Quick Answer
New securities reach investors through offerings governed by the Securities Act of 1933. Know the participants (investment banker, syndicate, selling group, municipal advisor), the offering types (initial public offering, follow-on, secondary, private placement), the commitment types (firm vs. best efforts), the documents, and the exemptions (Regulation D, Regulation A, restricted-stock resale).
The whole unit on one sheet: who runs the deal, what type it is, who gets paid, what documents flow, and when registration can be skipped.
Participants: Who Takes Risk
| Role | Risk? | Function |
|---|---|---|
| Managing underwriter | Yes | Leads the deal, coordinates the syndicate, handles pricing and allocation |
| Syndicate members | Yes | Share underwriting risk, help distribute the securities |
| Selling group | No | Help sell the securities, earn a selling concession, bear no risk |
- Investment banker: the "quarterback," advises the issuer on structure, timing, and pricing.
- Municipal advisor: owes a fiduciary duty to the municipal client (higher than the underwriter's arm's-length standard).
- Transfer agent (bookkeeper: tracks who owns what), registrar (auditor: shares issued match the charter), custodian (vault: safekeeps securities and cash).
Offering Types: Who Gets the Money?
- Initial public offering (IPO): company's first sale of stock; proceeds go to the issuer.
- Follow-on / additional primary: new shares by an already-public company; proceeds go to the issuer.
- Secondary offering: current shareholders sell existing shares; proceeds go to the selling shareholder, NOT the issuer.
The One-Liners That Win Points
- Firm commitment = principal (underwriter buys the entire issue at a discount, bears unsold-share risk).
- Best efforts = agent (sells what it can, returns the rest). All-or-none and mini-max are best-efforts variations; underwriter is still an agent.
- "Purchased the entire issue" = firm commitment.
- The SEC declares a registration "effective"; it never "approves" a security.
- Exempt from registration does NOT mean exempt from anti-fraud rules.
Numbers to Lock In
| Item | Value |
|---|---|
| Shelf registration window | Up to 3 years |
| Well-Known Seasoned Issuer (WKSI) public float | $700 million or more |
| WKSI non-convertible issuance | At least $1 billion over 3 years |
| Regulation D small private offering | Up to $10 million in 12 months |
| Regulation D unlimited, no general solicitation | Up to 35 non-accredited (sophisticated) investors |
| Form D filing | Within 15 days of first sale |
| Restricted-stock holding period | 6 months (reporting) / 12 months (non-reporting) |
| Affiliate volume limit (non-reporting) | 1% of outstanding shares |
| Form 144 filing trigger | Over 5,000 shares OR $50,000 |
| Qualified Institutional Buyer (QIB) | Owns and invests at least $100 million |
| Regulation A Tier 1 / Tier 2 | Up to $20 million / up to $75 million |
Regulation D Safe Harbors
- Small private offering: up to $10 million, any investor, simplest, no specific disclosure.
- Unlimited, no general solicitation: unlimited accredited + up to 35 non-accredited; no advertising (most common).
- Unlimited, accredited only: accredited buyers only; general solicitation allowed with verification.
- Reg D securities are restricted securities: cannot be freely resold.
Documents
- Prospectus: public corporate offerings, delivered at or before the sale.
- Preliminary prospectus (red herring): used during the cooling-off period; missing final price and effective date; no sales, indications of interest only.
- Official statement (OS): the muni equivalent of a prospectus.
- Private placement memorandum (PPM): for Reg D; not reviewed by the SEC.
- Summary prospectus: condensed mutual-fund document; investors can always request the full version.
Top Gotchas
- Secondary offering proceeds go to the sellers, not the company.
- Selling group members take no underwriting risk; only syndicate members share it.
- WKSIs skip the SEC review wait: automatic shelf registrations become effective immediately on filing.
- Shelf securities sell when the issuer takes them off the shelf, not when the registration is filed.
- Restricted describes how shares were acquired; control (affiliate) describes who holds them; the same shares can be both.
- Affiliates always face volume limits, even after the holding period; non-affiliates who wait out the period sell freely.
- Form 144 is a notice, not a second ceiling: the volume formula is the real cap.
One-Breath Recap
The issuer picks an investment banker, forms a syndicate, chooses an offering and commitment type, then either registers under the Securities Act of 1933 or claims an exemption. Firm commitment means principal, best efforts means agent, and secondary-offering money goes to sellers. When in doubt, remember the SEC never approves; it only declares registrations effective.
Need more than the recap? This is a condensed summary. If it is not enough, read the full Securities Offerings unit for the complete lesson.