SIE practice questionmediumCooling-Off Period
During the 20-day cooling-off period after a registration statement is filed with the SEC, the underwriter may:
- ASell shares to investors and collect payment
- BDistribute a preliminary prospectus (red herring) and take indications of interest✓ Correct answer
- CGuarantee investors an allocation of shares
- DDistribute the final prospectus to investors
Explanation
Why B — Distribute a preliminary prospectus (red herring) and take indications of interest
During the cooling-off period (typically 20 days between filing and effective date), the underwriter may distribute a preliminary prospectus (called a 'red herring' because of the red ink disclaimer on the cover) and collect indications of interest — but may NOT sell shares, accept money, or confirm allocations. Sales can only occur after the registration statement becomes effective and the final prospectus is available.
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