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Series 79 practice questioneasyIPO Process

What document is commonly referred to as the 'red herring'?

  1. AThe preliminary prospectus distributed during the waiting period✓ Correct answer
  2. BThe final prospectus filed after the effective date
  3. CThe underwriting agreement signed at pricing
  4. DThe comfort letter from the auditors
Explanation

Why A — The preliminary prospectus distributed during the waiting period

The preliminary prospectus is commonly called the 'red herring' because it historically featured a red legend on its cover indicating that the registration statement had not yet become effective and that the securities could not yet be sold. It contains most of the information in the final prospectus but lacks the final offering price and underwriting details. It is distributed to potential investors during the waiting period to generate interest.

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