Question 1

What writing standard applies to an entire IPO prospectus?

Accepted Answer

Rule 421(b) requires that information in a prospectus be presented in a clear, concise and understandable manner, and it sets four preparation standards: present information in clear, concise sections, paragraphs, and sentences, using short, explanatory sentences and bullet lists whenever possible; use descriptive headings and subheadings; avoid frequent reliance on glossaries or defined terms as the primary means of explaining information; and avoid legal and highly technical business terminology. Rule 421(b)(3) directs that terms be defined in a glossary or other section only if the meaning is unclear from the context, and that a glossary be used only if it facilitates understanding of the disclosure. The Note to Rule 421(b) lists four things a drafter should avoid: legalistic or overly complex presentations that make the substance of the disclosure difficult to understand; vague 'boilerplate' explanations that are imprecise and readily subject to different interpretations; complex information copied directly from legal documents without any clear and concise explanation of the provisions; and disclosure repeated in different sections of the document that increases the size of the document but does not enhance the quality of the information. This clear-writing standard reaches the whole prospectus; the separate plain English mandate in Rule 421(d) reaches only specified sections. Rule 421's source note runs from 47 FR 11439 (March 16, 1982), as amended at 63 FR 6384 (February 6, 1998) and 76 FR 71876 (November 21, 2011).

Question 2

Which parts of a prospectus must be written in plain English?

Accepted Answer

Rule 421(d)(1) requires plain English principles in the organization, language, and design of the front and back cover pages, the summary, and the risk factors section. Rule 421(d)(2) requires that the language in those sections be drafted so that, at a minimum, it substantially complies with each of six writing principles: short sentences; definite, concrete, everyday words; active voice; tabular presentation or bullet lists for complex material, whenever possible; no legal jargon or highly technical business terms; and no multiple negatives. The mandate is repeated inside each Regulation S-K item that governs one of those sections. Item 501 (Forepart of Registration Statement and Outside Front Cover Page of Prospectus) opens: 'The registrant must furnish the following information in plain English. See § 230.421(d) of Regulation C of this chapter.' Item 503 (Prospectus summary) opens with the same sentence, and adds that if summary business or financial information is provided, even if not captioned as a summary, that information must still be provided in plain English. Item 105(b) (Risk factors) closes with: 'The registrant must furnish this information in plain English. See § 230.421(d) of Regulation C of this chapter.' Rule 421(d)(2) sets a floor — substantial compliance with each listed principle — rather than prescribing a single house style.

Question 3

What does Rule 421 say about charts, graphics, and the legibility of a prospectus?

Accepted Answer

Rule 421(d)(3) permits pictures, logos, charts, graphs, or other design elements in the plain English sections or other sections of the prospectus, so long as the design is not misleading and the required information is clear. It encourages tables, schedules, charts and graphic illustrations of the results of operations, balance sheet, or other financial data presented in an understandable manner. Under Rule 421(d)(3), any presentation must be consistent with the financial statements and non-financial information in the prospectus, graphs and charts must be drawn to scale, and any information provided must not be misleading. Legibility is governed separately by Rule 420(a), which requires the body of all printed prospectuses, and all notes to financial statements and other tabular data included in them, to be in roman type at least as large and as legible as 10-point modern type; to the extent necessary for convenient presentation, financial statements and other tabular data, including tabular data in notes, may be in roman type at least as large and as legible as 8-point modern type. Rule 420(a) requires all such type to be leaded at least 2 points. Rule 420(b) provides that where a prospectus is distributed through an electronic medium, issuers may satisfy legibility requirements applicable to printed documents — such as paper size, type size and font, bold-face type, italics and red ink — by presenting all required information in a format readily communicated to investors and, where indicated, in a manner reasonably calculated to draw investor attention to specific information.

Question 4

Must a prospectus follow the order of the items in the registration form?

