Gun-Jumping Rules
Post-effective period
• Going effective
• “Prospectus delivery”
• Updating prospectus
(last updated 07 Feb 13)
Gun-Jumping
(controlled disclosure during registration)
Filing
date
Effective
date
No sales [§ 5(a)(1)]
No deliveries [§ 5(a)(2)]
No prospectus, unless comply § 10 [§ 5(b)(1)]
No delivery w/o
§10 prospectus [§ 5(b)(2)]
No offers [§ 5(c)]
No offers - §8 proceeding / stop order [§ 5(c)]
Pre-filing period
Waiting period
Post-effective period
Hypothetical #1
Although Smartway (the online lastminute ticket marketer) has no
analysts following it, word of its IPO
gets around. Its registration
statement is not yet effective.
Lan, a reporter for the Wall Street
Journal, hears of the Smartway IPO
and writes about Smartway’s IPO as
part of a story on high-flying IPOs.
(Nice coverage!) The story includes
projections of Smartway’s future
profitability.
Any gun-jumping?
Securities Act § 2(a)(3)
The term "sale" or "sell" shall include every
contract of sale or disposition of a security or
interest in a security, for value. The term
"offer to sell", "offer for sale", or "offer" shall
include every attempt or offer to dispose of, or
solicitation of an offer to buy, a security or
interest in a security, for value. …
Securities Act § 4
The provisions of section 5 shall not apply
to-(1) transactions by any person other than
an issuer, underwriter, or dealer.
Hypothetical #2
Lavina, a research analyst for
Silverman Brothers, writes a
research report on Smartway,
giving the company’s IPO a
“neutral” recommendation.
Silverman, which is not
participating in the Smartway
IPO, publishes Lavina’s report –
and sends it to its own brokers,
and its retail and institutional
clients. It’s the first time it said
anything about Smartway.
Any gun-jumping?
Securities Act § 5
(b) Necessity of prospectus meeting
requirements of section 10 of this Act. It
shall be unlawful for any person, directly or
indirectly-(1) to make use of any means or
instruments of transportation or
communication in interstate commerce or
of the mails to carry or transmit any
prospectus relating to any security with
respect to which a registration statement
has been filed under this title, unless such
prospectus meets the requirements of
section 10; or
Securities Act § 2(a)(10)
The term "prospectus" means any
prospectus, notice, circular, advertisement,
letter, or communication, written or by radio or
television, which offers any security for sale
or confirms the sale of any security;
Securities Act § 4
The provisions of section 5 shall not apply
to-(1) transactions by any person other than
an issuer, underwriter, or dealer.
(3) transactions by a dealer … except when
selling or offering securities in the posteffective period]
Securities Act § 2(a)(11)
The term "underwriter" means any person
who has purchased from an issuer with a
view to … the distribution of any security,
or participates or has a direct or indirect
participation in any such undertaking, …
Securities Act § 2(a)(10)
The term "dealer" means any person who
engages … as agent, broker, or principal, in
the business of offering, buying, selling, or
otherwise dealing or trading in securities
issued by another person.
Rule 137 (exemption from definition of “offer”
and “participates” as underwriter)
A securities firm not participating in the
distribution may publish research report on
securities in registration if:
(1) the securities firm has received no special
compensation related to the distribution.
(2) the recommendation is in the regular
course of the firm's business [compare this to
Rule 139, which prevents participating
securities firm to initiate coverage of issuer]
Hypothetical #3
Grace is a research analyst at Sparrow
Securities, the managing UW for
Smartway’s IPO.
Grace writes a research report on
Smartway giving it a “buy” recommendation.
(Sweet!) Sparrow publishes a summary of
her report with the buy recommendation in
its monthly newsletter sent out prior to the
effective date of the IPO. Previously,
Sparrow had not covered Smartway.
Any gun-jumping?
Rule 139 (exemption from defn of “offer”)
A securities firm that participates in the
distribution may issue a report recommending
the securities either:
(1) issuer-specific: issuer is seasoned
reporting company eligible for Form S-3 or
WKSI, or
(2) industry reports: issuer is reporting
company, and the recommendation is
included in a report that includes other
securities, receives no special prominence, is
part of the securities firm’s regular business,
and issuer has been in similar reports.
Free writing prospectus (Rule 164)
•
•
allows free writing prospectus (FWP),
deemed to satisfy §10(b) if Rule 433
conditions satisfied
available to issuer, UW or participant
Conditions (Rule 433)
•
•
•
•
info may not conflict with RS or SEC filings,
FWP must be legended (read prospectus,
how obtain)
must be accompanied by (or linked to)
preliminary/final prospectus (only applies to
non-reporting and unseasoned issuers)
must file with SEC (on date of first use)
– issuers must file FWP and issuer info (press
interview)
– participants must file FWP that is “broad
unrestricted dissemination”
How does RS become effective?
Going effective
Section 8(a) Effective date of
registration statement
Except as hereinafter provided, the
effective date of a registration
statement shall be the twentieth
day after the filing thereof or such
earlier date as the Commission
may determine, …. If any
amendment to any such statement
is filed prior to the effective date of
such statement, the registration
statement shall be deemed to have
been filed when such amendment
was filed;
How can the SEC
realistically review the RS
in 20 days?
