An offering of structured products, like any other offering of securities, is deemed completed when the manager of the syndicate (if there is a syndicate) gives an all-sold notice. For many offerings of structured products, it is the broker-dealer affiliate of the issuer that is offering the structured products for sale to investors, either directly or through a network of distributors. Whether or not it is selling the securities of an affiliated issuer, a broker-dealer selling through distributors will need to obtain indications from the distributors that the distributors have sold their allocation and deem the offering completed.
As we have discussed briefly in a previous issue of Structured Thoughts, for both the issuer and the underwriters, the completion of an offering is significant. An issuer will want to know that a particular offering has been completed for a number of legal and compliance reasons. The issuer will not want to be engaged in a continuous offering, or, if it is engaged in a continuous offering, then the issuer will want to monitor the progress of the offering in light of its own corporate events and any blackout periods arising in the ordinary course around earnings or special blackout periods. The issuer will find itself in a very uncomfortable position if there are unannounced material developments in its business which haven’t yet been reflected in the documents incorporated by reference in the relevant prospectus.
The underwriter will want to ensure that it establishes a date on which the offering is deemed completed as well. First, the underwriter also may have a number of compliance concerns. For example, particularly for single stock or basket stock offerings, it will want to perform its internal window cleaning procedures in connection with the offering; if the offering is not immediately completed, the underwriter may need to continue to perform these procedures. As is the case for the issuer, the underwriter also will need to be mindful of the issuer’s blackout periods. To the extent that the underwriter is taking into its inventory a portion of the offered securities for future resale, it will want to move those securities into a proprietary/investment account on the settlement date. For purposes of trade reporting through TRACE, the underwriter will need to demarcate between “primary” sales occurring as part of the offering and “secondary” sales occurring following completion of the initial offering. For purposes of disclosing the offering/sales price of the structured products in the TRACE system and on its own system, it will also be important to indicate which are primary sales and which are secondary sales.
As a result, for both the issuer and the underwriter, monitoring the completion of an offering is important.