Question 20

Underwriters are permitted to send a preliminary prospectus to customers who request it during the cooling-off period of an IPO.

During the cooling-off period of an initial public offering (IPO), underwriters are allowed to send a preliminary prospectus to potential investors who express interest. This action helps educate prospective buyers about the offering while ensuring compliance with regulatory guidelines.

A) Publish a research report about the new issue

Publishing a research report about the new issue is not permissible during the cooling-off period. This action could be seen as promoting the securities before the registration statement becomes effective, which is against SEC regulations.

B) Send a preliminary prospectus to customers who request it

Sending a preliminary prospectus to customers who request it is allowed during the cooling-off period. This document provides essential information about the IPO and allows investors to make informed decisions while the offering is being prepared for launch.

C) Accept an unsolicited order for the new issue

Underwriters are not allowed to accept unsolicited orders for the new issue during the cooling-off period. Accepting orders would be considered a form of selling, which is prohibited until the registration statement is declared effective.

D) Accept an unsolicited deposit for the purchase of the new issue

Accepting an unsolicited deposit for the purchase of the new issue is also not permitted during the cooling-off period. This action would imply a commitment to purchase, which is not allowed until the offering is officially open for sales.

Conclusion

The correct answer, sending a preliminary prospectus to customers who request it, aligns with the regulatory framework governing IPOs during the cooling-off period. Other options, such as publishing research reports or accepting orders and deposits, violate securities regulations designed to protect investors and maintain market integrity during this critical time.