Posted in Finance, Accounting and Economics Terms, Total Reads: 406
Definition: Effective Date
A date at which a something comes to effect. This date can be different from the day the event takes place or the transaction or contract is recorded. It can be a contract between two or more parties or a insurance or policy. It is also the date when the contract becomes legally binding upon the parties who enter into a contract. The rights and the obligations mentioned in the underlying contract become operational from the effective date
Effective date as declared by the SEC Securities and Exchange Commission is the date when the shares of a company first start trading. This is usually 20 days after the registration is filed with the SEC by the company which is going public. The shares of the company are open for sale in their initial public offering. Effective date is 20 days after the registration with SEC, giving them ample time to review the registration. If the SEC feels the need for amendment in the process this has to be made by the company within this 20 day period. If the firms that files for registration fails to make these amendments then the registration process is not completed. The firms who file for an IPO (Initial Public Offering) will know if the registration of there is accepted or rejected by the twentieth day.
IPO is a process when a private firm decides to go public meaning list their stock on an exchange. This leads to dilution in their ownership. This is usually done by small firms who want to raise capital for their business operations or to expand their business. They take help of underwriters to the type of security to issue i.e. common stock or preferred and the best price at which it can be issued. In India all firms who want to go public have to register with SEBI (securities exchange board of India). After 20 days, when the registration is reviewed by SEBI, the process is completed and the company goes public on the twentieth day.