Communications Rules and Prospectus Delivery
Quick Answer
Two communications rules govern new-issue offerings. Rule 134 lets a broker-dealer run a tombstone ad listing the issuer, underwriters, and offering basics without violating Section 5. Rule 15c2-8 sets delivery deadlines: a preliminary prospectus 48 hours before confirmation for first-time IPOs, a final prospectus with every confirmation, and continuing aftermarket delivery of 25, 40, or 90 days.
The previous sections covered what documents exist (red herring, final prospectus, POS, OS) and when they apply. This section covers the narrow communication rules that let a broker-dealer (BD) talk about a pending issue without violating Section 5, and the hard delivery deadlines that govern the prospectus itself.
What is a Rule 134 tombstone ad?
Securities Act Rule 134 carves out a small list of communications that are NOT considered a prospectus under the Securities Act (SA). A Rule 134 ad is often called a tombstone ad because of its plain, boxed appearance.
Rule 134 ads can be used during the registration process without violating SA Section 5's prohibition on selling unregistered securities.
Permitted Content in a Rule 134 Ad
A Rule 134 ad may contain:
- Name of the issuer
- Title and amount of securities being offered
- Offering price or a method for determining it
- Brief description of the issuer's general business
- Names of the underwriters
- Anticipated offering date
- Statement that a prospectus is available and where to obtain one
- Required legend: the communication is not an offer to sell (sales can only be made by prospectus)
What Rule 134 Ads Cannot Contain
A tombstone ad cannot contain:
- Performance projections or yield promises
- Testimonials or customer endorsements
- Exaggerated or promotional language
- Recommendations or solicitation of purchase
Exam Tip: Gotchas
- A Rule 134 tombstone ad can list the issuer, the underwriters, and where to get a prospectus, but it cannot contain performance projections, recommendations, or sales pitches. The exam tests this by listing permitted and not-permitted items.
What does Rule 15c2-8 require for prospectus delivery?
Securities Exchange Act Rule 15c2-8 governs the BD's obligation to deliver preliminary and final prospectuses in connection with registered offerings. It is the operational backbone of prospectus delivery.
The 48-Hour Rule
For initial public offerings (IPOs) of first-time issuers, the BD must send a preliminary prospectus to any person expected to receive a confirmation of sale at least 48 hours prior to sending the confirmation.
- Applies only to non-reporting issuers (first-time IPO candidates)
- The 48 hours is measured from delivery of the preliminary prospectus to delivery of the confirmation
- May be satisfied by posting the preliminary prospectus on the issuer's website, provided access is available to the customer
Exam Tip: Gotchas
- The 48-hour rule applies to IPOs of first-time issuers, not every IPO. It requires the preliminary prospectus to be delivered at least 48 hours BEFORE the confirmation, not at the time of confirmation.
Final Prospectus Delivery
The BD must deliver a final prospectus with or before the confirmation of sale for any registered offering subject to Section 5. This is true for:
- IPOs
- Secondary offerings
- Continuous offerings by registered investment companies (satisfied through the delivery regime under Rule 482 and Rule 498)
Reasonable Steps to Furnish Prospectuses
The BD must take reasonable steps to furnish a copy of the preliminary or final prospectus to:
- Any person who requests one in writing
- Any selling group member expected to solicit purchases and requests a copy
How long must dealers continue delivering a prospectus after a registration is effective?
Even after a registration is effective, dealers must continue delivering a prospectus for a set aftermarket period. The timelines come from SA Section 4(a)(3):
| Offering Type | Aftermarket Period |
|---|---|
| Standard IPO (not exchange-listed) | 90 days after effective date |
| Follow-on offering by a reporting issuer | 40 days after effective date |
| Securities listed on a national exchange or reporting under the Exchange Act | 25 days after effective date |
The aftermarket period exists because secondary-market buyers still need access to the issuer's disclosures, even if they did not buy in the primary offering.
How do Rule 134 and Rule 15c2-8 work together in a new issue?
Think of it this way: Rule 134 lets the BD advertise a pending offering in a limited way without violating Section 5. Rule 15c2-8 sets hard deadlines on delivering the actual prospectus to anyone buying. The aftermarket periods extend that delivery requirement into the secondary market for a few weeks or months after the deal goes effective.