Emerging Growth Company

A member firm served as co-manager of a listed company's follow-on equity offering that priced Monday. The issuer is NOT an emerging growth company. Under FINRA Rule 2241, the firm's research department may publish a report on the issuer:

1. A.After 3 calendar days following the offeringCorrect - the follow-on quiet period for a manager or co-manager is 3 calendar days.
2. B.Immediately, because quiet periods apply only to IPOsFollow-ons carry their own shorter quiet period for managers and co-managers, so immediate publication is not allowed.
3. C.After 10 calendar days following the offering10 days is the IPO quiet period - right rule, wrong deal type.
4. D.After 25 calendar days, when the aftermarket prospectus delivery period endsThe 25-day figure is the prospectus delivery period for listed IPOs - an unrelated rule imported to look plausible.

Why: Rule 2241 imposes a quiet period of 3 calendar days after a secondary (follow-on) offering on firms that acted as manager or co-manager. The 10-day quiet period applies after an IPO. Emerging growth companies are exempt from these quiet periods entirely, which is why the stem rules that out. The clue is co-manager plus follow-on. Review: research analyst rules.

Brightwater Robotics qualifies as an EMERGING GROWTH COMPANY and is preparing its initial public offering. Which accommodation is available to it that would not be available to a large established issuer at the time the JOBS Act accommodations were created?

1. A.It is exempt from the Securities Act's antifraud provisions during the IPO process.Wrong. Antifraud provisions apply to every issuer at every stage, without exception.
2. B.It may submit a draft registration statement confidentially for nonpublic SEC review, and may test the waters with qualified institutional buyers and institutional accredited investors.Correct. Confidential submission and test-the-waters communications are the two signature emerging growth company accommodations.
3. C.It may make general solicitation to retail investors before filing, provided the solicitation is filed with FINRA.Wrong. Test-the-waters communications are limited to institutional buyers, and no FINRA filing converts a retail solicitation into a permitted one.
4. D.It may sell shares to the public without ever filing a registration statement.Wrong. Emerging growth company status scales disclosure; it never exempts a public offering from registration.

Why: The emerging growth company framework was designed to lower the friction of going public. Two of its signature accommodations are the ability to submit a DRAFT registration statement to the SEC confidentially for nonpublic staff review - so the company is not exposed publicly if it abandons the deal - and the ability to TEST THE WATERS by communicating with qualified institutional buyers and institutional accredited investors to gauge interest, either before or after filing. Emerging growth companies also get scaled financial disclosure and reduced auditor attestation burdens.