Shelf Registration - Explained
What is a Shelf Registration?
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Table of ContentsWhat is a Shelf Registration?How Does a Shelf Registration Work? Advantages of a Shelf RegistrationAdministrative AdvantagesCompany Use of Shelf RegistrationsAcademic Research on Shelf Registration
What is a Shelf Registration?
Shelf registration is a procedure in which an issuing companies files or registers a security offering that is to be offered in the public market with the Securities and Exchange Commission (SEC). In the United States, one of the ways issuers comply with the SEC registration requirements for a new security offering is through shelf registration. The offering of a new security which is up to two or three years before the actual public offering is executed must undergo shelf registration. Securities offering that have been registered with the SEC can be issued or sold over a period of time through a shelf offering.
How Does a Shelf Registration Work?
Shelf registration is officially called SEC Rule 415. This is a registration procedure that companies who offer new securities but do not actual public offering immediately must comply to. Shelf registration cover a period of two or three years during which the securities can be issued without the need for the issuer to re-register the securities. Shelf registration is a procedure used by publicly traded companies to leverage on good market conditions to trade their securities, especially when the current market conditions are not favorable. Once an issuer perceives favorable conditions in the market, the actual public offering takes place without the issuer attracting a re-registration fee. Shelf registration does not mean companies will not file annual and quarterly reports with the SEC.
Advantages of a Shelf Registration
There are many advantages shelf registrations have for publicly traded companies who complete the registration procedures. These advantages include;
- The issuer can decide to issue the securities when market conditions are favorable. The issue date is not given by the SEC, only that the securities must be issued before the registration coverage expires.
- An issuing company is also not obligated to release the securities. It can decide to or otherwise depending on market variances.
Securities that are not issued in a shelf offering before the shelf registration coverage expires are classified as treasury shares.
There are also some administrative advantages that shelf registration has for issuing companies. For instance, shelf registration saves a company of administration costs if there is a need to issue a particular security multiple times. Due to the fact that certain factors affect the issuing plan of a new security, shelf registration avails a company the opportunity to make administrative decisions and changes pertaining to the issuance of a security using a single registration. Shelf registration are not rigorous, it is also easy to manage. It also reduces administrative costs, maintenance costs and requirements and extra burden for companies since only one registration i required.
Company Use of Shelf Registrations
Companies that have plans to issue new offerings file and register their offerings using the shelf registration. Shelf registration is also good for companies who might have administrative issues they need to solve before the new securities are offered. Also, shelf registration is beneficial for companies who want to are looking to offer their securities when market conditions are favorable.
Academic Research on Shelf Registration