Series 7

The issuer and managing underwriter prepare the registration statement (Form S-1 for most IPOs). No offers or sales, but under Rule 163B any issuer may test the waters with QIBs and institutional accredited investors.

▼

At least 20 days of SEC review; a deficiency letter or stop order delays effectiveness. No sales, binding commitments, or advertising other than a tombstone.

▼

The underwriting agreement is signed, the offering is priced, and orders are confirmed.

▼

Sales at the public offering price, final prospectus delivery, possible stabilization, and aftermarket delivery.

What Is Permitted During the Cooling-Off Period

Activity	Rule
Preliminaryprospectus(redherring)	Nearlycompletedisclosurewithapricerange butnofinalpriceorspread;aredlegendsays ,
	thesecuritiesmaynotyetbesold Arepmaynothighlightormarkitup .
Indicationsofinterest	Notbindingoneitherside;nomoneyaccepteduntileffectiveness
Tombstone(Rule134)	Limitednotice(issuer security amount price underwriters wheretogetaprospectus);not , , , , ,
	anoffertosell
Duediligencemeeting	Underwritersandissuerreviewthedisclosureforaccuracy;theunderwriters'liabilitydefense
Freewritingprospectus(Rule433)	Awrittenofferotherthantheprospectus usedafterfiling withalegend;generallyfiledwith , ,
	theSEConfirstuse

Blue-Sky (State) Registration

Pricing, Final Prospectus, and Aftermarket Delivery

Rule 430A lets a registration become effective without the final price; pricing information then appears in the final prospectus, which shows the public offering price, spread, and proceeds. Under access equals delivery, filing the final prospectus with the SEC satisfies delivery; buyers receive a notice within 2 business days after the sale and may request a copy.

Aftermarketprospectusdeliveryperiods(Rule174)

Situation	DealersMustDeliveraProspectusfor
Issuelistedonanexchange(IPOoradditionaloffering)	25calendardaysaftertheeffectivedate
UnlistedIPO(OTC)	90calendardays
Unlisted additional (follow-on) offering	40calendardays
IssueralreadysubjecttoExchangeActreporting	Noaftermarketdeliveryrequirement

Shelf Registration and Seasoned Issuers

Rule 415 shelf registration lets an issuer register securities now and sell them over time (generally up to three years) with prospectus supplements. A well-known seasoned issuer (WKSI) is a reporting issuer with at least $700 million of common equity held by non-affiliates, or one that has issued at least $1 billion of non-convertible securities other than common equity in registered offerings for cash over the prior three years. A WKSI may use an automatic shelf registration, effective on filing.

Types of Underwriting Commitments

Firm commitment

Underwriters buy the entire issue and resell it; proceeds are

Underwriters (acting as

guaranteed. A market-out clause allows cancellation for a material

principals)

adverse event, not weak demand

Best efforts

The underwriter acts as agent, selling as much as it can; unsold

Issuer

securities are returned to the issuer

All-or-none Canceled unless the entire issue is sold; funds escrowed (Rule

Issuer

15c2-4) and returned if not

Mini-max

A minimum must sell for the deal to close, up to a maximum; funds

Issuer

escrowed until then

Standby

Used in a rights offering: buys any shares shareholders do not

Standby underwriter

subscribe

Firm commitment = principal capacity and underwriter risk. Every "best efforts" variation (all-or-none, mini-max) = agency capacity and issuer risk. A market-out clause cannot be invoked just because the issue is hard to sell.

The Syndicate and the Selling Group

The managing underwriter forms an underwriting syndicate to spread risk and widen distribution. The syndicate letter or agreement among underwriters sets participations, the manager's authority, and account settlement. A selling group of dealers may sell as agents with no underwriting risk. The issuer and manager sign the underwriting agreement, which sets price and spread.

An underwriter has a 10% participation in a 2,000,000-share offering (200,000 shares) and sells all 200,000 shares. At the end, 300,000 shares of the issue remain unsold by other members.

Eastern: 10% × 300,000 = 30,000 shares

Western: 0 shares

In an Eastern account the underwriter must take up its 10% share of the unsold balance; in a Western account its obligation ended when it sold its own allotment.

The Underwriting Spread

The spread is the public offering price (POP) minus the price paid to the issuer. Who earns each part depends on who sells the shares:

Manager's fee: paid to the manager on every share; usually the smallest part.

Underwriting fee: paid to syndicate members for bearing risk, after syndicate expenses.

Selling concession: earned by whoever sells the shares; usually the largest part.

Reallowance: the part of the concession paid to a dealer that is neither a syndicate nor a selling group member.