Going effective
Section 8(a) Effective date of
registration statement
Except as hereinafter provided,
the effective date of a
registration statement shall be
the twentieth day after the filing
thereof or such earlier date as
the Commission may
determine, …. If any
amendment to any such
statement is filed prior to the
effective date of such
statement, the registration
statement shall be deemed to
have been filed when such
amendment was filed;
Rule 473 Delaying Amendment
The registrant hereby amends this
registration statement on such date or
dates as may be necessary to delay its
effective date until the registrant shall file
a further amendment which specifically
states that this registration statement shall
thereafter become effective in accordance
with section 8(a) of the Securities Act of
1933 or until the registration statement
shall become effective on such date as
the Commission acting pursuant to said
section 8(a), may determine.
When do investors get prospectus?
Prospectus delivery
Section 5(b) Necessity of
prospectus meeting
requirements of section 10 of
this Act.
It shall be unlawful for any
person, directly or indirectly--
(2) to carry or cause to be
carried through the mails or in
interstate commerce any such
security for the purpose of sale
or for delivery after sale, unless
accompanied or preceded by a
prospectus that meets the
requirements of subsection (a)
of section 10.
You get prospectus only
with delivery of securities.
Isn’t this a bit late?
Prospectus delivery
Rule 134(d): to obtain written
Section 2(a)(10): defines
indication of interest, must send "prospectus" to include written
preliminary prospectus
communication which confirms the
sale of any security; except that a
communication sent or given after the
Rule 15c2-8(b): participating
effective date shall not be deemed a
brokers must have sent
investor prospectus at least 48 prospectus if it is proved that prior to
or at the same time with such
hours before confirming sale
communication a written prospectus
meeting the requirements of
subsection (a) of section 10 at the
time of such communication was sent
or given to the person to whom the
communication was made,
Prospectus delivery
Rule 134(d): to obtain written
Section 2(a)(10): defines
indication of interest, must send "prospectus" to include written
preliminary prospectus
communication which confirms the
sale of any security; except that a
communication sent or given after the
Rule 15c2-8(b): participating
effective date shall not be deemed a
brokers must have sent
investor prospectus at least 48 prospectus if it is proved that prior to
or at the same time with such
hours before confirming sale
communication a written prospectus
meeting the requirements of
subsection (a) of section 10 at the
time of such communication was sent
or given to the person to whom the
communication was made,
How long does prospectus delivery
requirement last?
The provisions of section 5 shall not apply to …
Section 4(1): … transactions by
any person other than an
issuer, underwriter, or dealer.
Section 4(4): … brokers'
transactions executed upon
customers' orders … but not
the solicitation of such orders.
Section 4(3): … transactions by a
dealer (including an underwriter
no longer acting as an
underwriter) except–
(B) transactions … forty days [90
days for IPOs or shorter period
specified by SEC] after the
effective date of such registration
statement …
(C) transactions as to securities
constituting the whole or a part of
an unsold allotment to … such
dealer as a participant …
or order.
The provisions of section 5 shall not apply to …
Section 4(1): … transactions by
any person other than an
issuer, underwriter, or dealer.
Section 4(4): … brokers'
transactions executed upon
customers' orders … but not
the solicitation of such orders.
Section 4(3): … transactions by a
dealer (including an underwriter
no longer acting as an
underwriter) except–
(B) transactions … forty days [90
days for IPOs or shorter period
specified by SEC] after the
effective date of such registration
statement …
(C) transactions as to securities
constituting the whole or a part of
an unsold allotment to … such
dealer as a participant …
or order.
The provisions of section 5 shall not apply to …
Section 4(1): … transactions by
any person other than an
issuer, underwriter, or dealer.
Section 4(4): … brokers'
transactions executed upon
customers' orders … but not
the solicitation of such orders.
Rule 174:
• Zero days for Exchange
Act reporting issuer
• 25 days for listed securities
on exchange or NASDAQ
• 40 days for all other
offerings, except IPO
• 90 days for IPO
Section 4(3): … transactions by a
dealer (including an underwriter
no longer acting as an
underwriter) except–
(B) transactions … forty days [90
days for IPOs or shorter period
specified by SEC] after the
effective date of such registration
statement …
(C) transactions as to securities
constituting the whole or a part of
an unsold allotment to … such
dealer as a participant …
or order.
How do underwriters and brokers selling
allotment deliver prospectus?
