red herring

Red herring

A preliminary prospectus providing information required by the SEC. It excludes the offering price and the coupon of the new issue.

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Preliminary Prospectus

The first prospectus distributed prior to a new issue of a security. The first prospectus contains information such as the terms of issue, the size of issue, and other, relevant data about the security. Importantly, however, it does not contain the new issue's price. Because the preliminary prospectus is subject to change and because the SEC requires part of it to be printed to red ink, it is informally called a red herring.

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red herring

A prospectus that is given to potential investors in a new security issue before the selling price has been set and before the issuer's registration statement has been approved for accuracy and completeness by the SEC. This document, which provides details of the issue and facts concerning the issuer, is so named because of a statement on it, printed in red, that the issue has not yet been approved by the SEC. Also called preliminary prospectus.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

Red herring.

When a security is offered to the public for the first time, the underwriter prepares a preliminary prospectus, called a red herring.

While the name may refer to the parts of the document printed in red ink, the implication is that the document has been written to present the company in the best possible light. The reference is to the rather distinctive odor of the fish in question, which, the story goes, fleeing fugitives sometimes used to throw bloodhounds off their scent.

Although the preliminary prospectus contains important information about the company, its offerings, financial projections, and investment risk, it is customarily revised before the final version is issued.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.

red herring

A proposed prospectus that has been filed with the Securities and Exchange Commission (SEC) but not approved by it.Its purpose is to determine the extent of public interest in an issue while it is being reviewed by the SEC. Called a red herring because of the red ink around the border of the front page.

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.