1.2.1.3. Underwriting Process: Cooling-Off Period
Once the registration statement is filed with the SEC, the SEC will review it. As originally described in the Securities Act, this review is supposed to take 20 calendar days. 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 there’s no obvious problem, the registration statement undergoes the normal review process. If the SEC finds no material omissions or misleading statements, the registration statement will become effective, meaning that sales of the security may take place. If the SEC finds the registration statement to be inadequate in some way, it will send a deficiency letter. A deficiency letter is an order to amend the registration statement, often by providing additional information. Once an amendment has been filed, the SEC will review the amended registration statement. If the amendment did not satisfy the SEC’s concerns, the SEC will send another deficiency letter and the issuer will need to file another amendment.
An amendment filed in response to a deficiency letter does not start the clock over on the 20 days, provided the SEC finds that the amendment actually addressed the deficiencies. Amendments that the issuer makes on its own initiative generally do start the clock over, although the SEC is allowed to grant exceptions.
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 prese