Communications Guidelines: Cooling-off Period
Prohibited communications:
- • Sales. No sales of the issue are allowed during the registration period. Underwriters can only collect “indications of interest.”
- • Written offers. Most written offers need to follow strict rules (see below).
Acceptable communications:
- • Oral offers. Underwriters, issuers, and registered reps are allowed to verbally discuss the offering with investors.
- • Preliminary prospectuses. This is the primary document to entice indications of interest.
- • FWPs. Free-writing prospectuses may be prepared by any type of eligible issuer.
The SEC has issued several rules that provide a safe harbor from the gun-jumping provisions for communications that include only general information about the offering. Rule 134 allows written communications and advertisements of this type. Solicitations to buy can be made only if accompanied by a preliminary prospectus and a disclaimer.
Often this information is presented in what is called a Tombstone Ad. This kind of ad is placed in a newspaper or financial magazine and contains a black border that resembles a tombstone. To ensure that tombstone ads will not be construed as an offer, tombstone ads typically include a statement similar to the following: “This announcement is under no circumstances to be construed as an offer to sell or as a solicitation of an offer to buy any of these securities. The offering is only made by Prospectus.”
Information that is allowed under Rule 134 includes:
- • Price of security, description of amount and type of securities
- • For fixed-income securities, final maturity, interest rate, and yield
- • Name of underwriters
- • Name of issuer and brief description of business
- • Description of marketing events