While the SEC is reviewing the securities’ registration statement, a registered representative is very limited as to what they may do with regard to the new issue. During the cooling off period, the only thing that a registered representative may do is obtain indications on interest from clients by providing them with a preliminary prospectus also known as a “red herring”. The term “red herring” originated from the fact that all preliminary prospectus must have a statement printed in red ink on the front cover stating: “that these securities have not yet become registered with the SEC and therefore may not be sold.” An indication of interest is an investor’s or broker dealer’s statement that they might be interested in purchasing the securities being offered. The preliminary prospectus contains most of the same information that will be contained in the final prospectus, except for the offering price and the proceeds to the issuer. The preliminary prospectus will usually contain a price range for the security to be offered. All information contained in a preliminary prospectus is subject to change or revision.

The Final Prospectus

All purchasers of new issues must be given a final prospectus before any sales may be allowed. The final prospectus serves as the issuer’s full disclosure document for the purchaser of the securities. If the issuer has filed a prospectus with the SEC and the prospectus can be viewed on the SEC’s website a prospectus will be deemed to have been provided to the investor through the “access equals delivery” rule. Once the issuer’s registration statement becomes effective, the final prospectus must include:

  • Type and description of the securities
  • Price of the security
  • Use of the proceeds
  • Underwriter’s discount
  • Date of offering
  • Type and description of underwriting
  • Business history of issuer
  • Biographical data for company officers and directors
  • Information regarding large stockholders
  • Company financial data
  • Risks to purchaser
  • Legal matters concerning the company
  • SEC disclaimer

Prospectus To Be Provided To Aftermarket Purchasers

Certain investors who purchase securities in the secondary market just after a distribution must also be provided with the final prospectus. The term for which a prospectus must be provided depends largely on the type of offering and where the issue will be traded in the after market. If the security has an after market delivery requirement a prospectus must be provided by all firms that execute a purchase order for the security during the term. The prospectus delivery requirements are as follows:

  • For IPOs: 90 days after being issued for securities quoted on the OTCBB or in the pink sheets, 25 days for listed or NASDAQ securities
  • Additional offerings: 40 days for securities quoted on the OTCBB or in the pink sheets. No after market requirement for listed or NASDAQ securities

SEC Disclaimer

The SEC reviews the issuer’s registration statement and the prospectus but does not guarantee the accuracy or adequacy of the information. The SEC disclaimer must appear on the cover of all prospectuses and states: “These securities have not been approved or disapproved by the SEC nor have any representations been made about the accuracy of the adequacy of the information.”



Misrepresentations

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