Securities Act Release No. 33-5009

October 7, 1969

Publication of Information Prior to or After the Filing and Effective Date of a Registration Statement Under the Securities Act of 1933.

The Securities and Exchange Commission and its staff frequently receive inquiries concerning the impact of the registration and prospectus requirements of Section 5 of the Securities Act of 1933 ("Act") on publication of information concerning an issuer and its affairs by the issuer, its management, and by underwriters and securities dealers. Some of the more common problems which have arisen in this connection are discussed in Securities Act of 1933 Release No. 3844 (October 8, 1957). ¹

Since the publication of that release there have been a number of developments relevant to this subject, including the broader reach of the reporting and proxy disclosure requirements through the 1964 amendments to the Securities Exchange Act of 1934 and the increased awareness of various self-regulatory organizations, corporate managements and others of the importance of timely disclosure. Moreover, in recent years the Commission and its staff also have become increasingly aware of the need for more clearly defined standards in this area. Concurrently with the publication of this release the Commission is proposing to adopt various rules which would accomplish this objective in certain respects (see Securities Act Release No. 5010). The Commission believes that a discussion of certain factors to be considered in dealing with other aspects of this subject may be of help to issuers, their advisers and professionals in the securities business.

There has been an ever increasing tendency to publicize through many media information concerning corporate affairs which goes beyond statutory requirements. This practice reflects the commendable recognition on the part of business and the investment community of the importance of informing investors and the public with respect to important business and financial developments. It has been reinforced by the policies of various self-regulatory organizations regarding timely disclosure of information which might materially affect the market for an issuer's securities. ²

As the Commission has stated:

"We realize, of course, that corporations regularly release various types of information and that a corporation in which there is wide interest may be called upon to release more information more frequently about its activities than would be expected of lesser known or privately held enterprises. In the normal conduct of its business a corporation may continue to advertise its products and services without interruption, it may send out its customary quarterly, annual and other periodic reports to security holders, and it may publish its proxy statements, send out its dividend notices and make routine announcements to the press. This flow of normal corporate news, unrelated to a selling effort for an issue of securities is natural, desirable and entirely consistent with the objectives of disclosure to the public which underlies the federal securities laws." ³

However, the increasing obligations and incentives of corporations to make timely disclosures concerning their offerings raise a question as to a possible conflict between the obligation to make timely disclosure and the restriction on publication of information concerning an issuer which may have securities "in registration." ⁴  The Commission believes that such a conflict may be more apparent than real. Events resulting in a duty to make prompt disclosure under the anti-fraud provisions of the securities laws or timely disclosure policies of self-regulatory organizations at a time when a registered offering of securities is contemplated are relatively infrequent and normally may be effected in a manner which will not unduly influence the proposed offering. Disclosure of a material event would ordinarily not be subject to restrictions under Section 5 of the Securities Act if it is purely factual and does not include predictions or opinions.

The Commission recognizes that difficult and close questions will inevitably arise with respect to whether particular items of publicity are subject to restriction, and encourages issuers and their counsel to seek informal consultation with the Commission's staff which is accustomed to dealing with such questions and is usually able to give rapid and definite responses.

Pre-filing Information

A number of more specific questions have been raised concerning the restrictions on circulation of information by broker-dealers, particularly during the "pre-filing" period. There appears to be some confusion as to when the restrictions on publication activities commence. Ordinarily a broker-dealer becomes subject to restrictions at any time when he commences to participate in the preparation of a registration statement or otherwise reaches an understanding with the person on whose behalf a distribution is to be made that the firm will become a managing underwriter, whether or not the terms and conditions of the underwriting have been agreed upon. Other brokers become subject to restrictions at such time as they are invited by a managing underwriter or a person on whose behalf a distribution is to be made, to participate or seeks to participate. Persons who choose to forego such underwriting in order to be free to distribute such publications should not thereafter participate in the distribution as a dealer or otherwise.

Distribution of communications containing recommendations with respect to securities which have been registered for sale from time to time at prices prevailing in the market pose difficult questions. Usually no broker-dealer group has made arrangements with the selling shareholders for distribution of the securities. It does not appear that restrictions on the dissemination of such material are necessary until such time as a broker-dealer has reached an understanding that he will offer securities on behalf of the selling shareholder, whether or not he has technically accepted an order to sell the security.

After a particular security is "in registration," broker-dealers often do not know the extent to which they may follow up recommendations concerning the security made before the security was "in registration."  If a broker-dealer is a participant in a proposed underwriting and material events occur during the "pre-filing" period, the broker should be able to make a brief, strictly factual report of these events to his customers.

Written Communications

After the registration statement is filed and until it becomes effective, written communications furnished to customers or others should be restricted to the preliminary prospectus ("red herring"), the summary prospectus described in Section 10(b), or the so-called "tombstone" announcements permitted under Section 2(10) of the Act or Rule 134 thereunder. Also, Rule 135 permits certain announcements of offerings before and after a registration statement is filed.

It should be recognized that the foregoing discussion is intended to be only a general guide for brokers in disseminating information concerning an issuer which has securities "in registration."  Particular fact situations may result in different conclusions. In such situations, a broker may find consultation with the staff of the Commission helpful.

Although the matters discussed herein reflect the policies and practices which the staff of the Commission will follow, they do not represent rules of the Commission. Accordingly, these interpretations are subject to change based on experience in their application, and the Commission would welcome comments and observations from interested persons. Such comments should be directed to the Director of the Division of Corporation Finance.

It should be noted that the Commission is also proposing to amend Rule 174 which provides exemption from the prospectus delivery requirements of Section 4(3) of the Act (see Securities Act of 1933 Release No. 5010). The proposed amendments would eliminate the requirement for dealers to deliver a prospectus for trading transactions in securities of issuers required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  If such a rule is adopted, dealers who have sold their allotments or who are not participating in the distribution would then be able to distribute information concerning an issuer subject to such reporting requirements during the period of 40 days after the effective date of the issuer's registration statement without the restrictions the existing prospectus delivery requirements may impose on their trading transactions.

The Commission is not proposing to revise prospectus delivery requirements as they apply to issuers not required to file periodic reports under the Exchange Act, primarily the 90 days requirement which applies to issuers which have not previously filed a registration statement under the Act. Accordingly dealers desiring to publish information concerning such issuers during the 90 day period should consider the prospectus delivery requirements.

By the Commission.

¹  See also, Securities Act of 1933 Release No. 4697 (May 28, 1964).

²  See, e.g., New York Stock Exchange Company Manual, pages A-18 through A-27, revised July 19, 1968; American Stock Exchange Guide, pages 101-108.

³  Carl M. Loeb, Rhoades & Co., 38 SEC 843, 853 (1959).

⁴  "In registration" is used herein to mean the entire process of registration, at least from the time an issuer reaches an understanding with the broker-dealer which is to act as managing underwriter until the completion of the offering and the period of 40 or 90 days during which dealers must deliver a prospectus.