Chapter 5: Investment Banking & Research
This chapter covers 21% of the Series 24 exam (approximately 32 questions) and focuses on the supervisor's obligations across the firm's underwriting, advisory, and research businesses: the '33 Act framework, Reg M, corporate financing, M&A, investor disclosure materials, and research-analyst conflicts.
What You'll Learn
| Unit | Topic | Key Concepts |
|---|---|---|
| 1 | Investment Banking Activities | '33 Act registration process, private offerings (Reg D, Reg S, Reg A, resale safe harbors), the corporate-financing rule, conflicts of interest, IPO-allocation restrictions, due diligence, M&A and tender offers, Regulation M, information barriers, periodic reporting and Reg FD, bankruptcy claims |
| 2 | Investor Disclosure Materials | The Securities Act communications framework, pre-filing safe harbors, waiting-period communications, free-writing prospectus, post-effective period rules, the non-participating-broker research safe harbor, forward-looking statements |
| 3 | Research Activities | What counts as research, the research-analyst conflicts rule, research approval and dissemination, the different-class and same-issuer research safe harbors, quiet periods, public appearances and Reg AC, the soft-dollar safe harbor |
Why This Chapter Matters
Investment banking and research are highly conflicted businesses. The supervisor's job is to enforce the structural separations and disclosure regimes that Congress, the SEC, and FINRA have built specifically to manage those conflicts:
- The '33 Act controls how new securities are offered to the public, with the registration framework gating every communication during the pre-filing, waiting, and post-effective periods
- Reg M prevents distribution participants from manipulating the price of the security being distributed
- The corporate-financing rule caps underwriting compensation and enforces fair-and-reasonable terms
- Information barriers separate investment banking from research and trading to prevent misuse of material non-public information
- The research-analyst conflicts rule governs analyst conflicts, compensation determination, and pre-publication review
- Quiet periods suppress booster-shot research around offerings
- The soft-dollar safe harbor defines what brokerage and research services may be paid for with client commissions
Exam Strategy
This chapter is dense with timing windows and scope distinctions. Memorize:
- Registration phases: pre-filing (no offers permitted), waiting period (written offers restricted to a statutory prospectus or tombstone ad), post-effective (final prospectus delivery)
- Corporate-financing-rule filing: 3-business-day filing of underwriting documents; FINRA "no objections" letter required
- Reg M restricted periods: 1 day (ADTV $100K+, public float $25M+), 5 days (other), 0 days (Treasuries, most muni GOs)
- Quiet periods: 10 days post-IPO (managers and underwriters), 3 days post-secondary (managers and co-managers)
- Research safe harbors: non-participating-broker, different-class, and same-issuer/same-security (with eligibility conditions)
- Reg AC certifications: per-report personal-views and compensation-tie attestation; quarterly public-appearance certification within 30 days of quarter end
- Soft-dollar three-prong test: lawful and appropriate / reasonable in relation to value / good faith determination