Execution and Distribution

The whole twelve-section unit on one sheet: marketing, book-building, pricing, allocation, the spread, the greenshoe, stabilization, Regulation M, and the customer-protection layer.

The One-Liners That Win Points

• The road show launches after the preliminary (red herring) prospectus is filed and runs through pricing; bankers train management, they do not present.
• One-on-ones with anchor accounts produce the largest indications of interest; a single top-tier account can cover 15-25% of the book.
• An indication of interest (IOI) is non-binding until the final price is set; the aggregated demand curve drops as price rises.
• Quality of account (long-only holder vs flipper) can override IOI size in allocation.
• A covered book at the high end is NOT a guarantee of pricing at the high end; long-only demand at the midpoint often beats hot-money demand at the top.
• The decision to launch, slip, or pull the deal sits with the bookrunner, not the issuer.
• The selling concession is the only variable spread component, paid only on shares actually placed.
• The greenshoe (over-allotment) is the only Securities and Exchange Commission (SEC)-sanctioned post-pricing stabilization mechanism alongside the stabilizing bid.
• A stabilizing bid must be at or below the offering price; only one at a time in the principal market; the syndicate manager places it.
• Regulation M restrictions run BEFORE pricing; stabilization runs AFTER pricing (sequential, not simultaneous).
• The new-issue rule covers initial public offerings (IPOs) of common equity only; a restricted person may buy a preferred IPO, convertible IPO, follow-on, or private placement.
• Regulation Best Interest (Reg BI) applies to retail recommendations only; the FINRA suitability rule remains operative for institutional accounts.
• Form CRS (Customer Relationship Summary) must be filed AND delivered, capped at two pages, before or at the time of placing the order.

Numbers to Lock In

Road Show and Investor Targeting

• Three meeting formats: one-on-ones (anchor institutions, biggest IOIs), group lunches (mid-size accounts, breadth), video conferences (remote / time-zone gaps).
• Prospect list is built from a review of the issuer's current shareholders (follow-ons) plus shareholders of comparable companies; an IPO uses only the comparable-company review.
• Permitted materials: preliminary prospectus (must always be available during marketing), free writing prospectus (FWP) (the only sanctioned channel for written extras), road show slides, tombstone ads.

Building the Book and Indications of Interest

• The book is the bookrunner's live ledger; it tracks investor interest, price-level information, prospective investors, and the underwriter split.
• IOIs aggregate into a demand curve at each price level; non-binding until the final price is set.
• Before allocation every account clears three screens: know-your-customer (KYC) and anti-money-laundering, new-issue eligibility, and quality-of-account analysis.

Sizing, Pricing, and Timing

• Two external calendars gate the launch: competing transactions (sector overlap drains dedicated buyers) and economic data (consumer price index, Federal Open Market Committee, non-farm payrolls).
• Price and size blend eight inputs (IOIs, supply and demand, market conditions, volatility, investor feedback, comparable-peer trading, existing-holder participation, valuation).
• Standard print window is Tuesday through Thursday; Mondays and Fridays are avoided for liquidity and aftermarket reasons.

Allocation: Retail vs Institutional

• Retail demand flows through free retention (member keeps the full selling concession); institutional demand flows through the pot.
• Fixed pot: concession split set before the book opens, buyer has no leverage. Jump-ball pot: the institutional buyer designates which member earns the selling-concession credit.
• Designations are buyer-directed concession credits inside the pot; order verification and branch confirmation happen before allocation lock.

Underwriter's Spread Components

• Gross spread (underwriting discount) = public offering price (POP) minus net proceeds to the issuer.
• Management fee (~20%): lead / co-managers for structuring, book-running, drafting. Underwriting fee (~20%): risk capital, covers stabilization losses. Selling concession (~60%): the only variable piece, paid on shares actually placed.
• The 20 / 20 / 60 split is a market convention, not a regulatory rule.

Greenshoe (Over-Allotment) Option

• Underwriters may buy up to 15% of the BASE offering in extra shares from the issuer at the offering price (less the gross spread), within typically 30 days.
• Stock above offering price: exercise the greenshoe (issuer issues new shares). Stock below: cover via open-market purchase (stabilizing bid). Partial exercise is common.
• Disclosed in the prospectus as a possibility, not a commitment.

