Gun-Jumping Rules

1
Gun-Jumping Rules

• Post-effective period
• Going effective
• Prospectus delivery
• Updating prospectus

(last updated 07 Feb 13)
2
Gun-Jumping(controlled disclosure during
registration)
Filing date
Effective date
No sales 5(a)(1)
No deliveries 5(a)(2)
No prospectus, unless comply 10 5(b)(1)
No delivery w/o 10 prospectus 5(b)(2)
No offers 5(c)
No offers - 8 proceeding / stop order 5(c)
Pre-filing period
Waiting period
Post-effective period
3
Hypothetical 1

• Although Smartway (the online last-minute ticket
  marketer) has no analysts following it, word of
  its IPO gets around. Its registration statement
  is not yet effective.
• Lan, a reporter for the Wall Street Journal,
  hears of the Smartway IPO and writes about
  Smartways IPO as part of a story on high-flying
  IPOs. (Nice coverage!) The story includes
  projections of Smartways future profitability.
• Any gun-jumping?

4

• Securities Act 2(a)(3)
• The term "sale" or "sell" shall include every
  contract of sale or disposition of a security or
  interest in a security, for value. The term
  "offer to sell", "offer for sale", or "offer"
  shall include every attempt or offer to dispose
  of, or solicitation of an offer to buy, a
  security or interest in a security, for value.

Securities Act 4 The provisions of section 5
shall not apply to-- (1) transactions by any
person other than an issuer, underwriter, or
dealer.
5
Hypothetical 2

• Lavina, a research analyst for Silverman
  Brothers, writes a research report on Smartway,
  giving the companys IPO a neutral
  recommendation.
• Silverman, which is not participating in the
  Smartway IPO, publishes Lavinas report and
  sends it to its own brokers, and its retail and
  institutional clients. Its the first time it
  said anything about Smartway.
• Any gun-jumping?

6

• Securities Act 5 
• (b) Necessity of prospectus meeting requirements
  of section 10 of this Act. It shall be unlawful
  for any person, directly or indirectly--    
• (1) to make use of any means or instruments of
  transportation or communication in interstate
  commerce or of the mails to carry or transmit any
  prospectus relating to any security with respect
  to which a registration statement has been filed
  under this title, unless such prospectus meets
  the requirements of section 10 or
• Securities Act 2(a)(10) 
• The term "prospectus" means any prospectus,
  notice, circular, advertisement, letter, or
  communication, written or by radio or television,
  which offers any security for sale or confirms
  the sale of any security

7

• Securities Act 4
• The provisions of section 5 shall not apply to--
  
• (1) transactions by any person other than an
  issuer, underwriter, or dealer.
• (3) transactions by a dealer except when
  selling or offering securities in the
  post-effective period
• Securities Act 2(a)(11)
• The term "underwriter" means any person who has
  purchased from an issuer with a view to the
  distribution of any security, or participates or
  has a direct or indirect participation in any
  such undertaking,
• Securities Act 2(a)(10)
• The term "dealer" means any person who engages
  as agent, broker, or principal, in the business
  of offering, buying, selling, or otherwise
  dealing or trading in securities issued by
  another person.

8

• Rule 137 (exemption from definition of offer
  and participates as underwriter)
• A securities firm not participating in the
  distribution may publish research report on
  securities in registration if
• (1) the securities firm has received no special
  compensation related to the distribution.
• (2) the recommendation is in the regular course
  of the firm's business compare this to Rule 139,
  which prevents participating securities firm to
  initiate coverage of issuer

9
Hypothetical 3

• Grace is a research analyst at Sparrow
  Securities, the managing UW for Smartways IPO.
• Grace writes a research report on Smartway giving
  it a buy recommendation. (Sweet!) Sparrow
  publishes a summary of her report with the buy
  recommendation in its monthly newsletter sent out
  prior to the effective date of the IPO.
  Previously, Sparrow had not covered Smartway.
• Any gun-jumping?

