Series 6: 1.2.1.4.1. Delivery Of A Prospectus

1.2.1.4.1.  Delivery of a Prospectus

A prospectus must be provided to an interested investor before completion of a transaction (settlement) for a security that has been recently issued. To ensure that broker-dealers and agents live up to their obligations with regard to prospectus delivery, the SEC has established the following guidelines:

Prospectuses must be given for new issues only. After an issue is no longer considered to be new, the SEC assumes that there is enough information out in the market for investors to make informed decisions and the prospectus is no longer required.

What is considered a new issue? A stock that has just had an IPO. So if the company Shake Shack goes public and you buy shares shortly after the IPO, you will be given a prospectus. For stocks that go public on an exchange like the NYSE or the NASDAQ, the prospectus has to be given to anyone who makes a purchase up to 25 days after the IPO (after that, it is no longer considered a new issue). For stocks that go public over the counter, the prospectus has to be given for up to 90 days after the IPO. There is a difference between the exchanges and the OTC because the SEC assumes that there will be more information out in the market about companies that go public on an exchange than over the counter.

What else is considered a new issue? An open-end mutual fund or variable annuity als