The provisions of section 5 shall not apply to …
Rule 172 (“access = delivery”)
Rule 173 (prospectus or notice)
Exemptions:
• Confirmation deemed not a
“prospectus”under § 5(b)(1)
• Prospectus delivery deemed
met under § 5(b)(2)
Applicable to:
• Underwriters selling allotment
• Brokers selling allotment
• Issuer selling directly
Requirements:
• not later than 2 business days
Conditions:
after sale give investor final
• RS effective
prospectus OR notice sale was
• No pending proceedings
made pursuant to RS in which
• Issuer has filed final prospectus
prospectus required, absent
[available on EDGAR] or will
exemption
within 15 days after effective
• Investor may request prospectus
date (this condition not
necessary for brokers)
The provisions of section 5 shall not apply to …
Rule 172 (“access = delivery”)
Rule 173 (prospectus or notice)
Exemptions:
• Confirmation deemed not a
“prospectus”under § 5(b)(1)
• Prospectus delivery deemed
met under § 5(b)(2)
Applicable to:
• Underwriters selling allotment
• Brokers selling allotment
• Issuer selling directly
Requirements:
• not later than 2 business days
Conditions:
after sale give investor final
• RS effective
prospectus OR notice that sale
• No pending proceedings
was made pursuant to RS in
• Issuer has filed final prospectus
which prospectus required, absent
[available on EDGAR] or will
exemption
within 15 days after effective
• Investor may request prospectus
date (this condition not
necessary for brokers)
Hypothetical #4
Smartway’s IPO becomes effective
on June 1. One of the underwriters,
VillageBank was allocated 400,000
shares.
By June 3 VillageBank has sold all
but 100,000 of its allocated shares.
VillageBank sells shares to Kevin
and with the confirmation mails a
copy of the final prospectus.
Delivery OK? And who cares if he
gets a prospectus now – it’s really
too late for Kevin! The prospectus
merely lets him know whether he
bought a security or a lawsuit.
Securities Act § 2(a)(10)
The term "prospectus" means any
prospectus, notice, circular, advertisement,
letter, or communication, written or by radio or
television, which offers any security for sale
or confirms the sale of any security; except
that (a) a communication sent or given after
the effective date of the registration statement
… shall not be deemed a prospectus if it is
proved that prior to or at the same time with
such communication a written prospectus
meeting the requirements of subsection (a) of
section 10 at the time of such communication
was sent or given to the person to whom the
communication was made,
Hypothetical #5
Smartway goes public and its shares
are listed on Nasdaq. Secondary
market trading follows.
A week later Marx Securities, a
securities dealer not participating in
Smartway’s offering, sells some of its
Smartway common stock inventory.
Marx mails stock certificates to
purchasing investors but does not send
a statutory prospectus
Delivery OK?
Broker-dealers
Section 5 applies to dealers
• selling from inventory and
not acting as broker filling
customer orders
• subject to prospectus
delivery requirements for
securities sold on NASDAQ
(for 25 days from time of
effectiveness)
Rule 172 (“access = delivery”)
Exemptions:
• Confirmation deemed not a
“prospectus”under § 5(b)(1)
• Prospectus delivery deemed met
under § 5(b)(2)
Conditions:
• RS effective
• No pending proceedings
• Issuer has filed final prospectus
[available on EDGAR] or will within
15 days after effective date (this
condition not necessary for
brokers)
Broker-dealers
Section 5 applies to dealers
• selling from inventory and
not acting as broker filling
customer orders
• subject to prospectus
delivery requirements for
securities sold on NASDAQ
(for 25 days from time of
effectiveness)
Rule 172 (“access = delivery”)
Exemptions:
• Confirmation deemed not a
“prospectus”under § 5(b)(1)
• Prospectus delivery deemed met
under § 5(b)(2)
Conditions:
• RS effective
• No pending proceedings
• Issuer has filed final prospectus
[available on EDGAR] or will within
15 days after effective date (this
condition not necessary for
brokers)
Don’t forget Rule 173 notice!
Hypothetical #6
Villagebank issues an analyst report on
Smartway on June 10 – 9 days after the
effective date.
Villagebank still holds 50,000 shares from its
allotment. The report covers a number of
high-growth companies, including Smartway.
The report recommends Smartway as a “buy”
and talks glowingly about Smartway’s future
growth prospects.
Advise how Villagebank can send the report
to its customers.
Rule 139 (exemption from defn of “offer”)
A securities firm that participates in the
distribution may issue a report recommending
the securities either:
(1) issuer-specific: if issuer is a seasoned
reporting company eligible for Form S-3 or
WKSI, or
(2) industry reports: if the issuer is a reporting
company, and the recommendation is
included in a report that includes other
securities, receives no special prominence, is
part of the securities firm’s regular business,
and issuer has been in similar reports.
Securities Act § 2(a)(10)
The term "prospectus" means any
prospectus, notice, circular, advertisement,
letter, or communication, written or by radio or
television, which offers any security for sale
or confirms the sale of any security; except
that (a) a communication sent or given after
the effective date of the registration statement
… shall not be deemed a prospectus if it is
proved that prior to or at the same time with
such communication a written prospectus
meeting the requirements of subsection (a) of
section 10 at the time of such communication
was sent or given to the person to whom the
communication was made,
Hypothetical #7
Jack, a coffee importer from Brazil, decides
to purchase some Smartway stock on the
secondary market.
He contacts his broker, Joel, at Villagebank
and instructs him to purchase 1,000 shares
at the prevailing market price.
Joel executes the order for Jack on June 10,
sending him a written confirmation two days
later, but does not include the statutory
prospectus.
Confirmation OK?
Securities Act § 4(4):
The provisions of section 5 shall not apply to
… brokers' transactions executed upon
customers' orders … but not the
solicitation of such orders
The end
Finally …