6.1.3. The Post-Effective Period
The post-effective period is the period that begins on the effective date, which is the date that the registration statement is allowed by the SEC to become effective. After the effective date, the offering may officially begin. The date on which the formal start of the offering occurs is called the offering date. But first, the price of the security must be decided on.
Up to this point, the public offering price—the price at which the offering will be sold to investors—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, the issuer and underwriter set the public offering price at the high end of the range. If interest is moderate or low, the issuer and underwriter set the price at the low end of the range. If demand is especially high, the issuer and underwriter may even set the price above the range. Underwriters will try to get the highest price for the issuer that will also be low enough to sell all the securities in the offering. The price is usually set right after the registration statement becomes effective and the night before the offering date. The meeting between the issuer and underwriter at which the final decision about pricing is made is sometimes called the pricing call.
A final decision about the public offering price also allows the LOI to be formalized in a binding agreement called the Underwriting Agreement (UA) or purchase agreement. The UA must contain the public offering price (or the formula from which it is calculated) and information about the spread. This information must also be in the formal agreements governing the syndicate and selling group. Therefore, all of these documents are signed in the window of time between the final decision on pricing and the offering date, even if their terms were mostly negotiated long before this point in the process.
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