An IPO of 5,000,000 shares is offered at $20.00. The issuer receives $19.10 per share. The spread is split: manager's fee $0.15, underwriting fee $0.25, selling concession $0.50 (reallowance $0.20).

Spread = $20.00 − $19.10 = $0.90 = $0.15 + $0.25 + $0.50

Total spread = 5,000,000 × $0.90 = $4,500,000

Issuer proceeds = 5,000,000 × $19.10 = $95,500,000

Per share sold: the manager selling to its own customers earns $0.15 + $0.25 + $0.50 = $0.90; a syndicate member selling its own allotment earns $0.25 + $0.50 = $0.75; a selling group member earns the concession, $0.50; a non-member dealer earns the reallowance, $0.20.

FINRA Rule 5110 (the corporate financing rule) prohibits unfair or unreasonable underwriting compensation. Most public offerings are filed with FINRA's Corporate Financing Department, which reviews everything of value the underwriters receive (cash, warrants, expense reimbursements) and must issue a "no objections" opinion before the offering proceeds.

Stabilization and Regulation M

Regulation M bars distribution participants from bidding for or buying the security during a restricted period before pricing. The key exception is stabilization:

The managing underwriter may enter a stabilizing bid to support the price in the aftermarket, but only at or below the public offering price, never above it.

Underwriters often over-allot (creating a syndicate short) and cover with the green shoe option to buy up to 15% more shares from the issuer, or in the market.

A penalty bid reclaims the concession from members whose customers quickly flip shares.

Rule 105 generally bars a person who sold the security short in the period (generally five business days) before pricing from buying in the offering.

IPO Allocation Rules: FINRA 5130 and 5131

Rule 5130 prohibits a member from selling a new issue (an initial public offering of equity securities) to an account in which a restricted person has a beneficial interest. Restricted persons include:

Broker-dealers and their personnel.

Finders and fiduciaries in that offering (attorneys, accountants).

Portfolio managers for institutions and investment advisers.

Owners of broker-dealers above set thresholds.

Immediate family of a restricted person: parents, in-laws, spouse, siblings, and children of broker-dealer personnel, if there is material support either way, or the relative works at the selling firm or can influence the allocation.

Exemptions: accounts with restricted interests of 10% or less (de minimis); investment companies, ERISA plans, and insurance general accounts. Eligibility is re-verified annually. The rule does not cover secondary offerings, debt, preferred stock, or fund shares.

Rule 5131 addresses abusive IPO allocation practices:

Quid pro quo: no allocations in exchange for excessive compensation.

Spinning: no allocating new issues to an executive officer or director of a current, recent (past 12 months), or prospective investment banking client.

Flipping penalties: a firm may not penalize a registered representative whose customer flips shares unless the managing underwriter has assessed a penalty bid on the entire syndicate.

A registered representative's brother-in-law who is not supported by the representative and does not work at the representative's firm can buy an IPO, but a representative cannot buy an IPO for his or her own account. An investment club or hedge fund in which restricted persons hold 8% can buy the full allocation; one in which they hold 12% cannot, unless the firm carves out their interest so it is at or below 10%.

Exempt Securities vs. Exempt Transactions

An exempt security never requires registration; the exemption belongs to the security. An exempt transaction is a nonexempt security sold in a way that does not require registration, and resale may be restricted. Anti-fraud rules apply to both.

Exemptsecuritiesvs.Exempttransactions

ExemptSecurities	ExemptTransactions
US governmentandfederalagencysecurities . .	RegulationDprivateplacements(Rules504 506(b) 506(c)) , ,
Municipalsecurities	RegulationAofferings(Tier1andTier2)
Securitiesissuedorguaranteedbybanks(notbankholding	Intrastateofferings(Section3(a)(11) Rules147and147A) ,
companies)
Commercialpaperandbanker'sacceptancesmaturingin270	RegulationSoffshoreofferings
daysorless
Securitiesofnonprofit(religious educational charitable) , ,	Rule144resalesofrestrictedandcontrolsecurities
issuers
Insurancepoliciesandfixedannuities(variableannuitiesare	Rule144Aresalestoqualifiedinstitutionalbuyers
securitiesandmustberegistered)
Savingsandloanassociationsecurities;interstaterailroad	RegulationCrowdfundingofferings
equipmenttrustcertificates

Regulation D Private Placements

Regulation D provides private placement safe harbors. Rule 506 securities are federal covered securities (state notice filing only). Form D is filed within 15 days after the first sale. Securities sold are restricted: they carry a legend, and buyers sign an investment letter.

Rule 506(b): unlimited dollar amount; unlimited accredited investors plus up to 35 non-accredited purchasers, who must be sophisticated and receive full disclosure; no general solicitation.

