Execution and Distribution

The whole twelve-section unit on one sheet: sales-force marketing, the road show, book-building, pricing, allocation, the spread, the greenshoe, stabilization, Regulation M, the new-issue rule, the customer-protection layer, and exchange listing.

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 not exceed the lower of the offering price or the applicable stabilizing price in the principal market; only one at a time in the principal market; the syndicate manager places it.
• Regulation M restricts distribution participants from before pricing until they complete their participation in the distribution; stabilization is a permitted exception that operates during the distribution (a bid at or below the offering price).
• 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 earliest of a recommendation, an order being placed, or a brokerage account being opened.

Numbers to Lock In

Sales Force Education and Marketing Strategy

• The banking team preps the firm's internal sales force (institutional, retail, equity desks) with current trends, sales points, and use of proceeds before any outside investor sees a prospectus.
• The internal sales memo is firm-internal work product; distributing it to a potential investor breaches the information barrier and is a compliance violation.
• Status reports (marketing progress, market conditions, transaction timing) drive go / no-go and pricing decisions; the bookrunner owns the call.

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 only to prevent or retard a decline; it must not exceed the lower of the offering price or the applicable stabilizing price in the principal market, 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, syndicate members and commitments, penalty-bid periods) 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. Starts on the later of the pre-pricing date or when the person becomes a participant.
• Nasdaq passive market making is permitted, capped at the highest current independent bid (follower, not leader), daily net purchases capped at the greater of 30% of ADTV or 200 shares, and unavailable during a stabilizing bid or an at-the-market/best-efforts offering.
• A short sale during the restricted period bars the seller from buying the offering (strict liability, intent irrelevant, narrow bona fide-purchase and qualifying separate-account exceptions).

New-Issue Allocation Restrictions

• Restricted persons: broker-dealer personnel and owners, finders and fiduciaries, portfolio managers, and immediate family; a broker-dealer employee's relative is restricted only via material support, working for the selling member/affiliate, or control over the allocation, not by relationship alone.
• 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), lasting until termination or a bona fide public offering (trading above POP is presumed salable); pre-listing rule blocks off-exchange IPO trades until the listing exchange opens.
• The book-running manager (not each syndicate member) files new-issue distribution information (commitments and retention) with FINRA; eligibility records are kept at least 3 years after the last sale.

Regulation Best Interest and Form CRS

• The FINRA suitability rule has three obligations (reasonable-basis, customer-specific, quantitative); the institutional-customer exemption needs BOTH the firm's reasonable belief in independent capability AND the customer's affirmative exercise of independent judgment.
• Reg BI (retail only) adds four obligations: disclosure; care; conflict-of-interest (disclose/eliminate generally, mitigate associated-person incentives, block firm-first material limitations, eliminate sales contests/quotas); and compliance.
• Form CRS retail-investor definition turns on purpose (personal / family / household), not net worth or sophistication. Initial delivery is before or at the earliest of a recommendation, order, or account opening; existing customers, amendments, requests, and the firm's website trigger further delivery/posting duties.
• Research analysts cannot join road shows, pitches, or issuer marketing, except the EGC exception: an analyst may attend an emerging-growth-company pitch but not solicit business there.

Exchange Listing and State Preemption

• NYSE IPO: 400 round-lot holders, 1.1 million publicly held shares, $40 million market value, $4 share price, plus a financial test and qualitative requirements. Nasdaq Global Select IPO: 450 round-lot holders (or 2,200 total, at least half worth $2,500+ each), 1.25 million unrestricted shares, $45 million market value, $4 share price, plus a financial standard and market-maker requirement.
• NSMIA preempts state registration/qualification for covered securities; states retain antifraud authority for all covered securities, but notice filings and fees are also preempted for LISTED covered securities specifically (unlike some other covered-security categories, e.g. federal private placements, where notice filings/fees survive).
• Preemption runs by transaction type, not blanket; the same security can be covered for one transaction and not another.

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 may never exceed the lower of the offering price or the applicable stabilizing price in the principal market.
• 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 is four distinct pieces, not one blanket "mitigate" rule: disclose/eliminate generally, mitigate associated-person incentives, block firm-first material limitations, and eliminate sales contests/quotas outright.
• Form CRS must be filed AND delivered at the earliest of a recommendation, order, or account opening; filing alone is not enough, and the two-page cap is hard.
• NSMIA preempts state REGISTRATION, not state ANTIFRAUD authority. Notice filings and fees survive for some covered-security categories (e.g., federal private placements) but are ALSO preempted for exchange-listed covered securities; 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

Marketing starts internally: banking preps the sales force, then the road show (management presents, bankers coach) launches after the red herring is filed, feeding non-binding indications of interest into the book. The bookrunner reads the resulting demand curve 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).

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; exchange listing sets the holder and float thresholds; and NSMIA preempts state registration and, for listed securities, notice filings and fees too, while leaving antifraud enforcement intact everywhere.

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.