10

• Rule 139 (exemption from defn of offer)
• A securities firm that participates in the
  distribution may issue a report recommending the
  securities either
• (1) issuer-specific issuer is seasoned
  reporting company eligible for Form S-3 or WKSI,
  or
• (2) industry reports issuer is reporting
  company, and the recommendation is included in a
  report that includes other securities, receives
  no special prominence, is part of the securities
  firms regular business, and issuer has been in
  similar reports.

11

• Free writing prospectus (Rule 164)
• allows free writing prospectus (FWP), deemed to
  satisfy 10(b) if Rule 433 conditions satisfied
• available to issuer, UW or participant
• Conditions (Rule 433)
• info may not conflict with RS or SEC filings,
• FWP must be legended (read prospectus, how
  obtain)
• must be accompanied by (or linked to)
  preliminary/final prospectus (only applies to
  non-reporting and unseasoned issuers)
• must file with SEC (on date of first use)
• issuers must file FWP and issuer info (press
  interview)
• participants must file FWP that is broad
  unrestricted dissemination

12
How does RS become effective?
13
Going effective

• Section 8(a) Effective date of registration
  statementExcept as hereinafter provided, the
  effective date of a registration statement shall
  be the twentieth day after the filing thereof or
  such earlier date as the Commission may
  determine, . If any amendment to any such
  statement is filed prior to the effective date of
  such statement, the registration statement shall
  be deemed to have been filed when such amendment
  was filed

How can the SEC realistically review the RS in 20
days?
14
Going effective

• Section 8(a) Effective date of registration
  statementExcept as hereinafter provided, the
  effective date of a registration statement shall
  be the twentieth day after the filing thereof or
  such earlier date as the Commission may
  determine, . If any amendment to any such
  statement is filed prior to the effective date of
  such statement, the registration statement shall
  be deemed to have been filed when such amendment
  was filed

Rule 473 Delaying Amendment The registrant
hereby amends this registration statement on such
date or dates as may be necessary to delay its
effective date until the registrant shall file a
further amendment which specifically states that
this registration statement shall thereafter
become effective in accordance with section 8(a)
of the Securities Act of 1933 or until the
registration statement shall become effective on
such date as the Commission acting pursuant to
said section 8(a), may determine.
15
When do investors get prospectus?
16
Prospectus delivery

• Section 5(b) Necessity of prospectus meeting
  requirements of section 10 of this Act.
• It shall be unlawful for any person, directly or
  indirectly--   
•     (2) to carry or cause to be carried through
  the mails or in interstate commerce any such
  security for the purpose of sale or for delivery
  after sale, unless accompanied or preceded by a
  prospectus that meets the requirements of
  subsection (a) of section 10.

You get prospectus only with delivery of
securities. Isnt this a bit late?
17
Prospectus delivery

• Rule 134(d) to obtain written indication of
  interest, must send preliminary prospectus
• Rule 15c2-8(b) participating brokers must have
  sent investor prospectus at least 48 hours before
  confirming sale

Section 2(a)(10) defines "prospectus" to include
written communication which confirms the sale of
any security except that a communication sent or
given after the effective date shall not be
deemed a prospectus if it is proved that prior to
or at the same time with such communication a
written prospectus meeting the requirements of
subsection (a) of section 10 at the time of such
communication was sent or given to the person to
whom the communication was made,
18
Prospectus delivery

• Rule 134(d) to obtain written indication of
  interest, must send preliminary prospectus
• Rule 15c2-8(b) participating brokers must have
  sent investor prospectus at least 48 hours before
  confirming sale

Section 2(a)(10) defines "prospectus" to include
written communication which confirms the sale of
any security except that a communication sent or
given after the effective date shall not be
deemed a prospectus if it is proved that prior to
or at the same time with such communication a
written prospectus meeting the requirements of
subsection (a) of section 10 at the time of such
communication was sent or given to the person to
whom the communication was made,
19
How long does prospectus delivery requirement
last?
20
The provisions of section 5 shall not apply to

• Section 4(1) transactions by any person other
  than an issuer, underwriter, or dealer.
• Section 4(4) brokers' transactions executed
  upon customers' orders but not the solicitation
  of such orders.

