This preview shows page 1. Sign up to view the full content.
Unformatted text preview: y
Once the board of directors approves a new issue, the firm must prepare and file with the SEC a registration statement a detailed financial disclosure. Under Regulation A, issues of less than $1.5 million req only an abbreviated statement;
this is the 'sm all-issues' exemption. Debt securities maturing in less than 9 months are also exempt from registration.
The SEC studies the registration statement during a twenty-d waiting period during which the firm may provide
potential investors with a preliminary prospectus, which contains much of the inform ation in the registration
statem ent. The issue is advertised in the financial press during and after the waiting period The advertisements are placed
by underwriters or investment bankers, who purchase the securities from the issuing firm and then resell them to
the investing public. The ads are called tombstones and are comprised largely of the names of the investm ent banking
firm s that are underwriting the issue.
The registration becom es effective in twenty days, unless the SEC issues a 'letter of com ment' specifying changes in
the registration statement. After the changes are made, another twenty-day waiting period begins. Securities may not
be sold during the waiting period. When the registration becom es effective, the security's price is determined and the
sale to the public com mences. A final prospectus mu st accom pany delivery of securities or the confirmation of sale,
whichev er com es first.
III. AL TERNATIVE ISSUE METH ODS (p. 451)
An issue sold to fewer than 35 investors is a private issue and SEC registration is not required. A public offering
of a new issue may be a gene ral cash offer or a rights offering. Most offerings in this country are cash offers. A
rights offering is an offer to sell com mon stock to the firm's existing stockholders. Underwriters are generally
emp lo yed for the former, but not the latter.
A com pany's first public offering of equity securities is an initial pub lic offering (IPO ) or unse asoned new
issue - an offering by a com pany that has previously issued securities.
IV. UNDERWRIT ERS (p. 453)
In a cash offer underwriters formulate the metho d used to issue the securities, price the securities, and sell the
securities to the public. The underwriter norm ally buys the securities from the firm and offers them to the public at a
higher price, the difference being the sprea d or discou nt. For large issues, the risk associated with selling the
securities to the public is shared by forming a synd ic ate.
Ch oosing an Un derwriter (p. 454) The issuer selects an investmen t banker via either a com petitive offer or a
nego tiated offer. In the former, the issuing firm selects the underwriter who subm itted the highest bid for the
securities. A negotiated offer involves negotiations between the issuer and one underwriter.
Types of Underwriting (p. 454) If the underwriter purchases the entire issue, then the issuing firm receives a fixed price
for the securities and all the risk associated with the sale is transferred to th...
View Full Document