General Securities Sales Supervisor (Series10) Practice Exam

A PIPE transaction refers to which of the following?

1. Public offering of stock subsequently registered at the issuer's expense

2. Private placement of stock subsequently registered at the issuer's expense

3. Public offering of stock subsequently registered at the purchaser's expense

4. Private placement of stock subsequently registered at the purchaser's expense

The correct answer is: Private placement of stock subsequently registered at the issuer's expense

A PIPE transaction, which stands for "Private Investment in Public Equity," is accurately described as a private placement of stock subsequently registered at the issuer's expense. In this type of transaction, an issuer sells shares of its publicly traded stock to private investors, often institutional investors, at a discount to the current market price. What distinguishes PIPE transactions is that after the private placement, the issuer typically registers the shares with the appropriate regulatory bodies, allowing the investors to resell the shares in the public market. This aspect is crucial because it provides liquidity for the investors and makes the offering more attractive. The registration occurring at the issuer's expense is a standard practice in PIPE transactions, ensuring that the costs associated with complying with registration requirements do not fall on the investors. This further incentivizes participation, as investors prefer to avoid financial burdens that would be reflected in the overall costs of their investment. This understanding of PIPE transactions is essential for anyone in the securities industry, especially in roles related to capital raising and public offerings.