- A red herring prospectus, as a first or preliminary prospectus, is a document submitted by a company (issuer) as part of a public offering of securities (either stocks or bonds).
- Most frequently associated with an initial public offering (IPO), this document, like the previously submitted Form S-1 registration statement, must be filed with the Securities and Exchange Commission (SEC).
- It is issued to potential investors, but does not have complete particulars on the price of the securities offered and quantum of securities to be issued.
- Potential investors may not place buy orders for the security, based solely on the information contained within the preliminary prospectus. Those investors may, however, express an “indication of interest” in the offering, provided that they have received a copy of the red herring at least 48 hours prior to the public sale.
- After the registration statement becomes effective, and the stock is offered to the public, indications of interest may be converted to purchase orders, at the buyer’s discretion. The final prospectus must then be promptly delivered to the buyer.