Understanding the New Issue Center

What types of offerings are available?
E*TRADE makes the following offering types available for the New Issue Center:

• Initial Public Offerings ("IPOs")
• Follow-ons ("FOs")
• Closed-end Fund Initial Public Offerings ("CEFs")

Does E*TRADE only participate in new issue equity offerings sourced by Morgan Stanley?
Yes. E*TRADE is an affiliated company of Morgan Stanley & Co. All IPOs made available by E*TRADE will be sourced from Morgan Stanley. This means that multiple entities within the Morgan Stanley family of companies earn revenue from the purchase of IPOs and the secondary market transactions of such securities. However, E*TRADE will not necessarily join every offering in which Morgan Stanley participates.

What is an IPO?
An IPO, or initial public offering, is the process by which a company lists and offers its shares for sale to the public.

Why would a company conduct an IPO?
Companies may conduct an IPO for a variety of reasons. For example, a company may conduct an IPO to raise capital to fund future growth. In such an instance, a company would issue and sell new shares, which, all else being equal, would dilute the ownership of existing shareholders. Additionally, a company might conduct an IPO to provide liquidity to existing shareholders. In this case, the company would not necessarily be issuing new shares but rather would be facilitating the public offering and sale of shares belonging to existing shareholders. In such a case, and all else being equal, this type of offering would not dilute the ownership of existing shareholders who do not sell their shares.

Is the purpose of the offering disclosed?
Customers can find information about the shares being offered in the prospectus. The first page of the prospectus, as well as the Use of Proceeds section, will specify which entities are selling the shares and if the company is receiving any proceeds from the sale of those shares.

What is a follow-on offering?
A follow-on offering (which is sometimes called a "secondary offering") is a public offering in which shares of a company that is already publicly traded are sold. The sales are generally either being made by the company itself or by existing shareholders.

How are follow-on offerings marketed?
The principal difference between various types of follow-ons is the length of the marketing period:

• Traditional / Marketed - In a traditional follow-on offering the marketing period is generally several days.
  
  
• Accelerated - In an accelerated offering there may be little to no marketing. Offerings may be conducted "overnight" whereby the offering is announced after the market close and priced the following morning, or "same day" whereby the offering is announced and priced within the same trading day.

How are follow-on offerings priced?
Follow-ons are often priced at a discount to the previous closing price of the stock.
What is a closed-end fund IPO?
A closed-end fund is a type of mutual fund that issues a fixed number of shares through an initial public offering (IPO) to raise capital for its initial investments. After the IPO has been completed, the fund’s shares can then be bought and sold on a stock exchange, but no new shares will be created and no new money will flow into the fund.

How can I see which offerings are currently available through E*TRADE?
Log into your E*TRADE account at etrade.com to view current offerings.

• Hover over Trading.
• Select IPOs & Other Equity Offerings.
• Select the Current Offerings tab to see the list of available offerings.

To learn more about an offering and view the preliminary prospectus, select the company name.

What is the timeline for participating in an offering through E*TRADE?
When E*TRADE makes an offering available to its customers, that offering progresses through several stage, beginning with the "open" stage, when the offering first becomes available on etrade.com and is open to customer participation, to the "completed" stage, after all allocations have been made and the offering is removed from the site.

The length of the timeline for participating in an offering through E*TRADE can vary, from a couple of hours to several days, depending on the details and circumstances of the offering.

• Open - During this stage, the offering becomes listed on the E*TRADE site in the New Issue Center. Once the offering status is "open" customers can view the offering details and submit a conditional offer to buy ("COB") to participate in the offering (if eligible).
  
• Closed - During this stage, no new COBs may be accepted. However, existing COBs may be amended or cancelled. E*TRADE may close the offering at its discretion, which could be significantly earlier than the expected pricing. As a result, the time between "closed" and "allocate" varies; ranging from less than an hour to multiple days. E*TRADE will issue an alert to notify you of the Notice of Effectiveness. If you do not take the affirmative steps to withdraw your COB during the withdrawal time, then you will be bound by the terms of your COB.
  
