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Difficulty: HardMarket Participants and Investor Classifications

A syndicate manager preparing to distribute a non-registered corporate bond offering under SEC Rule 144A is verifying the qualification of prospective buyers. Which of the following entities satisfies all statutory requirements to be classified as a Qualified Institutional Buyer (QIB)?

  1. A registered investment adviser managing $120 million in eligible securities on a discretionary basis for unaffiliated client accountsAnswer
  2. B
    A high-net-worth individual investor who maintains a personal investment portfolio of $150 million in equity and debt securities
  3. C
    A registered broker-dealer that owns and invests $5 million in securities of non-affiliated issuers for its proprietary account
  4. D
    A state-chartered commercial bank that owns 110millioninsecuritiesofnon−affiliatedissuersandhasanauditednetworthof110 million in securities of non-affiliated issuers and has an audited net worth of 18 million

Answer

The registered investment adviser managing $120 million in eligible securities on a discretionary basis is the only entity that qualifies as a Qualified Institutional Buyer (QIB).
Under SEC Rule 144A, a Qualified Institutional Buyer (QIB) is an institution (such as an investment adviser, insurance company, or pension fund) that owns and invests on a discretionary basis at least 100millioninsecuritiesofissuersnotaffiliatedwiththeentity.Becausetheregisteredinvestmentadvisermanages100 million in securities of issuers not affiliated with the entity. Because the registered investment adviser manages 120 million in securities for unaffiliated clients on a discretionary basis, it fully meets all regulatory requirements.

Step-by-Step Solution

1
Identify the defining criteria for a Qualified Institutional Buyer (QIB) under SEC Rule 144A.
An institution must generally own and invest at least $100 million in securities of non-affiliated issuers, with specific thresholds or additional constraints for broker-dealers and depository institutions.
QIB status permits institutions to purchase unregistered securities freely in the secondary market under Rule 144A.
2
Evaluate each candidate entity against the statutory QIB qualification standards.
The registered investment adviser meets the 100milliondiscretionarymanagementthreshold.NaturalpersonscannotbeQIBs.Thebroker−dealerfallsbelowthe100 million discretionary management threshold. Natural persons cannot be QIBs. The broker-dealer falls below the 10 million requirement. The bank fails the $25 million audited net worth requirement.
Determining QIB status requires verifying both entity type eligibility and monetary thresholds.
3
Select the entity that satisfies all statutory requirements.
The registered investment adviser managing $120 million is the sole qualifying entity.
It is an eligible institutional entity type and exceeds the $100 million threshold.

Key Concept

Qualified Institutional Buyer (QIB) Qualification Thresholds
Estimated Time:2m 0s
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Topics

Market Participants and Investor Classifications

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