DEFINITION of 'Effective Date'

In contract law, the effective date is the date that an agreement or transaction between or among signatories becomes binding. For an initial public offering (IPO), it is the date when shares can first be traded on an exchange.

BREAKING DOWN 'Effective Date'

Business agreements and transactions are documented with effective dates, the time when parties to the contract begin their obligations to perform under the contract. These contracts can be in the form of employment agreements, credit or loan agreements or commercial transaction deals. As far as the effective "date" is concerned, the parties will decide whether the contract should officially begin on the date of signing, on a date that has already passed (backdating), or on a future date.

For a company that wants to go public, the effective date occurs within 30 days after the security is registered with the Securities and Exchange Commission (SEC), giving time for the SEC to review the Form S-1 registration for completeness of disclosure so that prospective investors can make informed decisions. During this review period, the SEC can ask questions, request clarifications or instruct the company to fill or amend certain sections of the filing.

Example of an Effective Date

The IPO process is tightly controlled by the SEC. Twilio Inc. filed for an IPO on May 26, 2016. Shortly after, the company submitted an amended filing, taking care to print on the cover page of the prospectus the following: "The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine." The effective date turned out to be June 23, 2016. Twilio's shares began trading that day.

RELATED TERMS
  1. SEC Form 8-A

    SEC Form 8-A is one of the basic forms the SEC requires for securities ...
  2. Value Date

    A value date is a future date used in determining the value of ...
  3. Announcement Date

    Announcement date is the date on which a company will announce ...
  4. SEC POS AM Filing

    An SEC POS AM filing is one that is made by companies that have ...
  5. Future Dating

    Future dating refers to crediting a bank account to which the ...
  6. Broken Date

    Broken date is a term used to describe a nonstandard maturity ...
Related Articles
  1. Investing

    Target Date Funds: More Popular, Cheaper Than Ever

    How target date funds can help investors weather volatility when it comes to saving for retirement.
  2. Financial Advisor

    5 Ways to Date on a Budget

    Dating on a budget doesn't have to be boring. Try these 5 tips to find the best dates on a budget.
  3. Investing

    Declarations, Ex-Dividends and Record Dates

    Understanding the dates of the dividend payout process can be tricky. We clear up the confusion.
  4. Investing

    Vanguard Blows Past Rivals in Target Date Fund Assets

    Vanguard had a strong 2017 when it came to target date funds, blowing past its rivals in terms of assets under management.
  5. Personal Finance

    Policing The Securities Market: An Overview Of The SEC

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

    Understanding The Top SEC filing forms

    It's easier than ever to keep track of your SEC filing status online.
  7. Trading

    Twilio Stock Breaks Out From Reaction Highs

    Twilio shares extended their rally dating back to early February with a breakout, but traders will be watching these key levels.
  8. Investing

    Twilio Files a $400 Million Offering Proposal

    Cloud communications specialist Twilio (NYSE: TWLO) has announced a $400 million secondary offering, consisting of $50 million worth of new Class A shares, with the remainder to be existing ...
RELATED FAQS
  1. What do T+1, T+2 and T+3 mean?

    For security transactions, T+1, T+2, and T+3 refer to settlement dates which occur on a transaction date plus one, two and ... Read Answer >>
Trading Center