Accepted Answer

No. Rule 421(a) provides that the information required in a prospectus need not follow the order of the items or other requirements in the form. It may not, however, be set forth in such fashion as to obscure any of the required information or any information necessary to keep the required information from being incomplete or misleading. Where an item requires information to be given in tabular form, it must be given in substantially the tabular form specified in the item. Rule 421(c) adds that all information required to be included in a prospectus must be clearly understandable without the necessity of referring to the particular form or to the general rules and regulations. Except as to financial statements and information required in a tabular form, the information set forth in a prospectus may be expressed in condensed or summarized form; and in lieu of repeating information in the form of notes to financial statements, references may be made to other parts of the prospectus where that information is set forth. Item 105(b) is an exception to the free-ordering principle for one section: if a risk factor discussion is included in a registration statement, it must immediately follow the summary section required by Item 503, and if there is no summary section, it must immediately follow the cover page of the prospectus or the pricing information section that immediately follows the cover page.

Question 5

What is the SEC's Plain English Handbook, and does it carry the force of law?

Accepted Answer

A Plain English Handbook: How to create clear SEC disclosure documents is a publication of the SEC's Office of Investor Education and Assistance, dated August 1998. It is guidance, not a rule: the handbook states that the SEC is 'publishing this handbook only for your general information' and that, when drafting a document for filing with the SEC, the drafter must make sure it meets all legal requirements. The binding requirements are in Rule 421 and the Regulation S-K items that cross-reference it. The 83-page handbook contains a preface by Warren E. Buffett and an introduction by then-Chairman Arthur Levitt, and chapters covering what a plain English document is, knowing the audience, reorganizing the document, writing in plain English, designing the document, and using readability formulas and style checkers. The Instruction to Rule 421 directs: 'You should read Securities Act Release No. 33-7497 (January 28, 1998) for information on plain English principles.' That release, captioned Plain English Disclosure (Release Nos. 33-7497; 34-39593; IC-23011; International Series No. 1113; File No. S7-3-97), adopted the plain English rule with an effective date and a compliance date of October 1, 1998, and stated that the rule requires issuers to write the cover page, summary, and risk factors section of prospectuses in plain English. The eCFR source note for Rule 421 records the corresponding amendment at 63 FR 6384 (February 6, 1998). SEC publications are U.S. Government works; the handbook is described here rather than reproduced.

Question 6

What is the consequence under the rules of failing to write a prospectus in plain English?

Accepted Answer

Rule 461(b)(1) identifies a failed plain English effort as a situation in which the Commission considers that the statutory standards of Section 8(a) may not be met and may refuse to accelerate the effective date of a registration statement: specifically, 'where there has not been a bona fide effort to make the prospectus reasonably concise, readable, and in compliance with the plain English requirements of Rule 421(d) of Regulation C (17 CFR 230.421(d)) in order to facilitate an understanding of the information in the prospectus.' Rule 461(a) provides that requests to accelerate the effective date are made by the registrant and the managing underwriters of the proposed issue, or, if there are no managing underwriters, by the principal underwriters. Rule 461(b) frames its list — which also includes an inaccurate or inadequate preliminary prospectus, a pending Commission investigation, underwriter financial-responsibility failures, and unreviewed underwriting compensation — as situations in which the Commission may refuse to accelerate, having due regard to the adequacy of information respecting the registrant theretofore available to the public and to the public interest and the protection of investors, as provided in Section 8(a). Because a registration statement carrying a Rule 473 delaying amendment does not become effective automatically, a refusal to accelerate leaves the registration statement pending rather than effective. Acceleration is a timing determination about effectiveness; neither the Commission nor its staff approves an offering or passes on the merits of a transaction.

Question 7

Does answering every item of the form discharge the drafter's obligation?

