in the target company. Investors buy SPAC shares based on their confidence that the SPAC’s management will complete the merger, and the anticipated value of the shares after the merger.

SPACs have grown by leaps and bounds in recent years, and the growth is only accelerating. The amount raised by SPAC IPOs in 2020 more than quadrupled the amount they raised in 2019. According to Reuters, the total value of SPAC mergers in 2021 has already exceeded the total size of SPAC mergers for all of 2020.

What does this mean for regulations?

As investor excitement around SPACs has heated up, there are indications that the SEC is beginning to take a closer look at this new kind of IPO. On March 10th, the SEC issued a warning against investing based on celebrity involvement with a SPAC. Celebrities with high-profile ties to SPACs include A-Rod, Shaquille O’Neal, Serena Williams, and former Speaker of the House Paul Ryan. Acting SEC Chair Allison Herren Lee recently warned of “more and more evidence on the risk side of the equation for SPACs as we see studies showing that their performance for most investors doesn’t match the hype.”

While none of this guarantees that new rules for SPACs are around the corner, it does make it more likely that FINRA’s Series 79 investment banking exam may begin to include mention of SPACs. They are a topic that investment bankers are increasingly likely to encounter in practice, and therefore are increasingly likely to be viewed as fair game for the exam.

Solomon Exam Prep is ahead of the curve with new material in our Series 79 Study Guide. Series 79 customers can find material on SPACs now included in the online edition of Solomon Study Guide.

Potentially testable points about SPACs include:
  • SPAC are formed by “sponsors,” commonly institutional investors or high net worth individuals, who are compensated with both a portion of the IPO proceeds, as well as an equity stake in the SPAC of up to 20%.
  • SPAC’s typically avoid committing to merge with a specific company, even if the SPAC was formed with the intention of targeting that company. The SPAC’s management may respond to changing market conditions by choosing a different target, subject to approval from the SPAC’s shareholders.
  • After a SPAC goes public, its shares trade freely on exchanges even before it completes a merger.
  • A SPAC must hold at least 85% of proceeds from its IPO in an escrow account.
  • The SPAC commits to return investor funds if it fails to complete a merger within a specified timeframe.
  • As a blank check company with no business operations of its own, a SPAC cannot take advantage of certain options available to more established securities issuers. For example, a SPAC is not permitted to make an electronic version of its road show presentation.

Solomon Exam Prep will continue to follow industry trends and how they affect your licensing exams.

Solomon Exam Prep has helped thousands pass their securities licensing exams, including the SIE and the Series 3, 6, 7, 14, 22, 24, 26, 27, 28, 50, 51, 52, 53, 54, 63, 65, 66, 79, 82 and 99.

March Study Question of the Month

This month’s study question from the Solomon Online Exam Simulator question database is now available. Continue reading

This month’s study question from the Solomon Online Exam Simulator question database is now available.

***Comment below or submit your answer to info@solomonexamprep.com to be entered to win a $20 Starbucks gift card.***

This question is relevant to the Series 14, 79, 82, and SIE exams.

Question:

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 __________________.

Answer Choices:

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.

February Study Question of the Month

This month’s study question from the Solomon Online Exam Simulator question database is now available. Continue reading

This month’s study question from the Solomon Online Exam Simulator question database is now available.

***Comment below or submit your answer to info@solomonexamprep.com to be entered to win a $20 Starbucks gift card.***

This question is relevant to the Series 7, 14, 51, 52, and 53 exams.

Question:

MSRB Rule G-38 states that a broker-dealer may not pay any person to solicit municipal securities business on its behalf who is not an affiliated person of the firm. For the purposes of the rule, an affiliated person is:

Answer Choices:

A. Any person who works for the firm 

B. Only a partner, director, or officer of the firm

C. Only a registered employee of the firm

D. Only an unregistered clerical or ministerial employee of the firm

Correct Answer: A – any person who works for the firm

Explanation: An affiliated person is anyone who is a partner, director, officer, employee, or registered person of the broker-dealer.

Online Testing Now Available for the Series 3 Exam

For those planning to sit for the National Commodity Futures Exam, or Series 3, FINRA is now offering candidates the option to take the exam online via Prometric’s ProProctor platform. Continue reading

For those planning to sit for the National Commodity Futures Exam, or Series 3, FINRA is now offering candidates the option to take the exam online via Prometric’s ProProctor platform. 