• Allocate - You are bound by the terms of your COB. During this stage, COBs may NOT be amended or cancelled. E*TRADE distributes the shares it has available to sell to its customers during this stage. There is often a VERY LIMITED number of shares available for sale. Many customers with valid COBs will not be allocated any shares due to the limited availability of shares. Customers with valid COBs will receive an alert notifying them whether they have received an allocation.
  
• Completed - After an offering has priced and allocations have been distributed to customer accounts, the offering is marked as "completed." At this point all related materials are removed from the New Issue Center, trading restrictions in the security are removed and orders may be placed for secondary market transactions. After an offering has been marked as "completed" customers can still see their historical orders on the My Orders tab

For IPOs, shares do not begin trading until sometime after the market opens.

Offerings can move from the "open" to "closed" state very quickly. The best way to stay up to date with offerings is to check the New Issue Center regularly. You can also subscribe to alerts and select the option to have them forwarded to your email.

• Log into your account on etrade.com.
• Select Alerts icon in upper right portion of home page.
• Select Set and Manage Alerts at the bottom of the dropdown box.
• Select the IPOs & New Issues tab
• Select the checkbox New Security Issue Offerings and then select Save.

Placing a Conditional Offer to Buy ("COB")

Who can participate in an IPO?
There are certain regulatory restrictions as to which customers may participate in an offering. For example, FINRA rules prohibit "restricted persons" (certain persons associated with the financial services industry) from participating in the purchase of new issue offerings. However, any eligible customer who completes and passes an investor profile may submit a COB for an offering.

What determines participation eligibility?
To apply to participate in an offering, customers need to meet the following initial criteria:

• Be a U.S. resident
• Have an active E*TRADE account
• Complete the investor profile questionnaire to determine whether or not an account is eligible to participate in a particular offering

Eligible account types

• Individual
• Joint
• IRAs

Employees and all other account types are NOT eligible to participate in our equity new issue offerings.

What is an investor profile?
The first step in the offering participation process is the investor profile questionnaire. Customers will need to complete an investor profile for the account through which they would like to participate in an offering. E*TRADE will make an exception for a client with visual impairment to complete and submit "offline" (e.g. with the help of the Customer Service team) any and all required materials, documents, etc. related to the new issues process.

The investor profile will determine whether or not an account is eligible for participation in a particular offering based on a number of factors including investment experience, objectives, residency, financial background, and affiliations with the issuing company or other financial institutions. Eligibility to participate in an offering also depends on whether the offering is an initial public offering, a follow-on offering, or a closed-end fund offering.

Due to regulatory requirements, all accounts deemed eligible to participate are required to access and acknowledge the prospectus prior to submitting a COB for an offering. The prospectus contains important information about the issuing company and the offering. Eligibility to participate does not guarantee that a customer will receive an allocation of shares.

Why is the investor profile information necessary?
These investments may not be suitable for every investor. As part of the new issue equity participation process, customers must complete an investor profile questionnaire for each offering in which they attempt to participate. Based on the answers provided, the investor profile will determine if the customer is eligible to participate.

What is a COB?
Once an account has been deemed eligible to participate in an offering, E*TRADE customers that would like to purchase shares in an offering need to submit a conditional offer to buy ("COB") securities for that offering. A COB is similar to a "buy order" for stock that is already trading in the secondary market, except the COB does not become an order until the offering is priced and cleared for sale. As part of this submission, you specify the number of shares and the maximum price you are willing to pay per share. However, submitting a COB does not necessarily mean that you will be allocated shares; the allocation of shares depends on many factors.

COBs can only be submitted via the New Issue Center and only after a customer has completed the other required steps in E*TRADE's IPO process. A COB may be submitted once an offering is listed as "open" up until the status is changed to "closed." COBs that have already been submitted may be amended or cancelled after an offering is "closed" up until the status is changed to "allocate." At this point, no further changes may be made to a COB and you are bound by the terms of your COB. If there is no material change in an offering, customers will not need to reconfirm their COBs (more information about reconfirmations below).