Accepted Answer

No. Rule 408(a) provides that, in addition to the information expressly required to be included in a registration statement, there shall be added such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances under which they are made, not misleading. The obligation is stated in terms of the registration statement rather than any single item of a form, and it runs alongside the itemized requirements rather than being satisfied by them. Rule 408(b) supplies one carve-out: notwithstanding paragraph (a), unless otherwise required to be included in the registration statement, the failure to include in a registration statement information included in a free writing prospectus will not, solely by virtue of the inclusion of that information in a free writing prospectus (as defined in Rule 405), be considered an omission of material information required to be included in the registration statement. Rule 408's source note runs from 12 FR 4072 (June 24, 1947), as amended at 70 FR 44811 (August 3, 2005). Which categories of information the S-1's items call for in the first place is covered on the IPO Center's IPO Disclosures page; the reasonable-investigation defense to Securities Act Section 11 liability is covered on the IPO Due Diligence page.

Question 8

What formal requirements apply to an amendment to a registration statement?

Accepted Answer

Rule 470 provides that, except for telegraphic amendments filed pursuant to Rule 473, amendments to a registration statement shall be filed under cover of an appropriate facing sheet, shall be numbered consecutively in the order in which filed, and shall indicate on the facing sheet the applicable registration form on which the amendment is prepared and the file number of the registration statement. Consecutive numbering under Rule 470 is why pre-effective amendments are identified as Amendment No. 1, Amendment No. 2, and so on, each a separate filing bearing the same file number as the original registration statement. Regulation S-T Rule 101(a)(1)(i) mandates that registration statements and prospectuses filed pursuant to the Securities Act, including any related correspondence and supplemental information, be submitted in electronic format, so the facing sheet, form designation, and file number that Rule 470 requires are carried in an electronic submission on EDGAR. Rule 470's source note runs from 47 FR 11445 (March 16, 1982), as amended at 76 FR 71876 (November 21, 2011).

Question 9

Who must sign an amendment to a registration statement?

Accepted Answer

Rule 471(a) provides that, except as provided in Rules 447 and 478, every amendment to a registration statement shall be signed by the persons specified in Section 6(a) of the Securities Act — of those two exceptions only Rule 478 is operative, because 17 CFR 230.445 through 230.447 are [Reserved] — the same signatories as the original filing, not a lesser set. At least one copy of every amendment filed with the Commission shall be signed, and unsigned copies shall be conformed. Section 6(a) specifies each issuer, its principal executive officer or officers, its principal financial officer, its comptroller or principal accounting officer, and the majority of its board of directors or persons performing similar functions (or, if there is no board or persons performing similar functions, the majority of the persons or board having the power of management of the issuer). Rule 478, the exception Rule 471(a) preserves, deems all persons signing a registration statement — in the absence of a statement to the contrary — to confer upon the registrant, and upon the agent for service named in the registration statement, powers that include a power to amend the registration statement by filing an amendment as provided in Rule 473, by filing any written consent, by correcting typographical errors, and by reducing the amount of securities registered pursuant to an undertaking contained in the registration statement. Form S-1's SIGNATURES instruction states that the registration statement shall be signed by the registrant, its principal executive officer or officers, its principal financial officer, its controller or principal accounting officer and by at least a majority of the board of directors or persons performing similar functions; and that if the registrant is a foreign person, it shall also be signed by its authorized representative in the United States. Rule 471(b) permits a required signature to be manual, or typed, duplicated, or facsimile; where typed, duplicated, or facsimile signatures are used, each signatory must manually or electronically sign a signature page or other document authenticating, acknowledging, or otherwise adopting the signature that appears in the filing (an 'authentication document'), executed before or at the time the filing is made and retained by the registrant for five years, and furnished to the Commission or its staff on request. Regulation S-T Rule 302(a) requires signatures to, or within, an electronic submission to be in typed form rather than manual format; Rule 302(b)(2) requires that, before a signatory may electronically sign an authentication document, the signatory must manually sign a document attesting that the electronic signature is the legal equivalent of a manual signature, and the filer must retain that attestation for a minimum of seven years after the most recent electronically signed authentication document. Under Section 6(a), signatures written on a registration statement are presumed to have been written by authority of the person whose signature is affixed, and affixing a signature without the purported signer's authority constitutes a violation of the title.

