The waiting period is the stage in the initial public offering (IPO) process after the issuer files their registration statement with the Securities and Exchange Commission (SEC) and waits for the SEC to declare their registration statement effective. Section 5 of the Securities Act and SEC regulations govern an issuer’s communications and activities in the waiting period, known as gun jumping.
Gun Jumping Restrictions During the Waiting Period
During the waiting period, the issuer and underwriter begin to gauge market interest and the SEC reviews the registration statement. Section 5 of the Securities Act allows the issuer to make offers to sell their security under certain conditions. Section 5(b)(1) allows oral offers, and this allows issuers to conduct roadshows. Issuers may also engage in testing-the-waters communications with certain institutional investors.
For written offers, Section 5(b)(1) requires that written offers satisfy Section 10, which regulates the information that a prospectus must contain. While this generally limits the issuer’s ability to make written offers during the waiting period, issuers can still communicate to potential investors through Rule 134, a preliminary prospectus, or a free writing prospectus.
Rule 134 provides that certain written communications will not be considered a prospectus, and therefore the issuer may communicate with such written communications during the waiting period. The information that Rule 134 allows includes a brief description of the type of business of the issuer, the price of the security or the method for determining price, the anticipated use of proceeds, the names of the underwriters, the anticipated schedule of the offering, and a description of how the underwriters will conduct the offering.
Additionally, issuers may solicit investor interest through a preliminary prospectus (also referred to as a red herring), which is a prospectus that satisfies Section 10. Rule 430 provides that a preliminary prospectus must contain all the information that a final prospectus would, but the issuer may include an estimate offering price range instead of including the final offering price.
Lastly, Rule 164 allows issuers to communicate to potential investors through a free writing prospectus. Under Rule 164, a free writing prospectus that satisfies the requirements of Rule 433 will be considered a prospectus under Section 10, and therefore an acceptable written offer. In general, to satisfy Rule 433, the free writing prospectus must contain information which is not included in the registration statement but does not conflict with the registration statement. Issuers often use a free writing prospectus when they make changes to their IPO but their roadshow already begun.
[Last updated in January of 2022 by the Wex Definitions Team]