SEC Division of Trading and Markets no-action letter: NYSE (New York Stock Exchange)

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DIVlllO.OP
MAB&T RllULATIOll
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON; D.C. 20549
.· November 18, 1983
. ~;;~·: - ~; ~· · ~".!tt~;·:· ' : ·. ··f.\ . . . .: ·.· :. _ .Jlr• Davld Marcu•. ~i{ -- · ... . :JJ!.; .. . • Vice···Preaident ·· . ·:~ ... -;j - . ·· . . !~· .. '.-: .it.vulatory· fervicea :.Division ~·.; . i: .. &ew York Stock Exchange, Inc • . :.:; 55 water sti'ltet 0 0

• New York, · New York
• Dear ·M_r· r!.rcus: .. "· . The Division of Market Regulation has on numerous occasions
• been asked at what point a haircut must be taken with respect
  to firm commitment underwritings of securities registered with the Commission under Securities Exchange Act Rule 15c3-l (17 CFR 5240.lScl-lr and, when and to what extent that haircut may in turn be reduced du~ing the underwriting process. This letter is intended to answer these· questions. We understand that generally, in a firm commitment underwriting, the so-called underwriter's agreement, in which the underwriter agrees to purchase the securities from the issuer, provides that the underwriter's obligation is contingent upon the effectiveness of .the registration statement. When the registration statement becomes effective, each member of the underwriting syndicate becomes legally obligated to purchase from the issuer the securities as specified in the underwriting agreement. It is at this point that each member of the underwriting group must make the deduction to net worth in computing its net capital required by subparagraph (c)(2)(viii) of Rule 15c3-l. As you well know, it is customary for members of the underwriting syndicate to engage in efforts to obtain so-called
• indications of interest• in an issue from broker-dealers and
  from the general public prior to the effective date of the registration statement. However, the Securities Act prohibits the making of a contract for sale until such time as the registration statement has become effective. Accordingly, the offer of the prospective purchaser is only that, until accepted after the effective date of the registration statement. Typically, the acceptance is manifested by the mailing of a confirmation to the purchaser. Only after the contract to purchase is in fact ~entered into may the underwriter reduce the amount of his ~commitment to the extent of the purchase. Notwithstanding the implications of any outstanding interpretative letters to

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• Mr. David Marcus
  Page Two
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  .· ..... -.. ; . ;.-~-· ··-·· · ~- ·.:., .. . . · ... ··- ·· . . the contrary, the underwriter may not ·reduce.his commitment as . a result of having obtain~d mere ~indications of ·interest.• · . . :" -. ·::. ·-~ "'.:-'· ·:. .. I hope the above will resolve any uncertainty regarding these matters. ." .le:.·~'":·~·:~: , ... =~ .... · · cc: Thomas Cassella National Association of Securities Dealers, Inc. .. Sincerely, :·, ·. ~ ;; . ... . iiJJ..LJ ti lf/-1~.A.:,/i; · ..•. Michael A. Macchiaroli Assistant Director . . ; : _: , . ';:-!'.' .- .. .,,, ,;