Question 10

What must an amendment contain when it changes the prospectus or the financial statements?

Accepted Answer

Rule 472(b) requires that every amendment relating to a prospectus include copies of the prospectus as amended. Rule 472(a) requires that copies be marked to indicate clearly and precisely, by underlining or in some other appropriate manner, the changes effected in the registration statement by the amendment — the requirement behind the marked, or blacklined, amendment. Rule 472(c) provides that every amendment of a financial statement not included in the prospectus shall include copies of the financial statement as amended, and that every amendment relating to a certified financial statement shall include the consent of the certifying accountant to the use of the certificate in connection with the amended financial statement in the registration statement or prospectus and to being named as having certified that financial statement. Rule 472(a)'s copy counts — three complete, unmarked copies and eight additional copies, at least five of which are marked — are written for paper submission; Regulation S-T Rule 101(a)(1)(i) mandates electronic submission of Securities Act registration statements and prospectuses. Rule 472(d) sets separate copy requirements for Form S-8 amendments, and Rule 472(e) for a post-effective amendment filed pursuant to Rule 462(b) and Rule 110(d).

Question 11

What is a delaying amendment, and what does it say?

Accepted Answer

A delaying amendment is a legend prescribed by Rule 473(a) which, when filed with a registration statement or as an amendment to one that has not become effective, is deemed for purposes of Section 8(a) to be filed on such date or dates as may be necessary to delay the effective date. Rule 473(a) prescribes its form: 'The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission acting pursuant to said section 8(a), may determine.' Rule 473(c) provides that a delaying amendment filed with a registration statement shall be set forth on the facing page of the registration statement, and Item 501(a) of Regulation S-K directs that the front cover page of the registration statement include, where appropriate, the delaying amendment legend from Rule 473. Rule 473(b) prescribes the countervailing amendment that releases the delay: 'This registration statement shall hereafter become effective in accordance with the provisions of section 8(a) of the Securities Act of 1933.' Under Rule 473(c), a delaying amendment filed after the filing of the registration statement, an amendment altering the proposed date of public sale, or an amendment filed under Rule 473(b) may be made by telegram, letter, or facsimile transmission; each such telegraphic amendment must be confirmed in writing within a reasonable time by filing a signed copy, and the confirmation is not deemed an amendment. Rule 473(d) bars delaying amendments on registration statements on Forms F-7, F-8 and F-80; on Form F-10 relating to an offering made contemporaneously in the United States and the issuer's home jurisdiction; on Form S-8; on Form S-3 or F-3 relating to a dividend or interest reinvestment plan; on Form S-3 or F-3 relating to an automatic shelf registration statement; and on Form S-4 complying with General Instruction G. Rule 473 is a U.S. Government work; its prescribed legends are quoted as the rule states them.

Question 12

Does filing an amendment restart the clock on when a registration statement becomes effective?

