Quick Answer
A federal offering moves through three periods: pre-filing (offers and sales prohibited, with narrow exceptions), cooling-off (oral offers, qualifying written prospectuses, and limited identifying notices allowed, but no sales), and post-effective (sales allowed, with applicable final-prospectus delivery or access-and-notice duties). A tombstone ad is not a prospectus.
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 under the Securities Act of 1933 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) | Only narrow exceptions, such as a limited notice of the proposed offering | Offers and sales are prohibited, apart from those narrow exceptions |
| Cooling-off (waiting) period (after filing, before effectiveness) | Oral offers; qualifying preliminary or free writing prospectuses; limited identifying notices | Sales are prohibited; written offers generally must be a qualifying prospectus, subject to identifying-notice and other exceptions |
| Post-effective (after the registration statement becomes effective) | Sales may begin; oral and permitted written offers; tombstone ads | Carrying or delivering the security without satisfying applicable final-prospectus delivery or access-and-notice duties |
Exam Tip: Gotchas
During the cooling-off period, oral offers ARE permitted. Written offers generally must be a qualifying preliminary or free writing prospectus, but a limited identifying notice is excluded from prospectus status and may solicit an offer when its conditions are met. Sales remain PROHIBITED until effectiveness.
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 a nonconforming prospectus, and unlawful to carry or deliver a security for sale or after sale without required final-prospectus compliance. Eligible offerings may use the federal access-and-notice route instead of physical delivery
- 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 a solicitation before a federal filing exists, that alone is a violation regardless of whether a sale ever happens, unless a narrow exception applies.
Narrow SEC exceptions include these: an issuer may publish a brief notice of a proposed offering that is not treated as an offer; a well-known seasoned issuer (a large, established SEC-reporting company) may make offers before filing; and an issuer, or a person authorized to act for it, may gauge the interest of qualified institutional buyers and institutional accredited investors before filing. A first-time issuer cannot be a well-known seasoned issuer, so before filing it may gauge interest only from those institutional investors.
What Is a Tombstone Ad?
A tombstone ad is a brief notice, permitted once the registration statement has been filed (so during the cooling-off period and after effectiveness), that is limited to identifying information about the offering, such as:
- The security
- The issuer
- The price
- Where the prospectus may be obtained
- The names of the underwriters
Not every item on that list is optional:
- A tombstone ad generally must give the name and address of a person from whom a written prospectus may be obtained.
- A qualifying short notice that identifies the security, states the price and who executes orders, and points to the prospectus may omit the formal statements. A notice accompanied or preceded by a conforming prospectus or summary prospectus also has that exception.
- Outside those exceptions, a pre-effective notice must state that the registration statement has been filed but is not yet effective and that securities may not be sold, nor offers to buy accepted, before effectiveness.
Earnings projections, financial statements, and the underwriter's commission are not on the permitted list.
A tombstone ad is not considered a prospectus. When accompanied or preceded by the required prospectus and carrying the prescribed legend, it may solicit an offer to buy. It still does not supply detailed offering and risk disclosure or, by itself, satisfy final-prospectus delivery or an access-and-notice route.
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 from written offers, and separate qualifying prospectuses from limited identifying notices that remain outside prospectus status.
- Remember the pre-filing offer ban is the broadest of the federal prohibitions.
- Confirm a tombstone ad's limited content and post-filing timing. It may solicit an offer only under its specific conditions and never replaces detailed prospectus disclosure.