4.1.1. Delivery of the Prospectus
Another important part of the disclosure process for broker-dealers and agents is the delivery of the prospectus to interested investors. The prospectus, as described earlier, is a detailed description of a securities issue. 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? A stock that has just had an IPO. So if Shake Shack goes public, and you buy shares shortly after the IPO, you will be given a prospectus. For stocks that go public on an exchange like the NYSE or the Nasdaq, the prospectus has to be given to anyone who buys the stock at any point within 25 days after the IPO (after that it is no longer considered a new issue). For stocks that go public over the counter, the prospectus has to be given to anyone who buys the stock within 90 days after the IPO. There is a difference between the exchanges and the OTC because the SEC assumes that there will be more information available in the market about companies that go public on an exchange than there will be about companies that offer their securities over the counter.
• What else is considered a new issue? When shares in a mutual fund or a variable annuity are sold, a prospectus must be provided to the purchaser. This is because shares of the mutual fund or annuity are being issued new to each investor.
• By which