Apex Growth Capital is acting as the lead underwriter for a private placement of restricte… — FINRA SIE (Securities Industry Essentials)

Apex Growth Capital is acting as the lead underwriter for a private placement of restricted corporate debt securities issued under Rule 144A. During the eligibility review of potential purchasers, the syndicate manager evaluates four prospective participants:

1. Apex Wealth Management, a registered broker-dealer that owns and invests $15 million of non-affiliated debt and equity securities in its proprietary portfolio. 2. Horizon Commercial Bank, which owns and invests$ 120 million of non-affiliated securities on a discretionary basis and has an audited net worth of $18 million. 3. Dr. Eleanor Vance, an accredited individual investor with a personal net worth of$ 150 million, including $110 million invested in corporate securities. 4. Meridian Insurance Co., a state-regulated life insurance company that owns and invests$ 85 million in non-affiliated corporate bonds on a discretionary basis.

Which of these prospective buyers meets all regulatory criteria to qualify as a Qualified Institutional Buyer (QIB) under SEC Rule 144A?

Apex Wealth Management onlyCevap
B
Apex Wealth Management and Dr. Eleanor Vance
C
Apex Wealth Management and Horizon Commercial Bank
D
Horizon Commercial Bank, Dr. Eleanor Vance, and Meridian Insurance Co.

Cevap

Apex Wealth Management is the only prospective purchaser that meets all regulatory criteria to qualify as a Qualified Institutional Buyer (QIB) under Rule 144A.

Under SEC Rule 144A, a Qualified Institutional Buyer (QIB) must generally be an institution that owns and invests on a discretionary basis at least

100 million in securities of non-affiliated issuers. However, registered broker-dealers are held to a reduced threshold of at least

10 million in securities. Because Apex Wealth Management is a registered broker-dealer holding

15 million in non-affiliated securities, it meets the requirement. Meanwhile, Horizon Commercial Bank fails because banks must also have a minimum audited net worth of

25 million (it only has

18 million); Dr. Eleanor Vance fails because natural persons can never be QIBs regardless of wealth; and Meridian Insurance Co. fails because its

85 million portfolio is below the $100 million threshold for general institutions.

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Evaluate registered broker-dealer QIB threshold

Apex Wealth Management owns

15 million in non-affiliated securities, exceeding the

10 million QIB threshold for broker-dealers.

Registered broker-dealers qualify as QIBs under SEC Rule 144A if they own and invest on a discretionary basis at least $10 million in securities of issuers not affiliated with the broker-dealer.

Evaluate commercial bank QIB eligibility criteria

Horizon Commercial Bank owns

120 million in securities but has a net worth of

18 million, failing the $25 million minimum net worth requirement.

Banks and savings and loan institutions must satisfy a dual requirement under Rule 144A: owning/investing at least

100 million in non-affiliated securities AND maintaining an audited net worth of at least

25 million.

Evaluate individual investor eligibility under QIB rules

Dr. Eleanor Vance does not qualify, despite her $150 million net worth.

Natural persons (individual investors) can never qualify as QIBs under Rule 144A, regardless of how high their net worth or total securities portfolio may be.

Evaluate general institutional investor (insurance company) QIB threshold

Meridian Insurance Co. owns

85 million in securities, which is below the

100 million threshold.

Institutional entities such as insurance companies, investment companies, and employee benefit plans must own and invest at least $100 million in non-affiliated securities to achieve QIB status.

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Qualified Institutional Buyer (QIB) Qualification Thresholds under Rule 144A

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