SEC Rules for Investment Bankers

Equity
A) Issue Management
Due Diligence- As part of the due diligence process, lawyers for the underwriters and the issuer usually prepare letters
stating that, based on specific inquiries (and subject to exclusions for financial and other information provided by experts),
they are unaware of anything that may indicate that the prospectus contains any material misstatement or omission (Rule
10b-5, Exchange Act)
Prospectus Delivery-The managing underwriter provides both preliminary and final prospectuses to the broker-dealers
participating in the distribution.
Marketing the Issue- It is crucial to understand that the issuer and the underwriting syndicatecannot sellsecurities, solicit
requests for orders or send out any research report or any report that discusses the company's future sales and earnings
during the period between the filing date and theeffective date. (section 5 of the Securities Act ,1933)
Liabilities
Liability arises primarily under sections 11, 12 and 15 of the Securities Act, and section 10(b) and Rule 10b-5 under the
Exchange Act, as follows:
1933 Securities Act
Any person who willfully violates the Securities Act of 1933 or SEC rules and regulations is subject to five years in prison, a
$10,000 fine, or both.
Securities Exchange Act , 1934
Section 10(b) and Rule 10b-5 liability.It is unlawful for any person to do any of the following in connection with the purchase
or sale of any security:
-employ any fraudulent scheme;
-make any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which they were made, not misleading;
-engage in fraud or deceit.

SEC Rules for Investment Bankers

Equity (contd.)
B)Underwriting
In most firm commitment equity offerings, the issuer grants the underwriters an option to purchase up
to an additional 15% of the number of offered securities to cover over-allotments.
The underwriting fee for firm commitment IPOs ranges from 5% to 7% of the gross proceeds. The range
for subsequent firm commitment offerings is somewhat lower. Underwriting fees for best efforts
offerings are variable, ranging from 3% to 8%.
Lock-up agreement
The underwriting agreement usually specifies a lock-up period (typically 180 days for IPOs and 45 to 90
days for subsequent offerings) during which the issuer and its directors, officers and, for IPOs, most
shareholders, agree not to sell securities of the same class as the offered securities, subject to certain
negotiated exceptions.
Closing conditions
The underwriters are only obliged to purchase the securities if the underwriters receive a "bring-down
comfort" letter from the auditor and legal opinions from the issuer's and underwriters' lawyers.
Underwriting agreements also usually limit the underwriters' obligation to purchase the securities if a
material adverse change in the issuer's business occurs after the underwriting agreement is signed but
before the offering closes.

SEC Rules for Investment Bankers

Debt
A) Issue Management
)Due Diligence
)Registered offerings (same as equity)
)Unregistered offerings (section 4(a)(2), Rule 144A and section 3(a)(2), Exchange Act) - A private
placement memorandum, offering circular or offering memorandum is used. Second, the investment banks
underwriting unregistered offerings sign a purchase agreement with the issuer, rather than an underwriting
agreement. Third, issuers and underwriters often also use term sheets to describe the terms of the offered
securities, but these term sheets are not filed with the SEC.

)Prospectus Delivery
)Registered offerings (same as equity)
)Unregistered offerings- No statutory prospectus reuired

)Marketing the Issue- (same as equity)

)Liabilities - (same as equity for registered and unregistered securities)

SEC Rules for Investment Bankers

Debt (contd.)
B)Underwriting