What Is a Greensheet?

A greensheet is a document prepared by an underwriter to summarize the main components of a new issue or initial public offering (IPO). Such documents are for internal use only, functioning as a marketing tool to help drum up interest from prospective institutional investors and brokers

Key Takeaways

  • A greensheet is a document prepared by an underwriter to summarize the main components of a new issue or initial public offering (IPO).
  • It is distributed to brokers and institutional sales desks of the underwriting firm to determine which clients may be interested in becoming large volume buyers.
  • The document generally includes a brief overview of the advantages and disadvantages of the new issue and information on initial pricing.

Understanding a Greensheet

Companies mainly issue new stock or bonds to raise capital for expansion. Any time a security is sold on the market for the first time, it can be described as a new issue. That includes securities for IPOs: the process whereby a private corporation gives up part of its ownership by offering shares to the general public.

Though potentially lucrative, issuing new securities is a complicated and challenging process that requires significant legwork. Companies are legally obligated to follow certain protocols and file lots of paperwork when taking this route. Companies will also do plenty of their own due diligence to ensure that this expensive, time-consuming task is worth pursuing.

One of the many important steps that must be taken is the hiring of an underwriter. These financial specialists work closely with the issuing body to determine the initial offering price of the securities, buy the securities from the issuer, and then sell them to investors via their distribution network.

A key part of the underwriter’s job involves putting together a greensheet: an internal marketing document circulated to brokers and institutional sales desks of the underwriting firm laying out the main information related to the offering. The purpose of a greensheet is to prepare salespeople to effectively market a new issue to the public and to determine which clients may be interested in becoming large volume buyers.

Greensheet vs. Prospectus

A greensheet is only an introduction to a new security issue and is not intended to be comprehensive in nature. For a complete breakdown of what an investment offering represents, it is necessary to consult the prospectus: a formal document required by and filed with the Securities and Exchange Commission (SEC) that is made available to everyone.

The prospectus is used to help sell an investment to the general public. A greensheet, on the other hand, is only designed for internal use and contains information considered most important to a registered representative (RR).

Generally, a greensheet will contain a brief overview of the advantages and disadvantages of the new issue, including any benefits and risks, as well as insights on initial pricing. Armed with these basic details, an RR can then decide whether it wants to offer the issue to its clients.

Important

A greensheet must not be circulated outside of the brokers and institutional sales desks of the underwriting firm. By law, it should only contain information that would appear in the issue's prospectus.

Special Considerations

A greensheet, by law, contains only information that would appear in the issue's prospectus. Its job is to make a balanced presentation of the contents found in a prospectus and not add anything new.

The greensheet should also contain a disclosure that explains the purpose of the document, the restrictions on its distribution, the limitations on the information it contains, and a statement that specifies that the information is not a solicitation of securities.