The Securities and Exchange commission voted Wednesday to seek public comment on a proposal to allow issuers of initial public offerings to distribute an abbreviated version of the offering`s prospectus to interested investors.
Issuers would be able to circulate a summary prospectus in certain instances when a full preliminary prospectus would be lengthy and costly to distribute.
A summary prospectus provides potential investors a condensed statement of the more important information included in the full registration statement. It thus enables investors to determine whether or not they are interested in more information about the offering, the SEC said.
Companies that meet certain criteria already are permitted to use summary prospectuses for supplementary securities issues. However, such issuers usually don`t take advantage of the procedure unless their prospectus exceeds 100 pages, said Linda Quinn, an SEC official.
The proposal to extend the procedure to initial public offerings stems from a recent inquiry by an issuer of an offering that was expected to require a lengthy prospectus.
Because of the length, the cost of soliciting investor interest would have been substantial.
Quinn acknowledged that the use of abbreviated prospectuses ”has the potential for abuse.” But since initial offerings are always reviewed by the commission staff before they are offered to the public, ”I don`t think that will figure in,” she said.
The SEC also voted to seek comment on ways in which the 50-year-old statute that governs mutual funds should be updated to keep pace with rapid changes in U.S. and international markets.