Rule 506(c): unlimited amount; general solicitation permitted; all purchasers must be accredited, and the issuer must take reasonable steps to verify it (tax returns, third-party confirmation).

Rule 504: up to $10 million in 12 months; not for reporting companies, investment companies, or blank-check companies.

Accreditedinvestor(Regulationd)

Category	Test
Networth	Individualorjointnetworthover$1million excludingtheprimaryresidence ,
Income	Incomeover$200000individually or$300000jointlywithaspouseorspousalequivalent in , , , ,
	eachofthelasttwoyears withareasonableexpectationofthesamethisyear ,
Professionalcertification	HoldersingoodstandingoftheSeries7 Series65 orSeries82license , ,
Insiders	Directors executiveofficers andgeneralpartnersoftheissuer , ,
Entities	Financialinstitutions;entitieswithover$5millioninassetsnotformedtobuythesecurities

Other Offering Exemptions

Regulation A ("mini-public offering") uses an offering circular (Form 1-A). Tier 1: up to $20 million in 12 months, state registration required. Tier 2: up to $75 million, audited financials and ongoing reports, state registration preempted, and non-accredited investors limited to 10% of the greater of income or net worth unless listed. Securities are not restricted.

Intrastate offerings (Rules 147 and 147A): the issuer does business in one state and sells only to its residents (Rule 147A permits out-of-state incorporation and internet offers). For 6 months, resales only to in-state residents.

Regulation S: offshore sales with no U.S. selling efforts; U.S. resale restricted for a period.

Regulation Crowdfunding: up to $5 million in 12 months through a registered broker-dealer or funding portal; non- accredited investors face income- and net-worth-based limits; resale generally barred for one year.

Rule 145: reclassifications, mergers, and asset transfers in which shareholders vote to receive new securities are offers and sales requiring registration (commonly Form S-4). Stock splits and stock dividends are not covered.

Rule 144: Restricted and Control Securities

Rule 144 is the safe harbor for public resale of two kinds of securities:

Seller	HoldingPeriod(restricted)	OtherConditions
Non-affiliate	6monthsiftheissuerisa	After6months(reportingissuer) maysellifcurrentpublic ,
	reportingcompany;1yearifnot	informationisavailable;after1year maysellfreely ,
Affiliate	Sameholdingperiodsforrestricted	Alwayssubjecttovolumelimits currentpublicinformation , ,
	securities;noneforcontrol	mannerofsale(forequity ordinarybrokers'transactionsor ,
	securitiesboughtintheopen	salestoamarketmaker withnosolicitation) andtheForm , ,
	market	144notice

Max per 90 days = greater of:

1% of outstanding shares, or

average weekly volume, prior 4 weeks

Form 144 must be filed with the SEC at the time the sell order is placed if the amount sold in any 90-day period exceeds 5,000 shares or $50,000 in value. The notice covers sales over the following 90 days.

An officer of a listed company wants to sell shares. The company has 12,000,000 shares outstanding. Weekly trading volume over the last four weeks was 110,000; 125,000; 130,000; and 135,000 shares.

1% test: 12,000,000 × 1% = 120,000 shares

Weekly volumes total 110,000 + 125,000 + 130,000 + 135,000 = 500,000 shares.

4-week average: 500,000 ÷ 4 = 125,000 shares

The officer may sell up to the greater figure, 125,000 shares, in the next 90 days, and must file Form 144 because the sale exceeds 5,000 shares.

Rule 144A permits resales of restricted securities to qualified institutional buyers (QIBs) without registration or a holding period. A QIB generally owns and invests at least $100 million in securities ($10 million for a broker-dealer). The securities trade only among institutions.

Exemption	AmountLimit	Purchasers	ResaleStatus
Rule506(b)	None	Unlimitedaccredited+upto35	Restrictedsecurities
		sophisticated non-accredited; no
		generalsolicitation
Rule506(c)	None	Accreditedonly verified;general ,	Restrictedsecurities
		solicitationallowed
Rule504	$10million/12months	Any;staterulesapply	Generallyrestricted
RegATier1	$20million/12months	Any;stateregistration	Notrestricted
RegATier2	$75million/12months	Any; non-accredited investment limit	Notrestricted
		ifunlisted
RegCF	$5million/12months	Any withinvestorlimits;througha ,	Restrictedfor1year
		portal or broker-dealer
Rule144	Affiliates: 1% or 4 -week	Publicmarketresale	Becomesunrestrictedinbuyer'shands
	averageper90days
Rule144A	None	QIBsonly	Remainsrestricted;tradesamongQIBs

The Municipal Primary Market

Municipal securities are exempt from registration, but underwriters are regulated by MSRB rules and SEC Rule 15c2-12. The MSRB writes rules but does not enforce them: FINRA enforces them for broker-dealers, bank regulators for bank dealers.

