What it means
When a company sells securities to the public, the law restricts how it can promote them, because offers are tied to the prospectus, the formal disclosure document. A tombstone advertisement is a narrow exception that lets the market know an offering exists without acting as a sales pitch.
The relevant US rule is 17 CFR 230.134, titled Communications not deemed a prospectus, published by the Legal Information Institute at Cornell. It says a communication limited to the statements the rule permits does not count as a prospectus, as long as it is published only after a registration statement has been filed.
The rule lists the facts that may appear, including the issuer's name, location and contact details, the title and amount of the securities, a brief indication of the type of business, and the price or a price range, plus the maturity, interest rate and yield for a fixed income security. Other permitted items include a brief description of the intended use of proceeds, the type of underwriting, the names of underwriters and their roles, the offering schedule and a description of marketing events.
Nothing in the notice can argue for buying the security. There are required warnings.
If the registration statement is not yet effective, the communication must say it has been filed but not yet become effective, and that the securities may not be sold, nor offers to buy accepted, before then. It must also give the name and address of a person from whom a written prospectus can be had.
The term appears in real filings: an SEC filing exhibit from Narragansett Bancorp, Inc., listing its proposed informational materials, includes a Tombstone (Offering Advertisement) in its index, which shows the label is still in use in offering materials. A tombstone is not the offering document, so a reader who wants the risks, the financials and the terms has to read the prospectus, and the ad only points the way.
In practice
Real-world examples.
Example
A fictional company announces a bond offering with a notice that lists the issuer, the title and amount of the bonds, the maturity, the interest rate and the underwriters. It carries the required statement about the registration statement and where to get a prospectus. It has no claims that the bonds are a good buy.
Example
A fictional newspaper notice lists an issuer, a stock offering of 5 million shares, an expected price range and three underwriters. Under the rule, a price range may appear. A line saying the stock is sure to rise would not fit the rule.
Example
A fictional underwriter drafts a notice that adds a sentence praising the issuer's growth. That goes beyond the facts the rule allows. The firm removes it so the notice stays within Rule 134.
Formula
Calculation
There is no formula for the notice itself. The offering size is simple arithmetic: shares offered x price per share. For example, 5,000,000 shares x $20 = $100,000,000 in gross proceeds before fees and expenses.Case study
Seen in the real world.
This case study is fictional and illustrative. A mid-sized manufacturer plans a public stock offering and has filed its registration statement, which is not yet effective. Its lead underwriter prepares a tombstone advertisement for a financial newspaper. The notice lists the company name and location, the title and number of shares offered, a one-line description of its manufacturing business, an expected price range of $18 to $22 and the names of the underwriters.
Because the registration is not yet effective, it carries the required statement that the securities cannot be sold or offers accepted yet. It also names where to obtain a prospectus. An associate suggests adding a line that the company is a market leader. The compliance reviewer rejects it, since the rule limits the notice to the listed facts.
The notice runs as written. The lesson is that the plainness is deliberate. The ad exists to announce, and the prospectus is the place where the case for investing is made and the risks are laid out.
Watch out
Common mistakes.
- Treating a tombstone ad as an offer document, when it only announces the offering and points to the prospectus.
- Adding promotional language, when the rule limits a tombstone to the listed factual items.
- Leaving out the required statements, such as the warning that the registration statement is not yet effective.
Questions
People also ask.
What is a tombstone advertisement?
It is a plain announcement of a securities offering showing only basic facts, such as the issuer, security, price and underwriters. It does not market the securities.
What can a tombstone ad say?
Under SEC Rule 134, it can include items such as the issuer, the security, the price or price range and the underwriters. Promotional claims do not fit the rule.
Does a tombstone ad replace the prospectus?
No. It points readers to the prospectus, which contains the full disclosure. Investors should read the prospectus before deciding.
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