Section 4(3) transactions by a dealer
(including an underwriter no longer acting as an
underwriter) except (B) transactions forty
days 90 days for IPOs or shorter period
specified by SEC after the effective date of
such registration statement (C) transactions as
to securities constituting the whole or a part of
an unsold allotment to such dealer as a
participant or order.
21
The provisions of section 5 shall not apply to

• Section 4(1) transactions by any person other
  than an issuer, underwriter, or dealer.
• Section 4(4) brokers' transactions executed
  upon customers' orders but not the solicitation
  of such orders.

Section 4(3) transactions by a dealer
(including an underwriter no longer acting as an
underwriter) except (B) transactions forty
days 90 days for IPOs or shorter period
specified by SEC after the effective date of
such registration statement (C) transactions as
to securities constituting the whole or a part of
an unsold allotment to such dealer as a
participant or order.
22
The provisions of section 5 shall not apply to

• Section 4(1) transactions by any person other
  than an issuer, underwriter, or dealer.
• Section 4(4) brokers' transactions executed
  upon customers' orders but not the solicitation
  of such orders.

Section 4(3) transactions by a dealer
(including an underwriter no longer acting as an
underwriter) except (B) transactions forty
days 90 days for IPOs or shorter period
specified by SEC after the effective date of
such registration statement (C) transactions as
to securities constituting the whole or a part of
an unsold allotment to such dealer as a
participant or order.

• Rule 174
• Zero days for Exchange
• Act reporting issuer
• 25 days for listed securities
• on exchange or NASDAQ
• 40 days for all other
• offerings, except IPO
• 90 days for IPO

23
How do underwriters and brokers selling allotment
deliver prospectus?
24
The provisions of section 5 shall not apply to

• Rule 172 (access delivery)
• Exemptions
• Confirmation deemed not a prospectusunder
  5(b)(1)
• Prospectus delivery deemed met under 5(b)(2)
• Conditions
• RS effective
• No pending proceedings
• Issuer has filed final prospectus available on
  EDGAR or will within 15 days after effective
  date (this condition not necessary for brokers)

• Rule 173 (prospectus or notice)
• Applicable to
• Underwriters selling allotment
• Brokers selling allotment
• Issuer selling directly
• Requirements
• not later than 2 business days after sale give
  investor final prospectus OR notice sale was made
  pursuant to RS in which prospectus required,
  absent exemption
• Investor may request prospectus

25
The provisions of section 5 shall not apply to

• Rule 172 (access delivery)
• Exemptions
• Confirmation deemed not a prospectusunder
  5(b)(1)
• Prospectus delivery deemed met under 5(b)(2)
• Conditions
• RS effective
• No pending proceedings
• Issuer has filed final prospectus available on
  EDGAR or will within 15 days after effective
  date (this condition not necessary for brokers)

• Rule 173 (prospectus or notice)
• Applicable to
• Underwriters selling allotment
• Brokers selling allotment
• Issuer selling directly
• Requirements
• not later than 2 business days after sale give
  investor final prospectus OR notice that sale was
  made pursuant to RS in which prospectus required,
  absent exemption
• Investor may request prospectus

26
Hypothetical 4

• Smartways IPO becomes effective on June 1. One
  of the underwriters, VillageBank was allocated
  400,000 shares.
• By June 3 VillageBank has sold all but 100,000 of
  its allocated shares. VillageBank sells shares
  to Kevin and with the confirmation mails a copy
  of the final prospectus.
• Delivery OK? And who cares if he gets a
  prospectus now its really too late for Kevin!
  The prospectus merely lets him know whether he
  bought a security or a lawsuit.

