Canadian Securities Course (CSC) Level 1 Practice Exam

List and explain the 3 types of after-market stabilization activities.

1. Right of first refusal, Stamp duty, Offering circular.

2. Greenshoe option, Underpricing penalty, release letters.

3. Penalty bid, Stabilizing bid, Rights offering.

4. Restrictive covenant, Liquidity ratio, Financial leverage.

The correct answer is: Penalty bid, Stabilizing bid, Rights offering.

The correct answer is C. Penalty bid, Stabilizing bid, Rights offering. Penalty bid refers to a provision in an underwriting agreement that allows the underwriter to reclaim a selling concession from a syndicate member who fails to sell the issue within a certain time frame. Stabilizing bid involves the underwriter entering the open market to purchase shares of the newly issued security in order to maintain its price and prevent it from falling below the offering price. Rights offering is a way for companies to raise capital by offering existing shareholders the right to purchase additional shares at a discounted price, usually in proportion to their existing holdings. Options A (Right of first refusal, Stamp duty, Offering circular) and D (Restrictive covenant, Liquidity ratio, Financial leverage) do not represent the types of after-market stabilization activities.