SIE Exam Question 163: Answer and Explanation

Question: 163

What is the tentative prospectus circulated by the underwriters of a new of stock that is pending approval the SEC?

• A. Red herring
• B. IPO
• C. Registration statement
• D. Private placement

Correct Answer: A

Explanation:

The tentative, or preliminary, prospectus circulated by the underwriters of a new issue of stock that is pending approval by the SEC is known as a red herring. An initial public offering (IPO) refers to the event of a company first offering its shares for sale to the public. Before shares can be offered to the public, a company must file a registration statement, or prospectus, with the SEC. A private placement is a securities transaction in which shares are sold only to a select set of entities.