Securities Markets - Registration

The primary way in which a company is able to issue securities to the public for the first time is by disclosing important financial information through registration. This information lets investors make informed judgments about a securities offering.

Registration statements are subject to SEC examination for compliance with disclosure requirements. Not all offerings of securities must be registered with the SEC.

Exemptions include the following:

  • Private offerings to a limited number of persons or institutions;
  • Offerings of limited size;
  • Intrastate offerings; and
  • Securities of municipal, state and federal governments.

Key Registration Dates
During the period that the registration statement is being filed, there are a number of key dates:

  • Filing date: This is when the initial registration statement is filed with the SEC.

  • Effective date of registration: This is the date declared by the SEC upon which shares can be sold to the public.

  • Cooling-off period: This is a delay of the effective date, imposed by the SEC due to premature publicity.

Due Diligence
Perhaps the most time-consuming aspect of the registration process - certainly from the issuer's point of view - is due diligence, the process of ensuring that the registration statement presented by the issuer contains all required information and that the information is not misleading.

  • The underwriter, assisted by legal counsel in countless meetings with the issuer's management team, reviews the source materials to ensure that the issuer is not attempting to defraud investors.

  • If the underwriter finds something amiss that cannot be reasonably explained away, then a potentially overpriced security does not come to market.

  • If there is something amiss and the underwriter does not find it because the issuer hid it well, then the legal burden to defend against fraud charges is on the issuer, not the underwriter, provided the latter exercised reasonable care in the due diligence process.

  • "Reasonable care" is a fairly nebulous term that is up to a judge to define, so underwriters tend to err on the side of caution.

  • Any investment bank with a reputation to uphold in the market has a strong incentive to take the time needed to perform that due diligence.

  • Any scrupulous corporate management team that hopes to someday float another offering on Wall Street has a similar incentive to painstakingly gather all the backup materials.

  • As for which specific components of the registration need to be subjected to due diligence review, FINRA has a 15-point guideline - and most investment banks far exceed it.

During the due diligence process, the syndicate is also being formed. The lead underwriter, or manager, invites other investment banks to participate. The selling group's participants then agree how many shares each one will underwrite - that is, how many each will be responsible for distributing to clients or purchasing on its own account.

The manager is then responsible for blue-skying the issue, which means determining in which states it can be sold and in which states it cannot. The manager then provides the other members of the syndicate with a list of where the offering can or cannot be sold.

Blue Sky Laws and the Securities Act of 1933


Related Articles
  1. Professionals

    Registration

    FINRA/NASAA Series 26: Section 1 Registration. In this section the prosess of registering a new issue.
  2. Professionals

    The Prospectus

    Series 6, Section 8: The Prospectus. This section, Prospectus, relates to the registration and the registration process pertaining to a new issue.
  3. Professionals

    Underwriting Corporate Securities

    Once a business has decided that it needs to raise capital to meet its organizational objectives, they must determine how to raise the needed capital. Most corporations at this point will hire ...
  4. Professionals

    UNDERWRITING CORPORATE SECURITIES

    Underwriting Corporate Securities Once a business has decided that it needs to raise capital to meet its organizational objectives, they must determine how to raise the needed capital. Most corporations ...
  5. Professionals

    Other Definitions

    FINRA/NASAA Series 66 - Other Definitions. This section contains other important definitions required for the exam. Make sure you do not skip this section!
  6. Professionals

    The Securities Act of 1933

    FINRA Series 6 Exam Study Guide - The Securities Act of 1933. This section discusses the securities act of 1933 including definitions and penalties under the act.
  7. Professionals

    Underwriting Corporate Securities

    Once a business has decided that it needs to raise capital to meet its organizational objectives, they must determine how to raise the needed capital. Most corporations at this point will hire ...
  8. Professionals

    Registration by Qualification

    FINRA/NASAA Series 63 - Registration by Qualification. In this section registration by qualification requirements for Issuer and any significant subsidiary and for persons with similar status.
  9. Professionals

    C. Underwriting Corporate Securities

    Once a business has decided that it needs to raise capital to meet its organizational objectives, they must determine how to raise the needed capital. Most corporations at this point will hire ...
  10. Professionals

    Registration by Coordination

    FINRA/NASAA Series 63 - Registration by Coordination. In this section filiing requirements for registartion by coorrdination and how a registration becomes effective.
RELATED TERMS
  1. Due Diligence Meeting

    The process of careful investigation by an underwriter to ensure ...
  2. Effective Date

    The date, declared by the Securities & Exchange Commission ...
  3. Piggyback Registration Rights

    A form of registration rights that grants the investor the right ...
  4. SEC Form F-4

    A filing with the Securities and Exchange Commission (SEC) required ...
  5. SEC Form SB-2

    A filing with the Securities and Exchange Commission (SEC) required ...
  6. Letter Of Comment

    A letter from the Securities and Exchange Commission that is ...
RELATED FAQS
  1. If an issuer wishes to register a security in the state ...

    The correct answer is a. Registration by coordination is permitted when the issuer has filed a registration application with ... Read Answer >>
  2. How does piggyback registration work?

    Registration rights ensure that companies cooperate during the registration process through which investors register shares ... Read Answer >>
  3. How long is the validity period for a Series 63 exam if I have not been registered?

    Find out how registration begins using Series 63 results and how long scores are valid without registration. Learn more about ... Read Answer >>
  4. The “effective date” is defined as:

    a. the date a security's registration is approved - lasting for one year. b. the date the first transaction of an approved ... Read Answer >>
  5. What does the underwriter do in a new stock offering?

    Learn the role an underwriter plays for an initial public offering, and the steps an underwriter takes in preparing for an ... Read Answer >>
  6. Can you trade securities before you pass the Series 63 exam?

    Find out more about state registration and Series 63 exam scores. Learn how long these scores are valid and how registration ... Read Answer >>
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  4. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  5. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
Trading Center