Accepted Answer

Under Section 8(a) of the Securities Act, yes, by default. Section 8(a) sets the effective date of a registration statement at the twentieth day after the filing, or such earlier date as the Commission may determine, and provides that if any amendment is filed prior to the effective date, the registration statement 'shall be deemed to have been filed when such amendment was filed' — restarting the twenty-day period. The exception is an amendment filed with the consent of the Commission prior to the effective date, or filed pursuant to an order of the Commission, which is treated as a part of the registration statement rather than as a new filing date. Rule 474 provides that the date on which amendments are actually received by the Commission is the date of filing, if all requirements of the Act and the rules with respect to the filing have been complied with. Rule 475 sets out the consent mechanism: an application for the Commission's consent to the filing of an amendment with the effect provided in Section 8(a) may be filed before, after, or concurrently with the amendment; it shall be signed and shall state fully the grounds upon which it is made; and the Commission's consent is deemed given, with the amendment treated as part of the registration statement, only when the Commission enters an order to that effect after the amendment is filed. Rule 476 addresses the other limb of the Section 8(a) exception: an amendment filed prior to the effective date is deemed to have been filed pursuant to an order of the Commission, within the meaning of Section 8(a), so as to be treated as a part of the registration statement only when the Commission — after the filing of that amendment — enters an order declaring that it has been filed pursuant to the Commission's previous order. Rule 475a deems certain pre-effective amendments filed with the Commission's consent — amendments to a registration statement on Form F-2 relating to a dividend or interest reinvestment plan, or on Form S-4 complying with General Instruction G — where filed prior to effectiveness. The Rule 473 delaying amendment addresses the same twenty-day mechanic from the opposite direction, by holding the registration statement from becoming effective automatically until the registrant files the Rule 473(b) amendment or the Commission determines an effective date. Section 8(c) governs the other end: an amendment filed after the effective date which, upon its face, appears to the Commission not to be incomplete or inaccurate in any material respect shall become effective on such date as the Commission may determine.

Question 13

Which rules govern the contents of an amendment, and what does a later statement do to an earlier one?

Accepted Answer

Rule 401 fixes which edition of the rules and forms an amendment must satisfy. Under Rule 401(a), the form and contents of a registration statement and prospectus conform to the applicable rules and forms as in effect on the initial filing date. Under Rule 401(b), if an amendment is filed for the purpose of meeting the requirements of Section 10(a)(3) of the Act, the form and contents of that amendment conform to the applicable rules and forms as in effect on the filing date of the amendment — so a Section 10(a)(3) amendment is measured against the rules in effect when it is filed, not those in effect when the registration statement was first filed. Rule 401(c) permits an amendment other than a Section 10(a)(3) amendment to be filed on any shorter Securities Act registration form for which it is eligible on the amendment's filing date. Each amendment filed while a registration statement is pending is a filing in its own right: Rule 470 requires it to be filed under an appropriate facing sheet, numbered consecutively, and to indicate the registration form and the file number of the registration statement; Rule 471(a) requires it to be signed by the persons specified in Section 6(a) of the Act; and Rule 472(a) requires copies marked to indicate clearly and precisely the changes the amendment effects. Rule 412 addresses when a later statement displaces an earlier one. Under Rule 412(a), a statement contained in a document incorporated or deemed to be incorporated by reference, or deemed to be part of a registration statement, or in the prospectus that is part of the registration statement, is deemed modified or superseded to the extent that a statement in the prospectus that is part of the registration statement, or in any other subsequently filed document that also is or is deemed to be incorporated by reference or deemed to be part of the registration statement, modifies or replaces it. Rule 412(b) provides that the making of a modifying or superseding statement shall not be deemed an admission that the modified or superseded statement, when made, constituted an untrue statement of a material fact, an omission to state a material fact necessary to make a statement not misleading, or the employment of a manipulative, deceptive, or fraudulent device. Under Rule 412(c), a statement so modified is not deemed in its unmodified form to constitute part of the registration statement or prospectus, and a statement so superseded is not deemed to constitute a part of it. The staff review that prompts these amendments — how filings are selected, what comments address, how a company responds, and when the correspondence becomes public — is covered on the IPO Center's SEC Comment Letters page; the form's item-by-item anatomy is covered on the S-1 Filing page.

