Registration Periods and Permitted Communications

Now that you understand the documents involved in bringing a new issue to market, the next step is understanding the three registration periods and what activities are permitted (or prohibited) during each one.

What Are the Three Registration Periods at a Glance?

What Happens During the Pre-Filing Period?

The pre-filing period covers everything before the registration statement is filed with the SEC.

• No offers or sales of the security are permitted, whether written or oral
• A pre-filing communications safe harbor permits certain communications that are NOT deemed an "offer" (e.g., factual business communications by the issuer that are not related to the offering)
• Well-known seasoned issuers (WKSIs) are a real exception: a WKSI is exempt from the pre-filing offer prohibition and may make oral and written offers before the registration statement is filed
• A WKSI's written pre-filing offer is a free writing prospectus. It must carry the prescribed legend and be filed with the SEC when the registration statement is filed

Exam Tip: Gotchas

"No offers before filing" is the rule for everyone except a WKSI. If a question names a well-known seasoned issuer, the blanket prohibition does not apply; the WKSI may make pre-filing offers. Do not read the general rule as absolute when the issuer is a WKSI.

What Happens During the Cooling-Off Period (Waiting Period)?

The cooling-off period begins when the registration statement is filed with the SEC and lasts a minimum of 20 days. The SEC may extend it by issuing a deficiency letter.

What IS permitted:

• Oral offers to sell
• Distributing the preliminary prospectus (red herring), the primary selling document during this period
• Tombstone ads: bare-bones announcements identifying the issuer, security type, underwriter, and where to get a prospectus. These are NOT considered a prospectus
• Gathering indications of interest (non-binding expressions of potential interest from investors)
• Free writing prospectus: permitted for seasoned issuers and WKSIs after filing. For IPO issuers, must be accompanied or preceded by the preliminary prospectus

What is NOT permitted:

• No sales may occur
• No money may be collected
• No binding commitments from investors

Exam Tip: Gotchas

During the cooling-off period, a firm may distribute the preliminary prospectus and accept indications of interest, but may NOT accept orders or collect money. An indication of interest is NOT binding on either party. Know the distinction between an indication of interest (permitted) and an order (prohibited).

What Happens During the Post-Effective Period?

The post-effective period begins when the SEC declares the registration effective. This is when the actual selling begins.

• Sales may now occur
• The final prospectus must be delivered to all purchasers
• All forms of offers are permitted

What Is the 48-Hour Preliminary-Prospectus Rule?

• When the issuer has not previously been a reporting company, which is the usual IPO case, each broker-dealer participating in the distribution must deliver the preliminary prospectus to anyone expected to receive a confirmation, at least 48 hours before that confirmation is sent
• "Participating in the distribution" means any underwriter and any selling-group member, not only the managing underwriter
• This gives buyers time to review the offering before they are committed

What Are the Prospectus Delivery Obligations?

Exam Tip: Gotchas

The 48-hour preliminary-prospectus rule applies specifically to IPOs: the preliminary prospectus must reach expected purchasers at least 48 hours before the confirmation. A common mix-up is the 48-hour delivery requirement versus the 25-day prospectus delivery obligation.