DEFINITION of Booster Shot
Booster shot is a recommendation report issued by an underwriter for a stock shortly after its initial public offering (IPO), a secondary offering or lock-up period. The underwriter and its client, the company selling stock to the public for the first time, want the stock to be healthy, obviously, so a booster shot in the form of a positive research report is injected, following a mandated "quiet period." Booster shots may also be given after secondary offerings of the stock or lock-up periods as a means to promote awareness of the positive attributes of a company by the underwriter(s) and/or broker-dealers marketing the stock to investors.
BREAKING DOWN Booster Shot
Financial Industry Regulatory Authority (FINRA) Rule 2241 governs the rules for publication and distribution of equity research reports. Until 2015, the quiet period, or the period during which no analyst research reports could be issued to investors, was 40 days and 25 days for the lead underwriter and other participating underwriters, respectively, for IPOs; 10 days for a secondary offerings, and 15 days for lock-up expirations. The rationale behind the quiet period is to prevent company management or underwriters of a deal from making material statements or expressing opinions that are not already contained in the registration filings for the stock offerings. Such chatter could compromise the goal of fairness to all investors, a majority of whom would not be privy to this type of inside commentary.
The JOBS Act of 2012, a piece of Obama-era legislation designed to promote faster employment growth, created a class of companies called emerging growth companies (ECG) that could benefit from an expedited path (i.e., less stringent requirements) to public listings. No quiet periods are imposed on ECG listings, which means that booster shots can be given right away. In response, FINRA updated Rule 2241 to bring it closer to this new class of listings. The revised rule reduces the IPO quiet periods of 40 days and 25 days for lead and non-lead underwriters to 10 days, the 10-day period for secondary offerings to three days, and eliminates altogether the quiet period for lock-up agreements.