6.1.6.1. Delivery of a Prospectus
A prospectus must be provided to an interested investor before completion of a transaction (settlement) for a security that has been recently issued. To ensure that broker-dealers and agents live up to their obligations with regard to prospectus delivery, the SEC has established the following guidelines:
Prospectuses must be given for new issues only. After an issue is no longer considered to be new, the SEC assumes that there is enough information out in the market for investors to make informed decisions and the prospectus is no longer required.
What is considered a new issue? An IPO conducted on an exchange like the NYSE or Nasdaq is considered a new issue for 25 days after the offering date. A prospectus must be provided to anyone who buys the stock during this time, whether on the primary or secondary market. Over-the-counter IPOs are considered new issues for 90 days after the offering date. There is a difference between the exchanges and the OTC because the SEC assumes that there will be more information out in the market about companies that go public on an exchange than over the counter. For follow-on offerings, an OTC offering is a new issue for 40 days. Follow-on offerings of exchange-traded securities have no prospectus delivery requirement after the offering date.
When does the prospectus need to be given to the customer? A prospectus must be given to a customer by the confirmation of the transaction. This means at the time the trade confirmation is given to the customer, which can be no later than when the transaction settles (usually not later than two business days after the trade date).
Additionally, those who are expected to be among the initial buyers in an IPO need to have received preliminary prospectuses a minimum of 48 hours prior to the offering date. This ensures that the initial buyers have all gotten a preliminary prospectus before they make their purchases.
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