Examkin

Question

Difficulty: HardMarket Participants and Investor Classifications

An underwriter is evaluating prospective purchasers for an offering of unregistered corporate bonds issued under SEC Rule 144A. The candidate list includes:

1. A private bank purchasing for its own account with 120millioninnon−affiliatedsecuritiesownedandinvested.2.Acorporateexecutivewithanetworthof120 million in non-affiliated securities owned and invested. 2. A corporate executive with a net worth of 8 million, excluding primary residence.
3. A registered investment adviser managing 60millionindiscretionarycustomerassets.4.Acharitabletrustwith60 million in discretionary customer assets. 4. A charitable trust with 15 million in total assets.

Which candidate qualifies as a Qualified Institutional Buyer (QIB) eligible to purchase the securities under Rule 144A?

  1. The private bank purchasing for its own account with $120 million in securities owned and investedAnswer
  2. B
    The corporate executive with an $8 million net worth
  3. C
    The registered investment adviser with $60 million in discretionary assets under management
  4. D
    The charitable trust with $15 million in total assets

Answer

The private bank purchasing for its own account with $120 million in securities owned and invested
Under SEC Rule 144A, a Qualified Institutional Buyer (QIB) is defined as an institutional investor that owns and invests at least 100millioninsecuritiesofissuersnotaffiliatedwiththeinstitution(registeredbroker−dealersmustownandinvestatleast100 million in securities of issuers not affiliated with the institution (registered broker-dealers must own and invest at least 10 million). The private bank buying for its own account with $120 million in securities satisfies both the institutional entity type and the minimum financial threshold.

Step-by-Step Solution

1
Identify the relevant rule and qualification standard
SEC Rule 144A governs the resale of restricted securities exclusively to Qualified Institutional Buyers (QIBs).
Rule 144A transactions require verifying QIB status rather than standard Accredited Investor status.
2
Recall QIB eligibility criteria
A QIB must be an institutional entity (never a natural person) that owns and invests at least 100millioninnon−affiliatedsecurities(or100 million in non-affiliated securities (or 10 million for registered broker-dealers).
This establishes both the entity requirement and quantitative threshold.
3
Evaluate candidate credentials against QIB standards
The corporate executive is an individual (disqualified). The investment adviser (60M)andcharitabletrust(60M) and charitable trust ( 15M) fall below the 100Mthreshold.Onlytheprivatebankwith100M threshold. Only the private bank with 120M in securities qualifies.
Comparing each candidate against QIB rules identifies the single eligible purchaser.

Key Concept

Qualified Institutional Buyer (QIB) eligibility criteria under SEC Rule 144A versus Accredited Investor standards under Regulation D
Estimated Time:1m 30s
Rate this question

Topics

Market Participants and Investor Classifications

More questions from this topic