Rule	What it governs	Requirement it imposes	Authority
Rule 401	Requirements as to proper form	Form and contents conform to the rules and forms in effect on the initial filing date; a Section 10(a)(3) amendment conforms to those in effect on the amendment's filing date	17 CFR 230.401 · source
Rule 408	Additional information	Further material information must be added if necessary to make the required statements, in the light of the circumstances under which they are made, not misleading	17 CFR 230.408 · source
Rule 412	Modified or superseded documents	A statement in a document incorporated or deemed incorporated by reference, or deemed part of a registration statement, or in the prospectus that is part of the registration statement, is deemed modified or superseded to the extent a later statement modifies or replaces it; doing so is not an admission that the earlier statement was untrue or misleading when made	17 CFR 230.412 · source
Rule 420	Legibility of prospectus	Printed prospectus body in roman type at least as large and legible as 10-point modern type; 8-point permitted for financial statements and other tabular data to the extent necessary for convenient presentation; all such type leaded at least 2 points; electronic media satisfied by a format readily communicated to investors	17 CFR 230.420 · source
Rule 421(a), (c)	Order and self-containment	Information need not follow the form's order but must not obscure required information; it must be clearly understandable without referring to the form or the general rules and regulations	17 CFR 230.421 · source
Rule 421(b)	Clear-writing standard (whole prospectus)	Clear, concise and understandable presentation; clear sections and sentences, descriptive headings, limited reliance on defined terms, no legal or highly technical business terminology	17 CFR 230.421 · source
Rule 421(d)	Plain English (specified sections)	Front and back cover pages, summary, and risk factors section must use plain English principles and substantially comply with six writing principles	17 CFR 230.421 · source
Rule 461(b)(1)	Acceleration and plain English	The Commission may refuse to accelerate effectiveness where there has not been a bona fide effort to make the prospectus reasonably concise, readable, and compliant with Rule 421(d)	17 CFR 230.461 · source
Rule 470	Formal requirements for amendments	Amendments filed under an appropriate facing sheet, numbered consecutively, indicating the registration form and the file number	17 CFR 230.470 · source
Rule 471	Signatures to amendments	Every amendment signed by the persons specified in Section 6(a); at least one signed copy; authentication document executed at or before filing and retained five years	17 CFR 230.471 · source
Rule 472	Filing of amendments; copies	Amended prospectus included; copies marked to show the changes effected; accountant's consent required with an amended certified financial statement	17 CFR 230.472 · source
Rule 473	Delaying amendments	Prescribed facing-page legend delaying the effective date until a further amendment under Rule 473(b) or a Commission determination; not permitted on the forms listed in Rule 473(d)	17 CFR 230.473 · source
Rule 474	Date of filing of amendments	The date an amendment is actually received by the Commission is its filing date, if all filing requirements have been complied with	17 CFR 230.474 · source
Rule 475	Amendment filed with consent of the Commission	A signed application stating the grounds; consent deemed given, and the amendment treated as part of the registration statement, only on a Commission order entered after filing	17 CFR 230.475 · source
Rule 476	Amendment filed pursuant to order of the Commission	A pre-effective amendment is deemed filed pursuant to a Commission order, and so treated as part of the registration statement, only when the Commission enters an order declaring it was filed pursuant to its previous order	17 CFR 230.476 · source
Rule 477	Withdrawal of a registration statement or amendment	Withdrawal on application if the Commission consents; apart from the Form F-2 dividend/interest-reinvestment and Form S-4 General Instruction G applications the rule deems granted upon filing, any other application to withdraw an entire pre-effective registration statement is deemed granted at filing unless the Commission notifies the registrant within 15 calendar days	17 CFR 230.477 · source
Rule 478	Powers to amend or withdraw	Persons signing are deemed, absent a statement to the contrary, to confer on the registrant and the agent for service the powers to amend under Rule 473, file written consents, correct typographical errors, reduce the amount registered, apply under Rule 475, withdraw, and consent to entry of a Section 8(b) order	17 CFR 230.478 · source
Reg S-T Rule 101	Mandated electronic submissions	Securities Act registration statements and prospectuses, and related correspondence and supplemental information, must be submitted in electronic format	17 CFR 232.101 · source
Reg S-T Rule 302	Signatures in electronic filings	Required signatures must be in typed form; each signatory signs an authentication document retained five years, and a signatory using electronic signatures must first manually sign an attestation retained a minimum of seven years	17 CFR 232.302 · source

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