What is a Greensheet?
A greensheet is a specialized document prepared by an underwriter to encapsulate the crucial elements of a new issue or an initial public offering (IPO). This internal marketing tool aims to spark interest among prospective institutional investors and brokers.
Key Takeaways
- A greensheet is created to summarize key components of a new securities issue or IPO.
- It is circulated to brokers and institutional sales desks of the underwriting firm to identify potential large volume buyers.
- Typically, a greensheet includes an overview of both advantages and disadvantages of the new issue, along with initial pricing information.
The Role of a Greensheet
Companies issue new stock or bonds primarily to raise capital for expansion. Selling a security on the market for the first time, known as a new issue, often involves significant legal and procedural steps. Companies carry out extensive due diligence, hire underwriters, and prepare multiple documents to fulfill these obligations.
The Underwriter’s Contributions
An underwriter works closely with the issuing company to set the initial offering price of the securities. They buy the securities from the issuer and sell them to investors through their distribution network. A vital component of their role is preparing a greensheet, which is internally circulated to brokers and institutional sales desks. The greensheet covers essential details about the offering, equipping salespeople to effectively market the new issue.
Greensheet vs. Prospectus
While a greensheet serves as an introduction to a new security issue, it does not provide a comprehensive breakdown. For a detailed and formal document, both the underwriter and investors refer to the prospectus. Filed with the Securities and Exchange Commission (SEC), the prospectus is available to the public and aids in selling the investment broadly.
Important Distinctions
A greensheet is strictly for internal distribution and contains crucial, summarised information, enabling an RR to decide if an issue should be proposed to clients. It should not be circulated outside the underwriting firm’s brokerage and institutional sales desks. The document must only contain information that appears in the issue’s prospectus.
Special Considerations
By law, a greensheet should only include information from the issue’s prospectus. It provides a balanced presentation and must not introduce new details. Moreover, a greensheet should carry a disclosure outlining the document’s purpose, distribution limitations, and a statement clarifying that the document is not a solicitation of securities.
Related Terms: underwriter, initial public offering, IPO, securities, prospectus, institutional investors
