<Li> All - or - none contract </Li> <P> Public offerings are sold to both institutional investors and retail clients of the underwriters . A licensed securities salesperson (Registered Representative in the USA and Canada) selling shares of a public offering to his clients is paid a portion of the selling concession (the fee paid by the issuer to the underwriter) rather than by his client . In some situations, when the IPO is not a "hot" issue (undersubscribed), and where the salesperson is the client's advisor, it is possible that the financial incentives of the advisor and client may not be aligned . </P> <P> The issuer usually allows the underwriters an option to increase the size of the offering by up to 15% under certain circumstance known as the greenshoe or overallotment option . This option is always exercised when the offering is considered a "hot" issue, by virtue of being oversubscribed . </P> <P> In the USA, clients are given a preliminary prospectus, known as a red herring prospectus, during the initial quiet period . The red herring prospectus is so named because of a bold red warning statement printed on its front cover . The warning states that the offering information is incomplete, and may be changed . The actual wording can vary, although most roughly follow the format exhibited on the Facebook IPO red herring . During the quiet period, the shares cannot be offered for sale . Brokers can, however, take indications of interest from their clients . At the time of the stock launch, after the Registration Statement has become effective, indications of interest can be converted to buy orders, at the discretion of the buyer . Sales can only be made through a final prospectus cleared by the Securities and Exchange Commission . </P>

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