Select Page

Securities Regulation
Temple University School of Law
Porrata-Doria, Rafael A.

Securities Regulation


Fall 2015

Going Public Process

– Issuer attempts to raise capital in the public market by selling shares

o Looking to obtain a specified amount of money

o Limiting their risk

o Limiting the expenses associated with going public

– Potential pitfalls unknown to new issuer

o When to make the offering

o What should the price be

o What is the seasonality

o What kind of stock should be issued

– Issuer looks for expert on guidance in these issues

o Seeks out and utilizes an underwriter to address these issues

A. Underwriter: (Should be sure to price out; look for trust)

o Typically an investment banking firm

o Provides expertise on what steps to take in order to successful sell the securities

o Market the securities in order to sell

o Provide after offering support

o Market Maker: agrees to hold an inventory of stock to fill orders

– Types of underwriting arrangements

1. Firm commitment

a. Underwriter agrees to purchase all of the securities usually at a discount

i. Underwriter essentially takes on all the risk; must sell the shares

2. Best Efforts

a. Underwriter agrees to use their best attempts to sell all the securities

b. Much less frequent

3. Standby

a. Underwriter agrees to sell as much as possible with the issuer agreeing to sell the remaining

b. Only seen w/ pre-emptive rights

– Underwriters limiting risk

o Utilize Syndicates

§ Managing UW has client seeking $10mm offering

· Partners with other underwriters to diversify the risk amongst large number of underwriters

§ Managing UW makes money through the spread/discount from issuer

Price: $10

U/W: $9

Gross Profit: $1

Mang UW fee: .2

Profit if pub.: .8

Dealer discount: .5

Profit if deal: .3

– Expensive to take company public

o Lots of fixed cost associated with legal/accounting fees, securities fees, etc.

§ Decreased marginal cost

§ Typically 10m floor to going public

o Ongoing Going reporting obligations

o Loss of Privacy

– Agreements

o Underwriting Agreement

§ Agreement between issuer and underwriter

§ Agreement to sell (think 5(c) implications)

o Agreement among underwriters

§ Agreements among underwriters and the managing underwriters

§ Agreement to sell (think 5(c) implications)

B. Timeline

– Prefiling

o Have syndicate in place

o Clean up record keeping and

o Prepare the Registration Statement


– Filing/Registration statement

o U/Ws and issuer may MARKET but not SELL

o Review dance with the SEC to insure Prospectus is legitimate

– Registration statement is declared effective

o After statement declared effective you may sell securities

o The day before the declaration, underwriters and issuers decide a final offering price

o A few days after the effective date there is a closing

Prefilng Period:

· 5(c) limits any offer to buy or sell until a registration statement has been filed

o Offer to sell is very broad

o Intended to keep any conditioning of the market out

· RELEASE 3844

o Outlines instances where the publication of information prior to filing registration statement is an “offer”

§ Distribution of a brochure highlighting future possibilities of a mineralàyes

§ Speech that occurred after initiating a public offering but that was planned prioràNo

§ Speech that contained a forecast of sales and referred to issuers proposal to file with the commission


o Publication of materials in a newspaper hinting at a future offering was priming the pump

§ It was calculated to arouse and stimulate the investor

§ Contained underwriter information

§ Published in a wide circulation

· RELEASE 5180

o Suggests that issuers and reps should not instigate publicity when in registration

o Can do the following:

§ Continue to advertise products and services

§ Continue current customary communications

§ Answer unsolicited questions

o Evaluate situation in light of all the facts to determine if action is “step in the selling effort”


o Issuer responsible for own website and link to 3rd parties

o New issuer should be more cautious as investors may have harder time distinguishing what an offer from regular promotional activities

· General Exceptions to 5(c)

o Offer does not include negotiations or agreements between issuer and underwriters (or underwriters in privity) section 2(a)(3). Does not cover Dealers

o Rule 135: a notice that includes statement that this is not an offer and includes no more than 8 specific items

o Rule 163A: Communications made more than 30 days ahead of a filing

o 163: exceptions for well known seasoned issuers

o 163A, 168, 169

o 5(d) allows EGC to test the waters

§ Additionally EGC can now utilize a “research report”

cific transactions such as ESPP programs


o Regulations S-K and S-X are necessary

§ This includes general information such as the name, title and amount of securities, price

§ General Business

§ Risk Disclosures

· Language can be borrowed from other disclosures approved by the SEC

· Litigation

· Labor Trouble

· Too Few customers


o Must be a seasoned or well-seasoned company w/ previous filings

o Allows issuer to cross reference and incorporate information that was utilized in other filings

· Rule 473 allows issuer to include language which provides the ability to delay the effective date without having to continuously file amendments which would re-trigger the 20-day effective period. Will trigger the effective date through acceleration options under 461

· Rule 408 provides that an issuer must include in a registration statement any further material information as may be necessary to make the required statements not misleading

· Must also file state securities filings in every state you wish to sell the securities

o Blue Sky filings

o Most states have passed and use the Uniform Securities Act

§ Provides “Registration by Coordination”

· Utilize the federal registration statement and augment with additional information required for each state

· Must decide where the shares will be sold (listed)

o Listing Application to a specific exchange

o Self-governed and may have their own requirements (although approved by SEC)


§ Phil

§ SF


Review and Comment Procedure

· RS of first time issuers are given a thorough review AND statements by second and later times are reviewed selectively

· Securities lawyers must comply with comments and any suggested changes

o When changes extensive, amendment is filed and a revised prelim prospectus is re-circulated

o If changes minor then commission gives clearance for no filing of amendmentàprice amendment filed just before effectiveness includes final corrections