12.2.1.3 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, although a few things need to be done first, such as setting the price and signing the underwriting agreement.
During the cooling-off period, the price of the offering will not yet have been set, and the underwriters present a price range to investors. If interest was high, the underwriters set the price at the high end of the range (even setting the price above the range if the issue is particularly hot, meaning it is appealing to investors and is in great demand). If interest was low, the underwriters set the price at the low end of the range. The price is usually set 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 (e.g., price, amount of stock offered, expenses, commissions, net proceeds, use of proceeds, underwriters)
- • General information about the issuer (e.g., issuer’s market capitalization, info about insiders and their holdings)
- • Financial information about the issuer (e.g., income statements, balance sheets, cash flow statements)
- • Copies of other relevant documents (e.g., underwriter agreements, issuer’s articles of incorporation