Securities Law

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Best efforts underwriting

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Type of underwriting arrangement where the underwriters agree to . . .

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Registration Statement

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A carefully prepared set of documents, including a prospectus, which is filed with the SEC prior to an initial public offering.


See Also:
Form S-1, registered company, registered security

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Prospectus

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1. A formal legal document describing details of a corporation. The prospectus is generally created for a proposed offering (usually an IPO), but they can still be obtained from existing businesses as well. The prospectus includes company facts that are vitally important to potential investors.

2. In this case of mutual funds, a prospectus describes the fund's objectives, history, manager background, and financial statements.

A legal document offering securities or mutual fund shares for sale, required by the Securities Act of 1933. It must explain the offer, including the terms, issuer, objectives (if mutual fund) or planned use of the money (if securities), historical financial statements, and other information that could help an individual decide whether the investment is appropriate for him/her. also called offering circular or circular.

The prospectus is a document that makes investors aware of the risks of an investment.

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Preliminary Prospectus

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The initial document published by an underwriter of a new issue of stock to be given to prospective investors. It is understood that the document will be modified significantly before the final prospectus is published. Also called "red herring."

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Red Herring

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A preliminary registration statement that must be filed with the SEC describing a new issue of stock (IPO) and the prospects of the issuing company. same as preliminary prospectus. Its name comes from the warning, printed in red, that information in the document is still being reviewed by the SEC and is subject to change.

There is no price or issue size stated in the red herring, and it is sometimes updated several times before being called the final prospectus. It is known as a red herring because it contains a passage in red that states the company is not attempting to sell their shares before the registration is approved by the SEC.

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Deficiency Letter

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An SEC letter indicating that a preliminary prospectus for an offering needs to be modified.

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Final Prospectus

What is key difference with initial prospectus?

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A legal document stating the price of a newly issued security, the delivery date, and other facts that are important for investors. A document containing information on a new issue, including the delivery date, the underwriting spread, and financial information about the company; it is given to all investors who wish to purchase the issue.

The final prospectus must be given to every investor who purchases a new issue of registered securities. A key difference between a final prospectus and a preliminary prospectus (or red herring) is that the final prospectus contains the price.

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Underwriting Spread

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Fee charged by a syndicate, equal to the difference between the gross sales to investors and the net proceeds received by the issuer.

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Form S-1

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A registration statement used in the initial public offering of securities.

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Form S-3

Who can use it?

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The most simplified registration form. It can only be used by companies that have been required to report under the '34 Act for a minimum of twelve months and have met the timely filing requirements set forth under Form S-2.

The offering and issuer must meet the eligibility tests prescribed by the form before having a secondary offering.

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Comfort Letter

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An accounting firm's statement provided to a company preparing for a public offering, confirming that unaudited financial data in the prospectus follows GAAP, and that no significant changes have occurred since the report was prepared.

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DTC

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Depository Trust Company
One of the world's largest securities depositories, it holds in excess of $10 trillion worth of securities in custody. The DTC acts like a clearing house (guarantor) to settle trades in corporate and municipal securities. A central repository through which members electronically transfer stock and bond certificates (a clearinghouse facility). The Depository Trust Company was set up to provide an infrastructure for settling trades in municipal, mortgage-backed and corporate securities in a cost-efficient and timely manner. It is also the world's largest securities depository, holding about $20 trillion of assets in custody at any time. It is a member of the Federal Reserve system, registered with the Securities and Exchange Commission (SEC) and owned by the Depository Trust and Clearing Corporation (DTCC). The DTCC in turn is owned by several banks, brokerages, trading houses and trading exchanges.

DTC is owned by many companies in the financial industry, with the NYSE being one of its largest shareholders.

DTC, the little known 20 trillion dollar company, holds most stocks in the world in the name of its subsidiary "Cede & Co.”

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DTCC

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Depository Trust & Clearing Corp.

Established in 1999, the DTCC is a holding company consisting of 5 clearing corporations (guarantors) and 1 depository, making it the world's largest financial services corporation dealing in post trade transactions.

Owned by its principal users, the DTCC's function is to integrate the NSCC and DTC, streamlining clearing and depository transactions in attempts to reduce cost and increase capital efficiency.

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Clearing House

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A firm that guarantees the obligations of the parties in an exchange traded security or derivative transaction. An agency associated with an exchange, which settles trades and regulates delivery.

A clearing house protects investors from default risk between other investors and firms.

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Pro Forma

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A Latin term that translates into "for the sake of form." In the investing world, the term describes a method of calculating financial results in order to emphasize either current or projected figures. Description of financial statements that have one or more assumptions or hypothetical conditions built into the data. Often used with balance sheets and income statements.

Pro forma financial statements could be designed to reflect a proposed change, such as a merger or acquisition, or to emphasize certain figures when a company issues an earnings announcement to the public.

Investors should heed caution when reading a company's pro forma financial statements, as the figures may not comply with GAAP. In some cases, the pro-forma figures may differ greatly from the those derived from generally accepted accounting principles.

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Concession

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A selling group's compensation in a stock or bond underwriting agreement. (1) a syndicate's per-share compensation; (2) A rebate, allowance, or reduction in price or other terms of an agreement.

“Selling concession” = the discount underwriters offer the selling group on securities in a new issue.

This is usually on a per-share or per-bond basis.

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Downgrade

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A negative change in the rating of a security. A negative change in ratings for a security; two common examples are an analyst's downgrading a stock (such as from "buy" to "sell") and a credit bureau's downgrading of a bond. opposite of upgrade.

For example, an analyst may downgrade a stock from strong buy to buy, or a bond rating agency may downgrade a bond from AAA to AA.

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Rating Service

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A company that publishes ratings for securities such as preferred stock and debt issues based on the likelihood of consistent and timely payments. These rankings are arrived at by looking at a variety of balance sheet data. Some rating services are very influential, and an upgrade or downgrade can affect their borrowing costs significantly.