Securities Issuance - Prefiling Period - Explained
What can you do during the Prefiling Period and the Exceptions to these Rules?
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What is an issuer allowed to do during the Pre-Filing Period?
During the pre-filing period, no offers to sell or offers to buy securities are permitted. There is a limited exception to this rule under SEC Rule 135, which allows for the announcement of an upcoming offer. The issuer can have discussions with underwriters or with an underwriting syndicate. This allows the company to undertake the procedural arrangements and financing of the offering. In any event, the communications or announcement of the upcoming offer cannot have the purpose or effect of conditioning of the market. That is, it cannot cause a market reaction for the pending IPO that is commensurate with the effect of an actual offering. This is a poorly defined standard, which does not provide a great deal of guidance to issuers.
Next Article: Securities Issuance: Post-Filing & Waiting Period Back to: SECURITIES LAW
What are the Exceptions to what an Issuer is Allowed to do during the Pre-Filing Period?
There are some other notable exceptions to the general prohibition against offers to sell during the pre-filing period that are worthy of note.
What is the Emerging Market Company Exception?
The JOBS act makes an exception and eliminates the conditioning the market restriction for emerging market companies. So, if a company meets the criteria to be an emerging market company, the announcement of the upcoming issuance faces few limitations aside from waiting to consummate the sale until the post-effective period.
What is the Section 5(b) Exception?
This provision allows oral or written communication with qualified institutional buyers (QIBs) and accredited investors that are institutions, prior to filing of the registration statement. This is a limited exception that allows issuers with connections with potential purchasers who have the knowledge and sophistication that warrants a lower level of protection under the securities laws.
What is the Public Company Exception?
Public filers can (must) continue their periodic disclosure (quarterly and annual reports) and Rule 168 permits forward-looking information. This means that a public company that is planning to issue more securities on the market must disclose this intended action to the market and existing shareholders. The prohibition against conditioning the market is trumped by the need for full disclosure.
What is the Free-Writing Prospectus Exception?
Under Rule 163, WKSIs can use a free-writing prospectus during the pre-filing period, so long as it is filed with SEC prior to distribution. Per Rule 405, a free-writing prospectus is a written communication (including electronic/graphic) that constitutes an offer to sell that does not fall under a statutorily defined format (such as preliminary prospectus defined in section 10(b) or Rule 430 red herring prospectus).
There are other limited exceptions to the ability to make offers of securities at the pre-filing stage; however, these are the most commonly recognized.
What do you think is the reason for restricting the sale of securities prior to filing a registration statement? Do you think that requiring the filing of a registration statement achieves the underlying objectives? Why or why not? Why do you think the securities law allows for these exceptions?
What are the limitations on an issuer of securities prior to filing a registration statement? What are the primary exemptions from these limitations?
- Securities Law (Intro)
- What are Securities Laws?
- What is a Security?
- What qualifies as an Investment contract?
- What are the primary federal securities laws?
- What are the regulatory goals of security laws?
- What is the Securities and Exchange Commission?
- What is an Initial Public Offering?
- What is a Direct Public Offering?
- What is Crowdfunding?
- Securities Act of 1933
- What is an Offer to Sell securities?
- Who are the parties regulated in an offer to sell securities?
- What are the primary disclosure documents required in an offer to sell securities?
- Forward Looking
- Red Herring Prospectus (Securities) Definition
- Registration of Securities
- What is an issuer allowed to do at each stage of the registration process?
- How are issuers classified for purposes of the registration and offering process?
- What is an issuer allowed to do during the Pre-filing Period?
- What are the limitations on the issuer during the Post-filing, Waiting Period?
- What is an issuer allowed to do during the Post-Effective Period?
- What is an Emerging-Growth Company?
- What type of information must an issuer disclose?
- What laws govern the mechanics of disclosure in a securities offering?
- Deficiency Letter (Securities Law)
- Registration Exemptions Securities Act of 1933
- What are Exempt Securities and Exempt Transactions?
- What are Restricted Securities?
- Section 3(a)?
- Section 3(b)?
- What is a Rule 147 Exemption?
- What is a Section 4(a) Exemption?
- Section 4(a)(5)?
- What is a Regulation A Exemption?
- What are Regulation D Exemptions?
- What is a Rule 504 Exemption?
- What is a Rule 505 Exemption?
- What is a Rule 506(b) Exemption?
- What is a Rule 506(c) Exemption?
- What is Rule 502(d) and the Rule 144 Safe Harbor?
- Rule 144a
- What are the disclosure requirements for companies employing an exemption?
- What is the requirement to file Form D?
- What is the effect of failing to register an offering under Section 5?
- Liability Under the Securities and Exchange Act of 1933
- What is civil liability under Section 11 of the 33 Act?
- What is civil liability under Section 12 of the 33 Act?
- What are defenses available to charges under Sections 11 and 12?
- What is civil liability under Section 17 of the 33 Act?
- What is potential criminal liability under the 33 Act?
- The Security Exchange Act of 1934
- When must an issuer register pursuant to the 34 Act?
- What disclosures are required of reporting companies under the 34 Act?
- What is liability under Section 10(b) and Rule 10(b)(5)?
- What is insider trading under Rule 10(b)(5)?
- What damages are available under Section 10 and Rule 10(b)(5)?
- What is insider trading under Section 14 of the 34 Act?
- What is liability under Section 16 of the 34 Act?
- What is liability under Section 18 of the 34 Act?
- What is criminal liability under the 34 Act?
- Liability under the Securities Enforcement Remedies Act?
- Blue Sky Laws State Securities Laws
- What are Blue Sky Laws?
- When is an issuer required to comply with state securities laws?
- What are the registration requirements under state law?
- What is Coordinated Registration under state law?