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.
The Three Periods at a Glance
| Period | Offers | Sales | Key Documents |
|---|---|---|---|
| Pre-filing | Prohibited | Prohibited | None |
| Cooling-off (waiting) | Oral offers + red herring | Prohibited | Preliminary prospectus, tombstone ad |
| Post-effective | Permitted | Permitted | Final prospectus required |
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
- SEC Rule 163A: 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): Large, established companies with significant public float may communicate more freely during this period
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 (SEC Rule 134): 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 (SEC Rules 164/433): 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. The exam frequently tests the distinction between an indication of interest (permitted) and an order (prohibited).
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
The 48-Hour Rule (SEC Rule 15c2-8)
- In an IPO, the managing underwriter must deliver the preliminary prospectus to expected purchasers at least 48 hours before sending a confirmation of sale
- This gives buyers time to review the offering before they are committed
Prospectus Delivery Obligations
| Offering Type | Delivery Requirement |
|---|---|
| IPO securities | Prospectus must accompany or precede any confirmation for 25 days after the effective date |
| Listed on an exchange | Prospectus delivery required for 25 days after the effective date |
| Reporting companies (follow-on offerings) | May be exempt from ongoing delivery under SEC Rule 172 |
Exam Tip: Gotchas
The 48-hour rule (Rule 15c2-8) applies specifically to IPOs: the preliminary prospectus must reach expected purchasers at least 48 hours before the confirmation. This is a commonly tested time frame. A common mix-up is the 48-hour delivery requirement versus the 25-day prospectus delivery obligation.