{{unreferenced, date=October 2015
A prospectus, in
finance
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...
, is a disclosure document that describes a financial security for potential buyers. It commonly provides investors with material information about
mutual fund
A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV i ...
s,
stock
In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...
s, bonds and other investments, such as a description of the company's business,
financial statements
Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity.
Relevant financial information is presented in a structured manner and in a form which is easy to un ...
,
biographies
A biography, or simply bio, is a detailed description of a person's life. It involves more than just the basic facts like education, work, relationships, and death; it portrays a person's experience of these life events. Unlike a profile or c ...
of officers and directors, detailed information about their compensation, any litigation that is taking place, a list of material properties and any other material information. In the context of an individual securities offering, such as an
initial public offering
An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investment ...
, a prospectus is distributed by
underwriters
Underwriting (UW) services are provided by some large financial institutions, such as banks, insurance companies and investment houses, whereby they guarantee payment in case of damage or financial loss and accept the financial risk for liabilit ...
or
brokerages
A stockbroker is a regulated broker, broker-dealer, or registered investment adviser (in the United States) who may provide financial advisory and investment management services and execute transactions such as the purchase or sale of stocks and ...
to potential investors. Today, prospectuses are most widely distributed through websites such as
EDGAR
Edgar is a commonly used English given name, from an Anglo-Saxon name ''Eadgar'' (composed of '' ead'' "rich, prosperous" and ''gar'' "spear").
Like most Anglo-Saxon names, it fell out of use by the later medieval period; it was, however, rev ...
and its equivalents in other countries.
United States
In a securities offering in the United States, a prospectus is required to be filed with the
Securities and Exchange Commission
The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
(SEC) as part of a
registration statement In the United States, a registration statement is a set of documents, including a prospectus, which a company must file with the U.S. Securities and Exchange Commission before it proceeds with a public offering
A public offering is the offering of ...
. The issuer may not use the prospectus to finalize sales until the registration statement has been declared effective by the SEC, meaning it appears to comply on its face with the various rules governing disclosure unless the sale of securities is exempt from registration.
If a company has been filing
Form 10-K A Form 10-K is an annual report required by the U.S. Securities and Exchange Commission (SEC), that gives a comprehensive summary of a company's financial performance. Although similarly named, the annual report on Form 10-K is distinct from the of ...
with the SEC for a certain period of time, has a market capitalization above a certain threshold, and takes certain procedural steps, it is permitted to offer securities using a simplified prospectus that incorporates information by reference to its
SEC filing
The SEC filing is a financial statement or other formal document submitted to the U.S. Securities and Exchange Commission (SEC). Public companies, certain insiders, and broker-dealers are required to make regular SEC filings. Investors and financi ...
s. In certain situations, such as when the offering is not required to be registered with the SEC, a prospectus is instead referred to as an "
offering memorandum An offering memorandum (OM) or offering circular (OC) is a type of prospectus (finance) for a bond or other security. Sometimes, this is also referred to as a prospectus, offering memorandum, or short OC. The terms "offering memorandum", "OM", or "o ...
" or "
offering circular An offering memorandum (OM) or offering circular (OC) is a type of prospectus (finance) for a bond or other security. Sometimes, this is also referred to as a prospectus, offering memorandum, or short OC. The terms "offering memorandum", "OM", or "o ...
", but there are numerous industry standard terms and methods on how to write prospectus In the case of municipal securities offerings, which are generally exempt from most of the federal securities laws, municipal issuers typically prepare an analogous form of disclosure document known as an "official statement." Prospectuses are generally prepared with the assistance of the
underwriter
Underwriting (UW) services are provided by some large financial institutions, such as banks, insurance companies and investment houses, whereby they guarantee payment in case of damage or financial loss and accept the financial risk for liabilit ...
acting as issue manager (also called a bookrunning manager or " bookrunner").
United Kingdom
Publication of information in relation to the issue of securities in the
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...
is governed by the Prospectus Rules, which implement the
European law
European Union law is a system of rules operating within the member states of the European Union (EU). Since the founding of the European Coal and Steel Community following World War II, the EU has developed the aim to "promote peace, its valu ...
Prospectus Directive. A prospectus must be published where certain types of securities either are offered to the public or are requested for admission on a regulated market. In the United Kingdom, the only regulated market is
London Stock Exchange
London Stock Exchange (LSE) is a stock exchange in the City of London, England, United Kingdom. , the total market value of all companies trading on LSE was £3.9 trillion. Its current premises are situated in Paternoster Square close to St Pau ...
full list. The
Alternative Investment Market
AIM (formerly the Alternative Investment Market) is a sub-market of the London Stock Exchange that was launched on 19 June 1995 as a replacement to the previous Unlisted Securities Market (USM) that had been in operation since 1980. It allows ...
(AIM) does not constitute a regulated market, nor does the Professional Securities Market ("PSM") for issues of debt securities. There are numerous exceptions to the requirement to publish a prospectus, although an exempt company may still be required to publish listing particulars where it is seeking admission of its shares to the full list or an admission document where it is seeking admission of its shares to AIM.
The prospectus must be approved by the competent authority in the United Kingdom, which is currently the Financial Conduct Authority (FCA) in its capacity as the United Kingdom Listing Authority. If the purpose of the prospectus is to induce people to engage in an investment activity, it will also need to be issued or approved by an 'authorised person' or it will constitute an unlawful financial promotion under section 21 of the
Financial Services and Markets Act 2000
The Financial Services and Markets Act 2000c 8 is an Act of the Parliament of the United Kingdom that created the Financial Services Authority (FSA) as a regulator for insurance, investment business and banking, and the Financial Ombudsman Serv ...
.
See also
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Capital markets
A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers to ...
*
Securities law
Securities regulation in the United States is the field of U.S. law that covers transactions and other dealings with securities. The term is usually understood to include both federal and state-level regulation by governmental regulatory agencies, ...
*
Shelf prospectus Shelf registration, shelf offering, or shelf prospectus is a type of public offering where certain issuers are allowed to offer and sell securities to the public without a separate prospectus for each act of offering and without the issue of furth ...
*
Indenture
An indenture is a legal contract that reflects or covers a debt or purchase obligation. It specifically refers to two types of practices: in historical usage, an indentured servant status, and in modern usage, it is an instrument used for commercia ...
, a document describing a bond issue
*
Electronic Municipal Market Access
The Electronic Municipal Market Access (EMMA) system, operated by the Municipal Securities Rulemaking Board (MSRB), serves as the official source for municipal securities disclosures and related financial data in the United States. EMMA provides ...
EDGAR
Edgar is a commonly used English given name, from an Anglo-Saxon name ''Eadgar'' (composed of '' ead'' "rich, prosperous" and ''gar'' "spear").
Like most Anglo-Saxon names, it fell out of use by the later medieval period; it was, however, rev ...