6.1.6.3. Post-Effective Period
The post-effective period is the period after the registration statement has become effective. At this point, the company is allowed to sell its securities to the public, but first, the price of the security must be decided upon.
During the cooling-off period, the price of the offering is not yet set. When underwriters present the offering on the road show, they present a possible price range to investors and assess investors’ interest. If interest in the offering is high, underwriters set the public offering price at the high end of the range. If interest is moderate or low, underwriters set the price at the low range. If a new issue of securities is particularly hot, meaning it is in great demand, underwriters may set the price above the range. When deciding on a price, the underwriters will try to get the highest price for the issuer that will be low enough to sell all the securities in the offering. The underwriters will usually set the price right after the registration statement becomes effective and the night before the offering is held.
Because the price is typically set right before the offering, this is when the underwriting agreement is signed and the securities are delivered from the issuer to the underwriter. The underwriter then sells the securities to the public at the public offering price.
Once the price has been determined, the price is inserted into the preliminary prospectus, and the resulting final prospectus is filed with the SEC. This document will also serve as the disclosure document for customers who purchase securities in the IPO and shortly thereafter.
- • The information that must be in the prospectus includes:
- • Information about the offering (for example, price, amount of stock offered, expenses, commissions, net proceeds, use of proceeds, underwriters)
- • General information about the issuer (for example, issuer’s market capitalization, information about insiders