Quick Answer
After pricing, the bank road-shows the deal, builds a book of non-binding indications of interest off the demand curve, then sizes, prices, and allocates between retail (free retention) and the institutional pot. The gross spread splits 20% management, 20% underwriting, 60% selling concession. Greenshoe, stabilizing bids, Regulation M, the new-issue rule, Reg BI, and Form CRS govern the mechanics.
The whole twelve-section unit on one sheet: marketing, pricing, allocation, the spread, stabilization, Regulation M, the new-issue rule, and customer protection.
Which One-Liners Win Points?
- The road show launches after the preliminary (red herring) prospectus is filed and runs through pricing.
- One-on-ones with anchor accounts produce the largest indications of interest; a top-tier account can cover 15-25% of the book.
- An indication of interest (IOI) is non-binding until final pricing; the demand curve drops as price rises.
- Quality of account (long-only vs flipper) can override IOI size. Retail allocates through free retention; institutional through the pot, fixed (split set pre-launch) or jump-ball (buyer designates the earning member).
- A covered book at the high end is NOT a guarantee of pricing there; long-only demand often beats hot-money demand.
- The bookrunner recommends the launch, slip, or pull; the issuer's authority and the underwriting agreement make the final call.
- Gross spread = offering price minus net proceeds to the issuer; 20/20/60 is convention, not rule. Selling concession is the only variable piece, paid on shares placed.
- Exercise the greenshoe (new shares) above the offering price; cover via open-market purchase below.
- A penalty bid reclaims the concession from a member whose customers flip.
- Nasdaq passive market making trails the highest independent bid (a follower, never a leader) and pauses during a stabilizing bid or an at-the-market offering.
- The new-issue rule covers IPOs of common equity only. A relative is restricted only via material support, working for the member, or allocation control, not by relationship alone.
- Reg BI (retail only) adds four obligations: disclosure, care, conflict-of-interest, compliance. Suitability covers institutional accounts, exempt only if BOTH the firm believes in independent capability AND the customer exercises judgment.
- Form CRS's retail-investor test turns on purpose, not net worth or sophistication. Research analysts cannot join road shows for a banking deal; the EGC attend-but-never-solicit carve-out is for pitch meetings, not road shows.
Which Numbers Matter Most?
| Item | Value |
|---|---|
| Gross spread split | Management ~20%, underwriting ~20%, selling concession ~60% |
| Greenshoe | ≤15% of the base offering, exercised within ~30 days |
| Stabilization figures | 10-15% aftermarket buffer target; one bid at a time, principal market; recordkeeping ≥3 years (first 2 easily accessible) |
| Reg M restricted period | Actively traded (excepted): ADTV ≥ $1M, float ≥ $150M. Mid-cap: 1 business day (ADTV ≥ $100K, float ≥ $25M). Other: 5 business days. |
| Short-sale restriction before pricing | Shorter of 5 business days before pricing or filing-to-pricing window |
| New-issue rule timing | De minimis ≤10% restricted-person interest; annual representation past 12 months; FINRA notice due close of business next business day |
| DPP / non-traded REIT figures | Org/offering expenses presumed unfair >15% of gross proceeds; underwriter compensation presumed unfair >10%; per-share value disclosed within 150 days of the 2nd escrow-break anniversary, then annually |
| Nasdaq passive market making purchase limit | Greater of 30% of ADTV or 200 shares |
| Research quiet period | IPO manager/co-manager: 10 calendar days. Secondary offering manager/co-manager: 3 calendar days. |
| Form CRS recordkeeping | ≥6 years |
| NYSE / Nasdaq Global Select IPO listing minimums | NYSE: 400 holders / 1.1M shares / $40M value / $4 price. Nasdaq: 450 holders (or 2,200 total) / 1.25M shares / $45M value / $4 price. |
Which Gotchas Trip Students Up?
- The 15% greenshoe cap applies to the BASE offering, not the total.
- 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 until the distribution completes, often past pricing; stabilization is a permitted exception during it, not a later regime.
- The short-sale prohibition is strict liability; a routine short in the restricted period bars the offering purchase regardless of intent.
- A SPAC, preferred, convertible, or follow-on IPO, or a private placement, is NOT a "new issue"; only a common-equity IPO triggers the rule.
- Reg BI's conflict obligation has four pieces, not one blanket "mitigate" rule: disclose/eliminate broadly, mitigate incentives, block firm-first limits, eliminate contests/quotas.
- Form CRS must be filed AND delivered, capped at two pages, before or at the earliest of a recommendation, order, or account opening.
- NSMIA preempts state REGISTRATION, not ANTIFRAUD authority. Notice filings/fees survive for some covered categories but are ALSO preempted for listed securities; preemption runs by transaction type, not blanket.
- Bankers train management; they do not present at the road show. The internal sales memo is firm-internal, never the prospectus.
One-Breath Recap
The road show launches after the red herring is filed, feeding non-binding IOIs into the book; the bookrunner reads the demand curve to recommend size, price, and timing for the issuer to approve. Allocation splits retail (free retention) from the institutional pot (fixed or jump-ball), and the gross spread divides 20% management, 20% underwriting, 60% selling concession, the only variable piece, by convention not rule. Post-pricing support runs through the greenshoe (up to 15% of the base) and stabilizing bids (one at a time, downward only), while Regulation M restricts trading through the distribution and the short-sale rule bars restricted-period shorts from the offering. The new-issue rule keeps restricted persons out of common-equity IPOs; Reg BI, suitability, and Form CRS protect the customer; NSMIA preempts state registration, never antifraud.
Need more than the recap? Read the full Execution and Distribution unit.