FINRA · SIE-1: US Capital Markets: Structure, Participants, and Primary Offerings

Key Characteristics: Issuer Receives Proceeds: The defining feature is that the funds flow directly from investors to the company or government entity issuing the securities. Investment Banks (Underwriters): Broker-dealers, acting as investment banks, play a crucial role in bringing new issues to market. They advise issuers, structure the offering, and facilitate the sale of securities to investors. Underwriting: The process by which an investment bank (underwriter) helps an issuer sell new securities. Two primary types: Firm Commitment: The underwriter buys the entire issue from the issuer and resells it to the public, taking on the risk of unsold shares. This is the most common type for equity IPOs. Best Efforts: The underwriter agrees to sell as much of the issue as possible, acting as an agent, but does not guarantee the sale of all shares. The issuer bears the risk of unsold shares. Types of Offerings: Initial Public Offering (IPO): The first time a company offers its shares to the general public. This marks the transition from a private to a public company. Additional Public Offering (APO) / Follow-on Offering: A subsequent offering of shares to the public by an already publicly traded company. An APO can be a Primary Offering (new shares issued by the company) or a Secondary Offering (existing shares sold by large shareholders, with proceeds going to those shareholders, not the company) or a combination of both. Registration Requirements (Securities Act of 1933): This landmark legislation governs the primary market, requiring issuers to register securities with the SEC before public sale, unless an exemption applies. The core purpose is to ensure investors receive full and fair disclosure of material information. Prospectus: A legal document that provides detailed information about an investment offering. It must be delivered to prospective purchasers of new securities. Cooling-Off Period: A minimum 20-day period after an issuer files a registration statement with the SEC. During this time, the SEC reviews the filing, and underwriters can gather indications of interest but cannot sell the securities. Red Herring (Preliminary Prospectus): A prospectus distributed during the cooling-off period. It omits the final offering price and effective date.