The Securities Act of 1933

Section 5 and the registration statement

Section 5 of the Act, codified at 15 U.S.C. 77e, contains the prohibitions. Unless a registration statement is in effect, it is unlawful to sell a security through interstate commerce or the mails. Unless a registration statement has been filed, it is unlawful even to offer one. And it is unlawful to deliver a security for sale unless accompanied or preceded by a prospectus meeting the Act's requirements.

Read that as three separate prohibitions attaching at three different moments — offering, selling, delivering — because the timeline below is exactly the story of when each one lifts.

The registration statement is filed with the SEC and contains the issuer's business description, its financial statements, the use of proceeds, the risk factors, the management and its compensation, the material legal proceedings, the description of the securities offered, and the underwriting arrangements. Part I of it is the prospectus, which goes to investors; Part II contains additional information available for public inspection.

The SEC reviews the filing for adequacy of disclosure. It does not approve the offering, endorse the security, or pass on its merits, and every prospectus carries a legend saying so. A representative who tells a customer the SEC approved an issue has made a false statement about the central fact of the Act.

If the disclosure is inadequate, the staff issues a deficiency letter or comment letter, and the issuer amends. Registration becomes effective on the twentieth day after filing unless amended — and because an amendment restarts the clock, in practice the issuer requests acceleration of effectiveness once comments are resolved.

The pre-filing period

Before the registration statement is filed, nothing may be offered and nothing may be sold. No offers of any kind — and the Act's definition of an offer is broad enough to catch conditioning the market through publicity that is not formally an offer at all, which is what 'gun jumping' means.

The issuer may continue its ordinary business communications, and certain safe harbours permit routine factual announcements and, for emerging growth companies, communications with qualified institutional buyers and institutional accredited investors to test the waters. Those are exceptions carved out of an otherwise complete prohibition.

For a representative, the operational rule is simple: until the filing, there is nothing to talk about.

The cooling-off period

Between filing and effectiveness the offering is in registration. Sales are still prohibited; certain communications are now permitted.

The preliminary prospectus — the red herring, named for the legend printed in red stating that the registration statement has been filed but is not yet effective and that the securities may not be sold — may be distributed. It contains substantially all the information that will be in the final prospectus except the two things not yet determined: the final offering price and the effective date. It also omits the underwriting spread and the proceeds figures that depend on price.

Indications of interest may be taken. They are not orders, they are not binding on either side, and no money may be accepted. A customer who says they will take a thousand shares has indicated interest; the firm has sold nothing.

A tombstone advertisement may be published. Rule 134 defines communications not deemed a prospectus, and a tombstone is the classic example: the name of the issuer, the amount and type of security, the price if known, the names of the underwriters, and where a prospectus may be obtained. It is expressly not an offer to sell and it must say so.

A free writing prospectus may be used after filing under Rule 433, subject to conditions including filing with the SEC and, in some cases, prior or concurrent delivery of the statutory prospectus.

What may not happen: no sales, no confirmations, no acceptance of funds, and no sales literature beyond what the rules permit. The due diligence meeting between the issuer and the underwriters — where the syndicate examines the issuer's disclosure and the officers answer questions — occurs during this period, shortly before effectiveness.

The post-effective period and prospectus delivery

Once the registration statement is effective, sales may be made and confirmations sent, provided the final prospectus accompanies or precedes the confirmation. The final prospectus adds the offering price, the effective date, the underwriting spread and the net proceeds.

SEC Rule 15c2-8 imposes the delivery obligations on broker-dealers, including a requirement to deliver a preliminary prospectus to anyone expected to receive a confirmation in an IPO at least 48 hours before the confirmation is sent — the 48-hour rule.

Delivery in practice is satisfied under the access-equals-delivery model: because the final prospectus is filed with the SEC and publicly available, delivery obligations are met without a paper copy in most cases, provided the required notice is given.

The aftermarket delivery obligation is set by Rule 174, and the periods are worth memorizing because they are precise.

If the issuer was already subject to Exchange Act reporting immediately before the registration statement was filed, no prospectus need be delivered in aftermarket transactions at all.

If the issuer was not a reporting company, the statutory periods of 40 or 90 days apply — 40 days for a subsequent offering and 90 days for an initial public offering.

But if the issuer was not a reporting company and the security is, as of the offering date, listed on a national securities exchange or authorized for inclusion in an inter-dealer quotation system governed by a registered securities association, no prospectus need be delivered after 25 calendar days from the offering date.

So the practical hierarchy runs: reporting issuer, none; non-reporting IPO that lists, 25 days; non-reporting IPO that does not, 90 days; non-reporting subsequent offering, 40 days.

Rule 415 permits shelf registration: registering securities for an offering to be made on a delayed or continuous basis, so the issuer can bring them to market when conditions suit without a fresh registration each time.