General Securities Sales Supervisor (Series10) Practice Exam

What action is prohibited while an initial public offering is in registration?

1. Sending research reports to potential investors

2. Taking buy orders from interested investors

3. Accepting offers to purchase shares

4. Cancelling previous buy orders

The correct answer is: Taking buy orders from interested investors

During the period when an initial public offering (IPO) is in registration, it is essential to adhere to specific rules and regulations set forth by the Securities and Exchange Commission (SEC) to ensure fair and transparent market practices. The correct answer is that taking buy orders from interested investors is prohibited during this stage. This restriction is in place to prevent any premature market activity before the IPO officially becomes effective. The SEC aims to ensure that potential investors have access to all relevant information, as provided in the registration statement, before they make any purchasing decisions. Therefore, accepting buy orders at this stage could lead to situations where investors are making decisions based on incomplete information, undermining the integrity of the market and the IPO process. In contrast, sending research reports to potential investors may be permitted as long as those reports are based on publicly available information and do not include any promotional language advocating for the purchase of the shares before the registration becomes effective. Accepting offers to purchase shares is also not allowed since it implies an agreement to transact before the official launch of the IPO. Cancelling previous buy orders does not impact the registration process as it relates to actions taken after orders have been placed, rather than taking new orders during the restricted period.