How do I place a COB?
E*TRADE customers that would like to purchase shares in an offering need to submit a conditional offer - specifying the number of shares and the maximum price he / she is willing to pay - for that offering. However, submitting a conditional offer does not necessarily mean that you will be allocated shares; the allocation of shares depends on many factors.

All participation is conducted via the New Issue Center on etrade.com, where customers may place COBs as follows:

• Hover over Trading.
• Select IPOs & Other Equity Offerings.
• Select the Current Offerings tab to see the list of available offerings.
• Select the Participate button to the right and select the account through which you would like to participate from the list presented.
• Complete and save each page of the investor profile – advance through the Investor Profile by clicking
  • You will be notified immediately whether you are eligible to participate in the offering.
• If eligible, you must certify by checking the appropriate box that you have reviewed the preliminary prospectus for the offering and select Continue.
  • Due to regulatory requirements, all accounts deemed eligible to participate are required to access and acknowledge the prospectus prior to submitting a conditional offer. The prospectus contains important information about the issuing company and the offering.
• On the Place your conditional offer page, enter the number of shares you would like to buy and the maximum price that you will pay for the shares.
• On the following screen (Review you conditional offer) select Submit offer.
• The next screen will confirm that the COB has been received. You may either:
  • Select View activity to view your conditional offer on the Activity tab
  • Select Fund your account, if you would like to add to the available buying power to support your conditional offer, or
  • "X" out of the page to close it
• After a COB has been submitted, it can be viewed on the Activity tab
• COBs can be amended or cancelled up until the offering enters the "allocate" stage.

How do I fund my COB?
"Buying power" is the amount of cash and/or equivalents (an instrument that can readily be sold for cash) you have in your account that is available to fund the purchase of securities. If you have submitted a conditional offer, you must have available buying power to cover the full amount of your conditional offer in the account through which you submitted the conditional offer. You can use Transfer Money to fund your account.

When do I need to have funds available in my account to participate in an offering?
Available buying power (cash or equivalents) for the number of shares indicated in your COB must be in the designated E*TRADE account by the time the offering enters the "allocate" stage. At that time, the size of your COB will be only for the amount for which you have available buying power. For example, if a customer submitted a COB for 100 shares at $15.00 per share, but only has $300.00 in available buying power at the time the offering enters the "allocate" stage, E*TRADE will consider it to be a COB for 20 shares at $15.00 per share (i.e., $300.00).

How is buying power calculated when I have COBs submitted for multiple offerings pricing the same day?
When an account has submitted COBs for multiple offerings which are pricing the same day, the available buying power for each offer will be calculated by equally dividing the total available buying power by the number of COBs submitted for offerings expected to price on the same day.

For example, if an account has $400,000.00 of available buying power and has submitted 4 COBs for offerings that are pricing the same day, the buying power for each COB submitted would be $100,000. In addition, buying power will NOT be reallocated to other offerings pricing the same day if there is remaining buying power after application of the fraction to a particular offer. For example, if the same account with $400,000 of buying power and 4 COBs with $100,000 of buying power for each has $50,000 of unused buying power after the pricing of one of the four offerings, that $50,000 will NOT be applied to the other 3 COBs. The table below illustrates this example. As you can see, offering 3 had excess buying power of $50,000, but that was not applied to the other three offers, each of which had insufficient buying power for the number of shares requested.

