Any legitimate prospectus issued by a company will have the SEC's no approval clause on the front page. It is important to note that the SEC neither passes on the merits of the security, nor the adequacy of the information in the prospectus. The SEC only reviews the prospectus to make sure that it contains no misleading information and that the registration of the new issue is complete.

Registration of a New Issue
When registering the new issue, the issuer submits a registration statement that must be signed by the issuer's executive officers, financial and accounting officers, and a majority of its board of directors. It is submitted in triplicate to the SEC along with the required filing fee.

The information and documentation that must be included in the registration statement is listed under Schedule A of the Securities Act and includes some of the following items:
  • Statement of purpose of the issuer's business
  • Public offering price (POP)
  • Biographical descriptions of the officers and directors
  • Specific amount of shares held by the senior officers, directors and underwriters
  • Identification of individuals holding at least 10% of the company's securities
  • Use of the proceeds of the issue sale
  • Underwriters' commissions and discounts
  • Copy of underwriting agreement
  • Financial statements, including earning statements from the past three years and a balance sheet
  • Copies of the articles of incorporation
The Registration Process
The official filing date is the date on which the SEC actually receives the registration statement. Once the statement is received, a 20-day cooling-off period commences, during which the SEC reviews the registration statement.


During the cooling-off period, the issuer may give potential purchasers a preliminary prospectus, known informally as a red herring, which is also submitted to the SEC with the registration statement. The red herring acquaints investors with the essential facts of the new issue, and it is prepared primarily to get indications of interest from potential investors. It does not contain the final offering price of the issue, but it may list an expected range of prices per share, such as $10-12 per share.

Look Out!
The preliminary prospectus will NOT have a public offering price, nor will it list the effective date. Neither of these items will be known for certain at this time!

During the cooling-off period the issuer will register, or "blue sky", the new issue with the states where the underwriter plans to sell shares. The underwriters and the officers of the issuers, along with the accountants, attorneys and syndicate members, will hold a due diligence meeting prior to issuing the final prospectus to discuss the issuer's and underwriter's exercise of due diligence towards federal and state securities law.

Look Out!
The period between the filing date and the effective date is known as the "cooling off" period. Make sure you understand that the issue is "in registration" during this period. During the cooling off period, the SEC reviews the registration statement to determine if full disclosure has been made. Only indications of interest are accepted during this time: no sales may be made until the effective date, and only a preliminary prospectus may be issued to prospective purchasers.
Issuing and Underwriting

Related Articles
  1. Investing

    What's a Prospectus?

    The Security and Exchange Commission (SEC) requires that any company raising money from potential investors through the sale of securities must file a prospectus with the SEC and then provide ...
  2. Investing

    Interpreting a Company's IPO Prospectus Report

    Learn to decipher the secret language of the IPO prospectus report. It can tell you a lot.
  3. Financial Advisor

    The Issuance Procedure of Corporate High-yield Bonds

    Issuing debt over equity can have several advantages for companies. Here we have a detailed look on the issuance procedure of corporate high-yield bonds.
  4. Insights

    Understanding the SEC

    The SEC's triple mandate of investor protection, maintenance of orderly markets and facilitation of capital formation makes it a vital player in capital markets.
  5. Personal Finance

    Policing The Securities Market: An Overview Of The SEC

    Find out how this regulatory body protects the rights of investors.
  6. Financial Advisor

    How To Get A Job At The SEC

    Want to make a good living taking on those renegade trading rascals on Wall Street? Here are some tips to help you get in the door at the SEC.
  7. Investing

    5 Tips For Investing In IPOs

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

    How A Company Files With The SEC

    Filing with the SEC is not as complicated as you might thing -- just be meticulous about following the steps.
  9. Investing

    Speed-Read SEC Filings for Hot Stock Picks

    SEC filings can be a headache. Read out how to speed-read through your stock research.
  10. Insights

    The SEC: A Brief History Of Regulation

    The SEC has continued to make the market a safer place and to learn from and adapt to new scandals and crises.
Frequently Asked Questions
  1. How Do Speculators Profit From Options?

    Options are a risky game, but you can learn speculators' tricks to use them to your advantage.
  2. What is the difference between a debenture and a bond?

    Debentures and bonds can both be used to raise capital, but debentures are typically issued to raise short-term capital.
  3. Why Are Securities Held 'In Street Name'?

    Buying or selling securities through a broker means they're held in your broker's name.
  4. Why Are P/E Ratios Higher When Inflation Is Low?

    P/E ratios are generally higher during times of low inflation, but why is this the case?
Trading Center