Since mid-2020, FINRA has offered online delivery of certain securities exams via the ProProctor remote service, allowing you to choose where and when to take your exam.

The ProProctor platform features an easy-to-use interface and 24/7 proctor support for a smooth test-taking experience. But it’s a good idea to be aware of the technical and security requirements before sitting for your exam remotely. 

In addition to the Series 3 and other NFA exams, these exams can be taken online: the Securities Industry Essentials (SIE), Series 6, Series 7, Series 63, Series 65, and Series 66 exams. 

For detailed information about taking exams online, including technical and procedural specifications, visit FINRA’s information page: https://www.finra.org/registration-exams-ce/qualification-exams/testonline  

And to read a first-hand description of the remote testing experience, see this blog post from August 13, 2020: https://solomonexamprep.com/news/finra/know-what-to-expect-testing-online-with-proproctor-from-prometric/

SEC Overhauls Marketing Rules for Investment Advisers

On December 22, the SEC announced a major rule change that it hopes will clarify what investment advisers can and can’t do when it comes to marketing their services. Continue reading

On December 22, the SEC announced a major rule change that it hopes will clarify what investment advisers are permitted to do when it comes to marketing their services.

The SEC cited the need to adapt its rules to changing communications technology. “The marketing rule reflects important updates to the traditional advertising and solicitation regimes, which have not been amended for decades, despite our evolving financial markets and technology,” said SEC Chairman Jay Clayton in announcing the overhaul.

The SEC’s current rules about advertisements and paying for client referrals will be consolidated into a single rule. Paying a third party to solicit new clients will now be considered a form of advertising, as will paid testimonials and endorsements and some one-on-one communications with clients.

Currently, each of these activities is subject to a separate set of requirements. By bringing them under the definition of advertising, the new rule replaces this complex system with a set of six broad principles that all forms of IA advertising must adhere to:

  1. No untrue statements or omissions of material facts
  2. No unsubstantiated statements
  3. No statements that imply something untrue or misleading
  4. When the benefits of the IA’s services are discussed, there must be a fair and balanced discussion of material risks
  5. “Anti-cherry picking”: the IA must present its track record in a fair and balanced way
  6. No advertisements that are otherwise materially misleading (intended as a “catch-all provision” for misleading advertising not covered above)

The rule change is expected to take effect sometime in the spring of 2021 and will affect the Series 65 and Series 66 exams.

January Study Question of the Month

This month’s study question from the Solomon Online Exam Simulator question database is now available. Continue reading

This month’s study question from the Solomon Online Exam Simulator question database is now available.

***Comment below or submit your answer to info@solomonexamprep.com to be entered to win a $20 Starbucks gift card.***

This question is relevant to the SIE, Series 6, 7, 22, 24, and 82 exams.

Question:

Which of the following people would be considered a specified adult?

Answer Choices:

A. A 16 year old with autism

B. A 30 year old

C. A 60 year old with a heart condition

D. An 18 year old in a coma

Correct Answer: D

Explanation: A specified adult is a natural person age 65 and older or a natural person age 18 and older who the member firm reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests.

December Study Question of the Month

This month’s study question from the Solomon Online Exam Simulator question database is now available. Continue reading

This month’s study question from the Solomon Online Exam Simulator question database is now available.

***Comment below or submit your answer to info@solomonexamprep.com to be entered to win a $20 Starbucks gift card.***

This question is relevant to the Series 6, 7, 14 and 79 exams.

Question: 
 
Which of the following is not typically part of an underwriting agreement?
 
Answer Choices:
 
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.

 

Solomon partners with Claflin University & Lincoln Financial Advisors to offer SIE class

Solomon Exam Prep is delighted to announce a partnership with Claflin University and Lincoln Financial Advisors. Continue reading

Solomon Exam Prep is delighted to announce a partnership with Claflin University and Lincoln Financial Advisors. With sponsorship from Lincoln Financial, Claflin University students taking a new Claflin investment course will receive the Solomon study materials they need to pass the FINRA Securities Industry Essentials (SIE) exam.
 
To read the official press release, please click on the download link below.

If You’re a Principal or Operations Professional, Your FINRA Exam Deadline May Be Extended

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.