Syndicate formation: the syndicate letter or agreement sets participations, Eastern or Western liability, and priority provisions. MSRB G-11 requires written disclosure of order priority and the order period, allocation reports, and prompt settlement of the syndicate account.

Official statement: the issuer's disclosure document (a preliminary version circulates before pricing). Under G-32, the final official statement must be delivered to each customer no later than settlement; the underwriter posts it on EMMA.

Legal opinion:bond counsel confirms the bonds are valid obligations and addresses tax exemption. Unqualified = no reservations; qualified = reservations. Bonds without an opinion trade ex-legal, which must be disclosed.

CUSIP numbers (G-34): the underwriter (or the municipal advisor in a competitive sale) must apply for CUSIP numbers for the issue.

Political contributions (G-37): a municipal finance professional may contribute up to $250 per election to an issuer official's campaign only if entitled to vote for that official. A larger contribution triggers a two-year ban on municipal securities business with that issuer.

Continuing disclosure (Rule 15c2-12): for primary offerings of $1 million or more, the underwriter must review the official statement and confirm the issuer has undertaken to file annual financial information and material event notices (within 10 business days) on EMMA, the MSRB's public disclosure site.

Order Period and Priority of Orders

When an issue is oversubscribed during the order period, the customary priority is:

#	OrderType	Description	WhoEarnstheTakedown
1	Presale	Enteredbeforethebondsareawardedorpriced	Allmembersbyparticipation
2	Groupnet	Forthegroupaccount usuallylargeinstitutions ,	Allmembersbyparticipation
3	Designated(net	Institutiondesignateswhichmembersgetcredit	Thedesignatedmembers
	designated)
4	Member	Amember'sowncustomerorders	Thememberenteringtheorder

A syndicate buys $1,000-par bonds from the issuer and reoffers them at par with a spread of 1 point ($10 per bond). The manager's fee is 1/8 point; the concession is 3/10 point.

Manager's fee = $1.25; takedown = $10.00 − $1.25 = $8.75

Concession = $3.00; additional takedown = $8.75 − $3.00 = $5.75

A member selling to its own customer earns the full takedown, $8.75 per bond. When a non-member dealer sells the bond, that dealer earns the concession, $3.00, and the member keeps the additional takedown, $5.75.

The priority mnemonic is "Pre-Group-Designated-Member" (Please Go Deliver Munis): orders that benefit the most members are filled first; a member's own orders are filled last. In municipal deals the takedown is the spread less the manager's fee; the concession is the part paid to a non-member dealer.

Corporatevs.Municipalnewissues

Feature	CorporateOffering	MunicipalOffering
Registration	SECregistrationstatementundertheSecurities	Exempt;noSECregistration
	Act
Disclosuredocument	Preliminaryandfinalprospectus	Preliminaryandfinalofficialstatement
Underwriterselection	Usuallynegotiatedwithamanagingunderwriter	Competitivebiddingornegotiatedsale
Deliverystandard	Accessequalsdelivery;aftermarketperiods	Official statement by settlement (G-32) posted ,
	underRule174	onEMMA
Ongoingdisclosure	Exchange Act reports (10-K 10-Q 8-K) , ,	ContinuingdisclosureundertakingsunderRule
		15c2-12
Rulemaker	SECandFINRA	MSRB(enforcedbyFINRAandbankregulators)

The SEC never approves an issue; the cooling-off period is at

Spread = manager's fee + underwriting fee + selling

least 20 days, and indications of interest taken during it are

concession; the reallowance comes out of the concession.

not binding.

Stabilizing bids are at or below the POP.

During cooling-off, no sales or binding orders: permitted

Rule 5130: restricted persons cannot buy equity IPOs (10%

materials are the red herring, tombstone, and free writing

de minimis); Rule 5131 bans spinning and quid pro quo

prospectus; the red herring has no final price and may not be

allocations.

marked or highlighted.

Rule 144: 6-month or 1-year holding period; affiliates sell the

Aftermarket delivery: 25 days (listed), 90 days (unlisted IPO),

greater of 1% or the 4-week average per 90 days; Form 144

40 days (unlisted follow-on), none for reporting issuers;

over 5,000 shares or $50,000.

access equals delivery.

Municipal order priority: presale, group net, designated,

Firm commitment = underwriter risk; best efforts, all-or-

member. Official statement by settlement (G-32); 15c2-12

none, and mini-max = issuer risk; standby = rights offerings.

continuing disclosure on EMMA for issues of $1 million or more; G-37 $250 limit and two-year ban.