Chapter 15, Problem 1PS

Vocabulary* Each of the following terms is associated with one of the events beneath. Can you match them up?

1. a. Best efforts
2. b. Bookbuilding
3. c. Shelf registration
4. d. Rule 144A

Events:

1. A. Investors indicate to the underwriter how many shares they would like to buy in a new issue and these indications are used to help set the price.
2. B. The underwriter accepts responsibility only to try to sell the issue.
3. C. Some issues are not registered but can be traded freely among qualified institutional buyers.
4. D. Several tranches of the same security may be sold under the same registration. (A “tranche” is a batch, a fraction of a larger issue.)

Summary Introduction

To match: The following events with the terms.

Explanation of Solution

Given situation: Best efforts.

Best efforts occur when an underwriter promises and accepts the responsibility only to sell and try the issue. So the option is B.

Summary Introduction

To match: The following events with the terms.

Explanation of Solution

Given situation: Book building.

Generally, book building is the effort of the underwriter to find out the interests in the sale. It indicates how many shares are willing to buy the customers in new issue. So the is option is A.

Summary Introduction

To match: The following events with the terms.

Explanation of Solution

Given situation: Shelf registration.

A self-registration sets up tranches, or later sales under the same registration or document. So the option is D.

Summary Introduction

To match: The following events with the terms.

Explanation of Solution

Given situation: Rule 144A

Rule 144A deals with some issues which are not registered but can be traded freely among the institutional buyers. So the correct option is C.