Stabilization and Syndicate Covering

• A stabilizing bid pegs, fixes, or maintains the price; it must not exceed the offering price, only one at a time in the principal market, disclosed in the prospectus, identified to the market, placed by the syndicate manager.
• A penalty bid reclaims the selling concession from a member whose customers flip into the stabilization effort.
• Records (security, price, date and time of each stabilizing purchase and syndicate covering transaction) kept at least 3 years (first 2 easily accessible); stabilization ends when the manager terminates it or the distribution completes.

Regulation M Trading Restrictions

• Restricted period scales by liquidity: actively traded (ADTV at least $1 million AND float at least $150 million) is excepted; mid-cap (ADTV at least $100,000 AND float at least $25 million) is 1 business day; everything else is 5 business days.
• Nasdaq passive market making is permitted, capped at the highest current independent bid (follower, not leader).
• A short sale during the restricted period bars the seller from buying the offering (strict liability, intent irrelevant, narrow bona fide purchase exception).

New-Issue Allocation Restrictions

• Restricted persons: broker-dealer personnel and owners, finders and fiduciaries, portfolio managers, and immediate family (spouse, parents, in-laws, siblings, children, household or material-support recipients).
• Spinning (allocating hot IPO shares to executives who can direct banking business) is prohibited with no explicit agreement required.
• Fixed-price offering rule bars reduced-price sales including economic equivalents (free research, below-market services); pre-listing rule blocks off-exchange IPO trades until the listing exchange opens.

Regulation Best Interest and Form CRS

• The FINRA suitability rule has three obligations (reasonable-basis, customer-specific, quantitative); the institutional-customer exemption modifies the customer-specific piece.
• Reg BI (retail only) adds four obligations: disclosure, care, conflict-of-interest (mitigate, not just disclose), and compliance.
• Form CRS retail-investor definition turns on purpose (personal / family / household), not net worth or sophistication; a $50-million-net-worth individual investing personal assets is still a retail investor.

Top Gotchas

• The 15% greenshoe cap is on the BASE offering, not the total; a 10 million share base permits 1.5 million greenshoe shares (11.5 million total maximum).
• A stabilizing bid tracks downward only; it can sit at or below the offering price and may never exceed it.
• Regulation M runs before pricing; stabilization runs after (two sequential regimes with separate triggers).
• The short-sale prohibition is strict liability; a routine short in the restricted period bars the offering purchase even with no manipulative intent.
• A SPAC IPO, preferred IPO, convertible IPO, follow-on, or private placement is NOT a "new issue"; only an IPO of common equity triggers the new-issue rule.
• Reg BI's conflict obligation requires mitigation, not just disclosure; disclosure alone does not satisfy it.
• Form CRS must be filed AND delivered; filing alone is not enough, and the two-page cap is hard.
• NSMIA preempts state REGISTRATION, not state ANTIFRAUD authority; notice filings and filing fees survive, and preemption is by transaction type, not blanket.
• Bankers train management; they do not present at the road show, and the internal sales memo is firm-internal, never the prospectus.

One-Breath Recap

Execution starts with the road show (management presents, bankers coach) launched after the red herring is filed, feeding non-binding indications of interest into the book, whose demand curve the bookrunner reads alongside market conditions to size, price, and time the print (Tuesday through Thursday). Allocation splits retail (free retention) from the institutional pot (fixed or jump-ball), and the gross spread divides 20% management, 20% underwriting, and 60% selling concession, the only variable piece. Post-pricing support runs through the greenshoe (up to 15% of the base, typically 30 days) and stabilizing bids (at or below the offering price, one at a time, syndicate manager places it), while Regulation M restricts participant trading before pricing and the short-sale prohibition bars restricted-period shorts from the offering. The new-issue rule keeps restricted persons out of common-equity IPOs, bars spinning, and enforces fixed pricing; Reg BI, the suitability rule, and Form CRS protect the end customer; and NSMIA preempts state registration but leaves antifraud and notice filings intact.

Need more than the recap? This is a condensed summary. If it is not enough, read the full Execution and Distribution unit for the complete lesson.