Red Herring

AAA

DEFINITION of 'Red Herring'

A preliminary prospectus filed by a company with the Securities and Exchange Commission (SEC), usually in connection with the company's initial public offering. A red herring prospectus contains most of the information pertaining to the company's operations and prospects, but does not include key details of the issue such as its price and the number of shares offered. The term "red herring" is derived from the bold disclaimer in red on the cover page of the preliminary prospectus . The disclaimer states that a registration statement relating to the securities being offered has been filed with the SEC but has not yet become effective, the information contained in the prospectus is incomplete and may be changed, the securities may not be sold and offers to buy may not be accepted before the registration statement becomes effective. No price or issue size is stated in the red herring.

INVESTOPEDIA EXPLAINS'Red Herring'

The red herring prospectus contains substantial information on the company, including use of proceeds from the offering, market potential for its product/service, financial statements, details of officers, directors and major shareholders, pending litigation, etc.

The red herring prospectus is used to solicit expressions of interest in the issue. Once the registration statement becomes effective, a final prospectus that contains the final IPO price and issue size is disseminated. Expressions of interest are then converted to orders for the issue at the buyer's option.



The minimum period between the time a registration statement is filed and its effective date is 20 days. Note that the SEC does not approve the securities but simply ensures that all relevant information is disclosed in the registration statement.

RELATED TERMS
  1. Final Prospectus

    1. The final version of a prospectus for a public offering of ...
  2. New Issue

    A reference to a security that has been registered, issued and ...
  3. Greenshoe Option

    A provision contained in an underwriting agreement that gives ...
  4. Gun Jumping

    1. The illegal practice of soliciting orders to buy a new issue ...
  5. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
  6. IPO Lock-Up

    A contractual caveat referring to a period of time after a company ...
Related Articles
  1. Investing Basics

    A Look At Primary And Secondary Markets

    Knowing how the primary and secondary markets work is key to understanding how stocks trade.
  2. Investing Basics

    The Road To Creating An IPO

    Through an Initial Public Offering, or IPO, a company raises capital by issuing shares of stock, or equity in a public market. Generally, this refers to when a company issues stock for the first ...
  3. Fundamental Analysis

    Interpreting A Company's IPO Prospectus Report

    Learn to decipher the secret language of the IPO prospectus report - it can tell you a lot about a company's future.
  4. Mutual Funds & ETFs

    Investing In IPO ETFs

    Learn the history, rules and risks of investing in IPO exchange-traded funds.
  5. Investing

    5 Tips For Investing In IPOs

    Thinking of investing in IPOs? Here are five things to remember before jumping into these murky waters.
  6. Investing

    How An IPO Is Valued

    The initial valuation of an IPO can determine the success or failure of a specific stock - but how is that price determined?
  7. Mutual Funds & ETFs

    Digging Deeper: The Mutual Fund Prospectus

    The legal jargon of this document can be daunting. Find out how to get to the important stuff.
  8. Investing Basics

    IPO Lock-Ups Stop Insider Selling

    Ownership plays a key role when companies go public. Find out how.
  9. Options & Futures

    Greenshoe Options: An IPO's Best Friend

    Find out how companies can save or boost their public offering price with these options.
  10. Retirement

    IPO Basics Tutorial

    What's an IPO, and how did everybody get so rich off them during the dotcom boom? We give you the scoop.
RELATED FAQS
  1. What role does the Inspector General play with the Securities and Exchange Commission?

    The inspector general of the U.S. Securities and Exchange Commission (SEC) oversees, audits and conducts investigations of ... Read Full Answer >>
  2. How long does it take to execute an M&A deal?

    Even the simplest merger and acquisition (M&A) deals are challenging. It takes a lot for two previously independent enterprises ... Read Full Answer >>
  3. How is trading volume regulated by the Securities and Exchange Commission (SEC)?

    The U.S. Securities and Exchange Commission (SEC) has trading volume as a requirement for selling securities that are otherwise ... Read Full Answer >>
  4. What kind of assets can be traded on a secondary market?

    Virtually all types of financial assets and investing instruments are traded on secondary markets, including stocks, bonds, ... Read Full Answer >>
  5. What do I do if I think an accountant is in violation of the Generally Accepted Accounting ...

    The Financial Accounting Standards Board (FASB) promulgates generally accepted accounting principles (GAAP) in the United ... Read Full Answer >>
  6. What action is the SEC likely to take on 12b-1 fees?

    The Securities and Exchange Commission (SEC) may take action to impose greater regulation on how 12b-1 fees are used, or ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Nanny Tax

    A federal tax that must be paid by people who hire household help (a babysitter, maid, gardener, etc.) and pay them a total ...
  2. Dog And Pony Show

    A colloquial term that generally refers to a presentation or seminar to market new products or services to potential buyers.
  3. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  4. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  5. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  6. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!