Canadian Securities Course (CSC) Level 1 Practice Exam

What does a private placement entail?

1. An informal sale process to retail investors

2. An issuance of securities exclusively to large institutional investors

3. An auction-style sale of securities to the general public

4. A sale of securities through a registered broker-dealer

The correct answer is: An issuance of securities exclusively to large institutional investors

A private placement refers to the issuance of securities exclusively to a select group of large institutional investors or accredited investors, rather than to the general public. This process allows companies to raise capital without the extensive regulatory requirements associated with public offerings. The investors typically include large pension funds, insurance companies, hedge funds, or other qualified buyers who are capable of evaluating the investment opportunity independently. This method provides issuers with a streamlined approach to financing, often involving fewer regulatory barriers and reduced costs compared to public offerings. By concentrating on sophisticated investors, private placements can often facilitate quicker transactions and more tailored investment terms. This contrasts with the requirement for public offerings, which must be registered and comply with stringent disclosure requirements set by regulatory bodies.