Cooling-Off Period
Once the registration statement is filed with the SEC, the SEC will take a minimum of 20 days to review it. This period is called the cooling-off period (also called the registration period) because the company will not be able to sell shares to the public, and only certain kinds of limited offers will be allowed.
During this time, the SEC will not try to determine whether the security is a good investment. Rather, it will make sure everything that is supposed to be in the registration statement is actually in it. If the SEC finds no material omissions or misleading statements, the registration statement will become effective after 20 calendar days.
If the SEC does find issues with the prospectus, it will return a qualified decision, and the issuer will have to file an amendment to the registration statement. Once an amendment has been filed, the company must wait an additional 20 days for SEC review.
During the cooling-off period, both the issuer and the lead underwriter will try to solicit investor interest in the new issue. This often involves a road show, where the lead underwriter and the issuer’s management will meet with institutional investors. The issuer’s management will give a presentation informing the investors about the company and the securities it will be selling. The lead underwriter will collect indications of interest from the investors, which are simply indications of an interest in buying, but not promises to buy. In return, the underwriters will not promise to sell to these potential buyers, but they will get priority when the shares are sold.
Potential investors will be given a preliminary prospectus as a disclosure document. Broker-dealers that participate in the