27

• Securities Act 2(a)(10) 
• The term "prospectus" means any prospectus,
  notice, circular, advertisement, letter, or
  communication, written or by radio or television,
  which offers any security for sale or confirms
  the sale of any security except that (a) a
  communication sent or given after the effective
  date of the registration statement shall not be
  deemed a prospectus if it is proved that prior to
  or at the same time with such communication a
  written prospectus meeting the requirements of
  subsection (a) of section 10 at the time of such
  communication was sent or given to the person to
  whom the communication was made,

28
Hypothetical 5
Smartway goes public and its shares are listed on
Nasdaq. Secondary market trading follows. A
week later Marx Securities, a securities dealer
not participating in Smartways offering, sells
some of its Smartway common stock inventory.
Marx mails stock certificates to purchasing
investors but does not send a statutory
prospectus Delivery OK?
29
Broker-dealers

• Section 5 applies to dealers
• selling from inventory and not acting as broker
  filling customer orders
• subject to prospectus delivery requirements for
  securities sold on NASDAQ (for 25 days from time
  of effectiveness)

• Rule 172 (access delivery)
• Exemptions
• Confirmation deemed not a prospectusunder
  5(b)(1)
• Prospectus delivery deemed met under 5(b)(2)
• Conditions
• RS effective
• No pending proceedings
• Issuer has filed final prospectus available on
  EDGAR or will within 15 days after effective
  date (this condition not necessary for brokers)

30
Broker-dealers

• Section 5 applies to dealers
• selling from inventory and not acting as broker
  filling customer orders
• subject to prospectus delivery requirements for
  securities sold on NASDAQ (for 25 days from time
  of effectiveness)

• Rule 172 (access delivery)
• Exemptions
• Confirmation deemed not a prospectusunder
  5(b)(1)
• Prospectus delivery deemed met under 5(b)(2)
• Conditions
• RS effective
• No pending proceedings
• Issuer has filed final prospectus available on
  EDGAR or will within 15 days after effective
  date (this condition not necessary for brokers)
• Dont forget Rule 173 notice!

31
Hypothetical 6

• Villagebank issues an analyst report on Smartway
  on June 10 9 days after the effective date.
• Villagebank still holds 50,000 shares from its
  allotment. The report covers a number of
  high-growth companies, including Smartway. The
  report recommends Smartway as a buy and talks
  glowingly about Smartways future growth
  prospects.
• Advise how Villagebank can send the report to its
  customers.

32

• Rule 139 (exemption from defn of offer)
• A securities firm that participates in the
  distribution may issue a report recommending the
  securities either
• (1) issuer-specific if issuer is a seasoned
  reporting company eligible for Form S-3 or WKSI,
  or
• (2) industry reports if the issuer is a
  reporting company, and the recommendation is
  included in a report that includes other
  securities, receives no special prominence, is
  part of the securities firms regular business,
  and issuer has been in similar reports.

33

• Securities Act 2(a)(10) 
• The term "prospectus" means any prospectus,
  notice, circular, advertisement, letter, or
  communication, written or by radio or television,
  which offers any security for sale or confirms
  the sale of any security except that (a) a
  communication sent or given after the effective
  date of the registration statement shall not be
  deemed a prospectus if it is proved that prior to
  or at the same time with such communication a
  written prospectus meeting the requirements of
  subsection (a) of section 10 at the time of such
  communication was sent or given to the person to
  whom the communication was made,

34
Hypothetical 7

• Jack, a coffee importer from Brazil, decides to
  purchase some Smartway stock on the secondary
  market.
• He contacts his broker, Joel, at Villagebank and
  instructs him to purchase 1,000 shares at the
  prevailing market price.
• Joel executes the order for Jack on June 10,
  sending him a written confirmation two days
  later, but does not include the statutory
  prospectus.
• Confirmation OK?

35

• Securities Act 4(4)
• The provisions of section 5 shall not apply to
• brokers' transactions executed upon customers'
  orders but not the solicitation of such orders

36
The end

• Finally