Federal Registration Under SA Section 5
State registration does not operate in a vacuum. Two of the three state methods (filing and coordination) depend on a concurrent federal registration. Understanding the federal registration timeline under Section 5 of the Securities Act of 1933 (SA) is essential context for how state and federal registration interact.
The Three Time Periods
Section 5 of the SA divides the registration process into three distinct periods, each with different rules about what is permitted:
| Period | Allowed Activities | Prohibited Activities |
|---|---|---|
| Pre-filing (before registration statement filed) | Nothing related to the offering | ALL offers and sales prohibited |
| Waiting period (after filing, before effectiveness) | Oral offers; preliminary ("red herring") prospectus; tombstone ads | Sales prohibited; written offers only via preliminary prospectus |
| Post-effective (after registration becomes effective) | Sales with final prospectus delivery; all offers | Sales without final prospectus delivery |
Key Prohibitions
- Section 5(a): Unlawful to sell a security using interstate commerce or the mails unless a registration statement is in effect
- Section 5(b): Unlawful to transmit any prospectus that does not meet statutory requirements for a registered security; unlawful to deliver a security for sale without an accompanying prospectus
- Section 5(c): Unlawful to offer to buy or sell a security before a registration statement has been filed
Exam Tip: Gotchas
During the WAITING PERIOD, oral offers ARE permitted but written offers are only permitted via the preliminary prospectus (the "red herring"). Sales are PROHIBITED until the registration statement becomes effective. Section 5(c) is the broadest prohibition: it bans even OFFERS before the registration statement is filed. The sequence to remember: file first, then offer, then sell.
Tombstone Ads
A tombstone ad is a brief notice that identifies:
- The security
- The issuer
- The price
- Where the prospectus may be obtained
Key facts about tombstone ads:
- Permitted during the waiting period
- NOT considered a prospectus
- NOT considered an offer to sell
- Does not replace the prospectus delivery requirement
Exam Tip: Gotchas
- A tombstone ad is not a prospectus and not an offer. This is why tombstones are permitted in the waiting period even though most written communications about the offering are restricted. Don't confuse tombstones with sales literature.
Connection to State Registration
The federal effective date is the trigger for state registration effectiveness under both filing and coordination:
- Filing: State registration becomes effective concurrent with federal effectiveness (after 5 business days on file)
- Coordination: State registration becomes effective concurrent with federal effectiveness (after 10 days on file + 2 business days for price amendment)
- Qualification: No connection to federal registration; becomes effective only when the Administrator orders