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In a public offering, the corporation and the dealer come to a preliminary agreement to determine whether the dealer will act as an agent or as the underwriter and principal of the securities. In the early stages of negotiation, the two parties establish the dealer’s commission (if acting as agent) or the spread between the proposed offering price and the dealer’s cost price (if acting as principal). The offering price and various other details are not normally finalised until just before the public offering date. The pricing of the issue and the actual volume of securities issued are dependent on the market environment at the issue date.
Prior to issue, steps are taken to comply with the provisions that regulate the manner in which securities may be sold. Whenever a new issue of securities is offered to the public, a prospectus must be prepared in accordance with the requirements of the appropriate regulator. Ultimately, it must be approved by that regulator. For example, in India, the regulator is the Securities and Exchange Board of India (SEBI).
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