Browse Corporation

12.4.3 Permitted Activities During Waiting Period

A detailed guide on the activities permitted for underwriters and dealers during the waiting period between the preliminary prospectus and final prospectus in the Canadian Securities Course.

Permitted Activities During the Waiting Period

The period between the issuance of a receipt for a preliminary prospectus and a receipt for a final prospectus is known as the waiting period. This period is crucial for underwriters and issuers to prepare for the final sale of securities. During this time, certain activities are permitted while others are strictly prohibited. Understanding these guidelines ensures compliance with Canadian securities regulations.

Key Terms

  • Preliminary Prospectus: An initial document provided to potential investors containing the essential facts about the prospects of a new security issue before the final prospectus is seen and approved.
  • Final Prospectus: Detailed legal documentation approved by securities regulators that allows securities to be sold to the public. It includes comprehensive financial statements and essential managerial discussions.
  • Underwriters: Financial specialists, typically investment banks, that evaluate and assume the risk of bringing new securities to market.

Permitted Activities

During the waiting period, underwriters may engage in several activities, provided they adhere to specific limitations:

  1. Solicit Expressions of Interest: Underwriters may solicit expressions of interest from potential purchasers. This helps gauge market interest and readiness for the security.

    For example, underwriters may converse with mutual fund managers or seek input from individual investors without binding any parties into a sale agreement.

  2. Distribution of Preliminary Prospectus: Anyone who expresses interest, whether solicited or unsolicited, must be given a copy of the preliminary prospectus. This document helps inform potential investors without binding commitment terms.

Restricted and Prohibited Activities

Certain activities aimed at encouraging actual transactions or misleading the public are restricted during the waiting period:

  • Encouraging Trade: Activities such as executing agreements to purchase the securities in question are prohibited. This includes any contractual obligations or firm sale commitments.
  • Material Distribution: Apart from the preliminary prospectus and a few allowed informational materials, no other promotional materials or selling documents should be distributed.

Information Disclosure

While certain promotional activities are restricted, underwriters can distribute the following information to the public:

  • Available Preliminary Prospectus: Advertisements must focus on letting the public know a preliminary prospectus is available and where it can be accessed.
  • Price: If the issue price is determined, it can be included in the communication.
  • Dealer Information: Contact information and the address of the dealer member or registrant from whom the securities can be purchased must be disclosed.

Compliance Tip

Underwriters must ensure all activities during the waiting period are meticulously documented and should seek legal counsel checks to remain compliant with regulatory standards.

Frequently Asked Questions (FAQs)

Q1: Can underwriters hold roadshows during the waiting period?

  • A1: Yes, underwriters can hold roadshows to discuss the offering and provide potential investors with the preliminary prospectus. However, they cannot execute sales agreements or distribute non-approved materials.

Q2: Is it possible to change the information in the preliminary prospectus during the waiting period?

  • A2: Yes, modifications can occur, but any material change necessitates updating the preliminary prospectus and redistributing it to interested parties.

Q3: What penalties can arise from violating permitted activities guidelines during the waiting period?

  • A3: Violations can lead to severe penalties, including fines, withdrawal of the offering, or other enforcement actions by securities regulators.

Key Takeaways

  • The waiting period is crucial for compliance, preparation, and gauging market interest before finalizing a securities offering.
  • Soliciting interest and providing the preliminary prospectus are permitted, while executing actual sales agreements is not allowed during this period.
  • Accurate and compliant information release is essential, including terms like price and dealer details.

Glossary

Preliminary Prospectus: A document that contains basic information about a new security issue, provided to potential investors before the filing of the final prospectus.

Final Prospectus: The comprehensive legal document reviewed by securities regulators that allows public sale of the security.

Underwriters: Entities responsible for evaluating risks, structuring the deal, and marketing the new securities to the public.


CSC® Exams Practice Questions

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Welcome to the Knowledge Checkpoint! You'll find 10 carefully curated CSC exam practice questions designed to reinforce the key concepts covered. These questions will help you gauge your grasp of the material, identify areas that need further review, and ensure you're on the right track towards mastering the content for the Canadian Securities certification exams. Take your time, think critically, and use these quizzes as a tool to enhance your learning journey. 📘✨

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## What is the period between the issuance of a receipt for a preliminary prospectus and receipt for a final prospectus called? - [ ] Cooling-off period - [x] Waiting period - [ ] Market-close period - [ ] Investigation period > **Explanation:** The waiting period refers to the time between the issuance of a receipt for a preliminary prospectus and the receipt for a final prospectus. ## During the waiting period, what are underwriters allowed to do with regards to potential purchasers? - [ ] Execute an agreement to purchase the security - [x] Solicit expressions of interest - [ ] Distribute sales pitches - [ ] Complete sales transactions > **Explanation:** Underwriters may solicit expressions of interest from potential purchasers during the waiting period but are prohibited from executing agreements to purchase the security. ## What must be provided to anyone who expresses interest in the security during the waiting period? - [ ] A binding agreement - [ ] Promotional materials - [x] A copy of the preliminary prospectus - [ ] A confirmation receipt > **Explanation:** A copy of the preliminary prospectus must be provided to anyone who expresses interest in the security, whether solicited or unsolicited. ## What type of activities are prohibited during the waiting period? - [ ] Advertising the proposed issue - [ ] Disclosing the dealer’s contact information - [x] Encouraging a trade - [ ] Providing a preliminary prospectus > **Explanation:** Activities that are considered to encourage a trade, such as executing an agreement to purchase, are prohibited during the waiting period. ## Which of the following activities is allowed during the waiting period? - [ ] Distributing additional marketing materials - [x] Advertising that the preliminary prospectus is available - [ ] Directly soliciting purchase agreements - [ ] Guaranteeing profit from the security > **Explanation:** Advertising the proposed issue to inform the public that the preliminary prospectus is available is permitted during the waiting period. ## During the waiting period, what information can be included in permitted advertising? - [ ] Expected performance of the security - [x] The name and address of the dealer member or registrant - [ ] Investor testimonials - [ ] Detailed financial analysis of the issuer > **Explanation:** Permitted advertising during the waiting period can include the name and address of the dealer member or registrant from whom the security may be purchased. ## Can the price of the security be determined and shared during the waiting period? - [ ] No, the price must remain confidential until the final prospectus - [x] Yes, if the price is determined - [ ] Only in verbal communications - [ ] Only after the final prospectus is issued > **Explanation:** During the waiting period, the proposed price of the security can be included in permitted advertising if it has been determined. ## Which of the following is NOT allowed during the waiting period? - [ ] Providing the preliminary prospectus - [ ] Advertising the proposed issue's availability - [ ] Including the dealer member’s contact information in ads - [x] Distributing additional material beyond the preliminary prospectus > **Explanation:** No other material other than the preliminary prospectus may be distributed to interested investors during the waiting period. ## What is the purpose of informing the public about the preliminary prospectus during the waiting period? - [ ] To execute sales transactions - [ ] To ensure investor endorsements - [x] To inform the public that the preliminary prospectus is available - [ ] To secure binding purchase agreements > **Explanation:** The purpose is to inform the public that the preliminary prospectus is available, which is a permitted activity during the waiting period. ## Why is the execution of an agreement to purchase the security prohibited during the waiting period? - [ ] To avoid market manipulation - [x] To ensure fair disclosure and regulatory compliance - [ ] To keep the price confidential - [ ] To test market readiness > **Explanation:** Prohibiting the execution of agreements to purchase during the waiting period helps ensure fair disclosure and regulatory compliance, preventing premature trading based on incomplete information.

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Sunday, July 21, 2024