Quick Answer
A public offering runs three registration phases (pre-filing, waiting, post-effective), and underwriters defend the registration statement through due diligence. Everything else is exemptions (Regulation D, Regulation S, Regulation A), FINRA compensation review, allocation and conflict rules, Regulation M anti-manipulation, information barriers, mergers-and-acquisitions mechanics, periodic reporting, and the bankruptcy claims waterfall.
The whole unit on one sheet: registration, private offerings, underwriting economics, allocations, due diligence, deals, distribution conduct, and creditor priority.
The One-Liners That Win Points
- Three phases: pre-filing (no offers), waiting period (oral offers, red herring, no sales), post-effective (sales, final prospectus). Filing unlocks talking; effectiveness unlocks selling.
- The Securities and Exchange Commission (SEC) does not approve a security. Review is disclosure, not merit; the SEC declares a registration effective.
- Strict liability falls only on the issuer. Directors, signatories, underwriters, and experts get the due-diligence defense; good faith is not enough (the standard is reasonable investigation).
- Shelf registration is a registered offering, not an exemption; a well-known seasoned issuer (WKSI) takes down over up to three years.
- Regulation D securities are restricted; Regulation A securities are generally freely tradable (a "mini-initial public offering (IPO)" via an offering circular on Form 1-A).
- The institutional-resale exemption does not register anything; it just lets qualified institutional buyers (QIBs) trade unregistered securities among themselves.
- A conflict of interest requires a Qualified Independent Underwriter (QIU) to price the deal (unless investment-grade or a bona-fide independent market exists).
- Restricted persons (broker-dealers, their associated persons, materially supported family) may not buy new-issue equity; this covers equity new issues only.
- Spinning (new-issue shares to executives as a quid pro quo for banking business) is banned; flipping itself is legal (the firm may lose its concession, but the customer is held harmless).
- Stabilization is legal manipulation: one bid at a time, at or below the offering price, disclosed in the prospectus.
- Watch list = confidential surveillance only; restricted list = firm-wide trading prohibition. Names move watch-then-restricted as the deal goes public.
- A tender offer must stay open at least 20 business days; the target files its position within 10 business days.
- Bankruptcy waterfall: secured, administrative expenses, priority unsecured, general unsecured, subordinated debt, preferred, common.
Numbers to Lock In
| Item | Value |
|---|---|
| Default effectiveness | 20th day after the most recent amendment (unless SEC accelerates) |
| Shelf registration term | up to 3 years from the original effective date |
| Accredited investor income | over $200,000 single / $300,000 joint (each of the last two years) |
| Accredited investor net worth | over $1 million (excludes primary residence) |
| Regulation D non-accredited cap (no solicitation) | up to 35 sophisticated purchasers |
| Regulation D small-offering exemption | $10 million in 12 months |
| Regulation A Tier 1 / Tier 2 cap | $20 million / $75 million in 12 months |
| Form D filing | within 15 days of the first sale |
| QIB threshold | manages $100 million or more in securities |
| Corporate-financing FINRA filing | within 3 business days of a regulator filing (or at least 15 business days before sale if none) |
| Compensation-securities lock-up | 180 days from the effective date |
| Right-of-first-refusal cap | prohibited beyond 3 years |
| Conflict-of-interest trigger | 5% or more of net offering proceeds to the member |
| New-issue eligibility representation | renewed every 12 months |
| Regulation M restricted period | 1 business day (actively traded) / 5 business days (less liquid) before pricing |
| Actively-traded thresholds | average daily trading volume at least $1 million AND public float at least $150 million |
| Syndicate-account settlement | within 90 days of the syndicate settlement date |
| Tender-offer minimum period | 20 business days (10 additional if price or amount changes) |
| Target-company response | within 10 business days on Schedule 14D-9 |
| Beneficial-ownership 5% report | Schedule 13D within 5 business days |
| Schedule 13D amendment trigger | 1% change of the outstanding class, within 2 business days |
| Schedule 13F threshold | discretion over $100 million in covered securities, quarterly |
| Form 8-K | within 4 business days of a triggering event |
| Regulation FD unintentional disclosure | public within 24 hours |
| Exchange Act size trigger | assets over $10 million AND 2,000 or more holders of record |
Top Gotchas
- Regulation D tiers: small-offering exemption (no accreditation, $10 million cap), accredited-plus-up-to-35-sophisticated (no solicitation), and accredited-only-with-verification (solicitation allowed, but self-certification is NOT enough). More investor rigor buys a higher dollar limit.
- Regulation S is separate from Regulation D; a "U.S. person" includes U.S.-resident individuals and U.S.-domiciled entities, so selling to one abroad still destroys the exemption.
- Regulation M restricted period is set by BOTH average daily trading volume AND public float; miss either and it is the 5-business-day window. Issuers face stricter rules (fewer exceptions) than distribution participants, and the reference security is covered too.
- Watch vs. restricted list: a watch-list entry is surveillance only (desks below the wall trade normally because they do not know); a restricted-list entry is an actual trading prohibition known firm-wide. This is a frequent exam trap.
- The tender-offer disclose-or-abstain duty needs NO fiduciary breach (unlike classical insider trading); anyone with material nonpublic information (MNPI) about a tender offer must disclose or abstain.
- The 5% conflict test is on NET proceeds, not gross; becoming an affiliate as a result of the offering is itself a conflict.
- Preferred stock is always equity, junior to every debt class; subordinated bondholders still outrank all equity. Secured creditors with short collateral split across two priority buckets.
- Form 8-K is 4 business days; Regulation Fair Disclosure (Reg FD) unintentional disclosure is 24 hours. Do not swap the two.
One-Breath Recap
A public offering moves through pre-filing (no offers), the waiting period (oral offers and a red herring, no sales), and post-effective (final prospectus, selling begins), with default effectiveness on the 20th day after the last amendment. Underwriters carry the due-diligence defense that the issuer never gets. Private deals ride Regulation D (accredited thresholds, up to 35 non-accredited, Form D within 15 days), Regulation S offshore, or Regulation A mini-IPO tiers, and resales run through restricted-securities or QIB safe harbors. FINRA reviews compensation under the corporate-financing rule, polices conflicts with a Qualified Independent Underwriter above 5% of net proceeds, bars restricted-person new-issue purchases, and prohibits spinning while leaving flipping legal. Regulation M sets the restricted period and permits only disclosed, at-or-below-price stabilization; information barriers separate watch lists from firm-wide restricted lists. Tender offers stay open at least 20 business days, crossing 5% triggers a Schedule 13D within five business days, periodic reporting runs 10-K, 10-Q, and 8-K with Reg FD guarding selective disclosure, and the bankruptcy waterfall pays secured creditors first and common shareholders last.
Need more than the recap? This is a condensed summary. If it is not enough, read the full Investment Banking Activities unit for the complete lesson.