Quick Answer
A federal securities offering moves through three periods: pre-filing (no offers or sales of any kind), the cooling-off (waiting) period (oral offers and a preliminary prospectus allowed, sales prohibited), and post-effective (sales allowed once the final prospectus is delivered). A tombstone ad is a brief identifying notice, permitted in the cooling-off period, that is not a prospectus and does not replace prospectus delivery.
The Series 63 study guide names this federal offering timeline and tombstone ads as separately testable subjects. This unit's other lessons cover state registration; this lesson covers the parallel federal timeline that governs what an issuer, underwriter, or broker-dealer may say and do about a security before the federal registration statement takes effect.
What Are the Three Periods of a Federal Offering?
| Period | Allowed Activities | Prohibited Activities |
|---|---|---|
| Pre-filing (before the registration statement is filed) | Nothing related to the offering | ALL offers and sales are prohibited |
| Cooling-off (waiting) period (after filing, before effectiveness) | Oral offers; a preliminary ("red herring") prospectus; tombstone ads | Sales are prohibited; written offers may be made only through the preliminary prospectus |
| Post-effective (after the registration statement becomes effective) | Sales with final prospectus delivery; all offers | Sales without final prospectus delivery |
Exam Tip: Gotchas
During the cooling-off period, oral offers ARE permitted, but written offers are permitted only through the preliminary prospectus. Sales remain PROHIBITED until the registration statement is effective. Do not treat "no written offers" as "no offers at all"; the restriction is on the form, not the existence, of offers.
What Do the Federal Prohibitions Actually Cover?
The federal registration provision imposes three distinct prohibitions, each triggered by a different event:
- Unlawful to sell a security using interstate commerce or the mails unless a registration statement is in effect
- Unlawful to transmit any prospectus that does not meet statutory requirements for a registered security, and unlawful to deliver a security for sale without an accompanying prospectus
- Unlawful to offer to buy or sell a security before a registration statement has been filed
Exam Tip: Gotchas
The prohibition on offering before a registration statement is filed is the broadest of the three: it bans even offers, not just sales, before the registration statement is filed. If a fact pattern describes any solicitation before a federal filing exists, that alone is a violation regardless of whether a sale ever happens.
What Is a Tombstone Ad?
A tombstone ad is a brief notice, permitted during the cooling-off period, that identifies:
- The security
- The issuer
- The price
- Where the prospectus may be obtained
A tombstone ad is not considered a prospectus and is not considered an offer to sell. It does not replace the prospectus delivery requirement; a purchaser must still receive the final prospectus before or at the time of sale.
What Should You Check on Exam Day?
- Match the fact pattern to its period first: pre-filing, cooling-off, or post-effective. Each period has a different rule for offers, sales, and prospectus delivery.
- Distinguish oral offers (allowed in the cooling-off period) from written offers (limited to the preliminary prospectus in the cooling-off period).
- Remember the pre-filing offer ban is the broadest of the federal prohibitions.
- Confirm a tombstone ad's limited role: identification only, not a prospectus substitute, permitted only in the cooling-off period.