Chapter 2 Part 3 Flashcards
The red herring is used to obtain
indications of interest from clients. However, these indications are non binding on both the client and the broker-dealer. Until the SEC declares a registration effective, no solicitations may occur, and no orders or cash may be accepted.
also during the cooling-off period, the issuer will
blue-sky (register) the issue in the states where the underwriter plans to sell the securities. The underwriting broker-dealers, as well as their sales personnel, are also required to register in states where the distribution will occur. As previously discussed, the Administrator may approve or disapprove the sale of a security within its borders.
Just prior to the issuance of the final prospectus, a due diligence meeting is held.
The participants at this meeting include the underwriters, attorneys, accountants, officers of the issuer, and syndicate members. the purpose of the planned underwriting, particularly the issuer’s and underwriter’s exercise of due diligence in satisfying federal and state law. If the parties involved do not exercise due diligence, they could find themselves as defendants in stockholder lawsuits.
If the SEC determines that the registration statement has material deficiencies (such as omissions or misrepresentations), it may
issue a deficiency letter that postpones the effective date, or issue a stop order that prohibits the sale of the securities.
Clients usually receive a copy of the final prospectus with the confirmation of purchase. In order to accommodate this, the managing underwriter must
furnish both the preliminary and final prospectuses to all other broker-dealers participating in the distribution.
Preregistration Period
• Prepare Registration Statement • No Discussions with Customers…..then the filing date
Waiting Period
• Lasts 20 Days From Last Amendment, Unless Accelerated •Issue Preliminary Prospectus •Blue Sky lhe Issue •Hold Due Diligence Meeting • Accept Indications of Interest (No Sales) then effective date
Post-Effective Period
• Issue Final Prospectus • Confirm Sales • 25/40/90. Day After-Market Prospectus Requirement For Dealers
exempt security
A security that is not required to be registered
Under the Securities Act of 1933, securities are exempt based on
the issuer, the type of security, or the transaction through which the security is offered or sold.
When an exemption for a security or a transaction is claimed, the burden of proof rests with
the person requesting it. As always, exemption from registration does not exempt a security from federal and state antifraud provisions within the law.
Certain securities are exempt from federal registration based on the issuer of the security. Securities issued or guaranteed by the following exempt issuers are not required to register at the federal level.
• U.S. government and U.S. government agencies • Municipalities • Nonprofit organizations • Domestic banks and trust companies (including savings and loan associations but not bank holding companies) • Small business investment companies (exempted by federal legislation related to small businesses) • Railroads • Religious, educational, or charitable institutions
Certain securities are exempt from registration based on the type of security it is. At the federal level, short-term corporate debt instruments that have a maturity not exceeding
270 days are exempt. This type of security is more commonly known as commercial paper.
exempt transactions
In some cases, an exemption from registration is provided based on the manner in which securities are offered, rather than based on the issuer or the type of security involved
SEC Regulation D exempts
private placements of securities from the registration requirements of the Securities Act of 1933
