Quick Answer
A new issue moves through three registration periods: pre-filing (no offers or sales), cooling-off (oral offers plus red herring, indications of interest, no money), and post-effective (final prospectus, selling begins). A syndicate distributes it under firm commitment or best efforts. Exemptions include Regulation D private placements, and a resale safe harbor governs restricted stock.
The whole unit on one sheet: the new-issue process, the periods, the syndicate, the exemptions, and the resale rules the exam loves.
The New-Issue Process and Registration Periods
- Due diligence is the underwriter's responsibility, not the issuer's. Failing to verify material facts shares liability under the Securities Act of 1933.
- Registration statement filed with the Securities and Exchange Commission (SEC): Part I (prospectus) goes to investors; Part II is filed and available on request only.
- Pre-filing: no offers or sales, written or oral.
- Cooling-off (waiting): begins when the registration is filed, minimum 20 days. Permitted: oral offers, the red herring (preliminary prospectus), tombstone ads, and gathering indications of interest (non-binding). No sales, no money, no binding commitments.
- Post-effective: SEC declares registration effective; sales begin; final prospectus delivered to all purchasers.
- Red herring omits the final price and effective date; printed with a red ink legend.
Syndicate Formation and Commitment Types
- A syndicate is a temporary group of underwriters; it disbands after the offering (typically 30 days).
- Firm commitment: underwriter buys the ENTIRE issue and absorbs the loss on unsold shares.
- Best efforts: underwriter acts as agent; unsold shares return to the issuer. All-or-none and mini-max are types of best efforts.
- Spread splits roughly: management fee ~20%, underwriting fee ~20%, selling concession ~60% (the largest single component).
- Total takedown = underwriting fee + selling concession.
The One-Liners That Win Points
- Indication of interest (permitted in cooling-off) is NOT binding; an order is prohibited until post-effective.
- Selling group members do NOT assume underwriting risk; they earn only the selling concession.
- Regulation A uses Form 1-A and an offering circular (SEC qualifies it before sale); securities are freely tradable.
- Regulation D files Form D as a notice after the first sale; securities are restricted.
- The restricted-stock resale rule governs resale of restricted (private-placement) and control (affiliate) securities.
- Under the intrastate-offering rule, even ONE out-of-state buyer destroys the exemption for the ENTIRE offering.
- Stabilization is the only legal form of price manipulation, and it must be disclosed in the prospectus.
Numbers to Lock In
| Item | Value |
|---|---|
| Cooling-off minimum length | 20 days |
| IPO preliminary-prospectus delivery | at least 48 hours before confirmation |
| IPO / listed prospectus delivery | 25 days after effective date |
| Prospectus update rule | 9 months from effective date |
| Shelf registration (WKSIs) | up to 3 years |
| Corporate financing filing with FINRA | within 3 business days of SEC filing |
| Accredited investor income | over $200,000 single / $300,000 joint (each of last 2 years) |
| Accredited investor net worth | over $1 million (excludes primary residence) |
| Reg D non-accredited cap (no solicitation) | up to 35 (must be sophisticated) |
| Form D filing | within 15 days of first sale |
| Restricted-stock resale holding period | 6 months (reporting) / 1 year (non-reporting) |
| Restricted-stock affiliate volume limit | greater of 1% of outstanding OR avg weekly volume (prior 4 weeks) per 3 months |
| Form 144 filing trigger | over 5,000 shares OR $50,000 in any 3 months |
| Intrastate resale restriction | 6 months to out-of-state residents |
| QIB threshold | $100 million ($10 million for broker-dealers) |
| Regulation S distribution compliance | 40 days (1 year for certain equity by non-reporting issuers) |
| IPO de minimis exemption | 10% of the account |
| Conflict-of-interest trigger | more than 5% of net proceeds to the member |
| Trust Indenture Act threshold | corporate debt over $10 million |
Top Gotchas
- The 48-hour IPO preliminary-prospectus rule is separate from the 25-day prospectus delivery obligation; do not confuse them.
- Reg D with general solicitation permits advertising but requires ALL investors to be accredited and the issuer to verify their status; the no-solicitation tier allows up to 35 non-accredited but bars solicitation.
- The 5,000-share / $50,000 figure is the Form 144 filing trigger, not the sales ceiling; the ceiling is the volume formula.
- QIB status (institutions with $100 million-plus in securities) is never available to retail investors; individuals never qualify regardless of wealth.
- Regulation S is not "unregulated": securities still cannot go to U.S. persons during the distribution compliance period, and "no directed selling efforts" applies to both safe harbors.
- Spinning (giving hot IPO shares to executives to win banking business) may be described without the word "spinning"; recognize the pattern.
- A stabilizing bid must be AT or BELOW the public offering price, may follow the market down, and may never be raised.
- Municipal securities are exempt from SEC registration; the official statement is an MSRB document, not an SEC prospectus.
- The Trust Indenture Act threshold is $10 million (corporate debt, not equity); the $50 million and $75 million figures come from Regulation A, a separate exemption.
One-Breath Recap
A new issue runs pre-filing (nothing), cooling-off (red herring, oral offers, indications of interest, no money) minimum 20 days, then post-effective (final prospectus, selling begins). A syndicate distributes it under firm commitment (buys the whole issue) or best efforts (unsold returns to the issuer), with the selling concession the biggest slice of the spread. Master the exemptions (Regulation D private placements, accredited thresholds, restricted-stock resale holding periods and volume limits, Regulation S) and the anti-manipulation lines, and this ten-section unit answers itself.
Need more than the recap? This is a condensed summary. If it is not enough, read the full New Issues and Underwriting unit for the complete lesson.