The price at which a new flotation or issue of stock or bonds is offered to the public. This price is fixed by the last nondelaying amendment to the REGISTRATION STATEMENT filed on nonexempt issues under the Securities Act of 1933, and remains fixed during the offering period, assisted by price stabilization operations by the SYNDICATE manager for the UNDERWRITING group of investment banking houses handling the deal, subject to rules of the Securities and Exchange Commission.
The pricing of a new issue is one of the crucial factors in its success. Usually the price is determined by reference to the prevailing market prices at which comparable issues outstanding are selling; fixing it somewhat below such justified price will "sweeten" the offering and enhance its chances of success. The offering price is one of the material provisions of the purchase agreement (between the purchase group and the issuer), signed usually a few days before the expected effective date of the registration statement. Based thereon, the registration statement is amended the day before or on the morning of the effective date. The amendment specifies the proposed maximum aggregate offering price and offering price per unit. The price to the public, underwriting discounts and commissions, and proceeds to the registrant issuer, both per unit and total, are also required to be shown in tabular form on the first page of the prospectors, as to all securities registered that are to be offered for cash (estimated if necessary).
Pricing in COMPETITIVE BIDDING procedure is more complex, involving official invitations for bids on the part of the issuer; awarding of the successful bid; determination of the public offering price by the successful bidders; and filing of the post-effective amendment as to actual public offering price, underwriting discounts or commissions, etc. Under formal rule of the SEC, the registration statement for securities involving competitive bidding was only effective for the purpose of inviting competitive bids, and a further order of the SEC was necessary to make effective the amendment filing the public offering price and the underwriting terms. Now, pursuant to Rule 115 of the SEC, under specified conditions the post-effective amendment reflecting the results of the bidding becomes effective upon filing, without further order of the SEC.
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