Will I be informed when an offering's registration statement has been declared effective?
After the registration statement for an offering has been declared effective by the SEC, customers who have already submitted a COB for that offering will be sent a Notice of Effectiveness alert. This notice will advise that customers will have at least one hour from the time when the alert was sent (withdrawal time) to cancel their COBs. At any time up to and including the withdrawal time, customers are not bound in any way and may cancel a COB. Customers may modify or cancel their COBs by going to the E*TRADE New Issue Center at any time until the completion of the withdrawal time. If customers do not cancel an order in that window of time, customers will be bound by the terms of their COB. Please note that placing a COB does not necessarily mean that a customer will be allocated shares as the allocation process depends on many factors.
In the event of a material change, E*TRADE issues an Alert to customers who have already submitted COBs, stating that:

• Customers who still wish to participate will need to amend or reconfirm their COB
• Existing COBs which are NOT amended or reconfirmed will be cancelled
• The window to reconfirm can be quite brief and depends on the overall timing of the offering
• COBs can be reconfirmed / modified / cancelled via the New Issue Center through the "Activity" tab

What is the Notice of Effectiveness? Do I have to act?
E*TRADE uses Alerts to inform customers of important information regarding Public Offerings. You can elect to have Alerts forwarded directly to your email by updating your Alert delivery preferences here Alerts.

Once the registration statement has been declared effective (usually just before pricing of the securities), E*TRADE will send you an Alert detailing a Notice of Effectiveness, which will include the "Withdrawal Time." This is the period of time (which will be at least one hour) during which you may withdraw your COB by accessing the E*TRADE New Issue Center. At any time up to and including the Withdrawal Time, you are not bound in any way and may withdraw your COB without penalty. Customers who have submitted a COB can modify or cancel their offers via the E*TRADENew Issue Center through the "My Equity OffersActivity" tab.

After the Withdrawal Time, your COB can be accepted by E*TRADE without any further action by you. E*TRADE will not re-confirm your COB after pricing. If you do not act before the end of the Withdrawal Time, then you will be bound by the terms of your COB.

Changes can occur with short notice and we encourage you to check the E*TRADE New Issue Center frequently for updates, especially as the pricing date nears. There is no guarantee that you will be allocated shares in a Public Offering. E*TRADE will not be obligated to accept your COB or to allocate shares to you.

What happens if a reconfirmation of a COB is required

During an offering, certain things can occur that are considered to be "material changes" to the terms of the offering and, as such, an updated prospectus must be issued. A material change in an offering can be the result of a variety of things but is often the result of changes in number of shares and/or price range deemed to be "materially" different than the original number of shares or price range listed in the previous offering documents. However, there are instances when an offering may ultimately be for a number of shares and/or at a price that is greater or less than the range listed in the most recent prospectus and yet not be deemed to represent a material change.
Your COB will no longer be valid, and you will be required to reconfirm it in the E*TRADE New Issue Center, if any of the following occur:

• There is a material change to the preliminary prospectus
• In the case of an equity public offering, the equity public offering prices above or below the "COB price range" (a range that is 20% below the bottom end and 20% above the top end of the price range set forth in the preliminary prospectus, such 20% is calculated by using the top end of such price range)
• Your COB has been outstanding and not accepted for more than 20 days

How do I reconfirm a COB?
In the event of a material change, E*TRADE issues an alert to customers who have already submitted COBs, stating that:

• Customers who still wish to participate will need to amend or reconfirm their COB.
• Existing COBs which are NOT amended or reconfirmed will be cancelled.
• The window to reconfirm can be quite brief and depends on the overall timing of the offering.
• COBs can be reconfirmed/modified/cancelled via the New Issue Center through the Activity tab
  

Amending Existing COBs

How can I amend or cancel my existing COBs?
You may amend or cancel existing COBs up until the offering moves to the "allocate" phase by navigating as follows:

• Navigate to the IPOs & Other Equity Offerings page.
• Select the Manage button next to the COB you would like to amend or cancel.
• Select Withdraw or Update
  • Withdraw – will allow you to withdraw / cancel your COB
    • After being presented with the terms of your COB, click Withdraw Offer and then Confirm when asked "Are you sure you want to withdraw your conditional offer?"
  • Update – will allow you to change the Number of shares and / or the Limit Price for your COB
    • Amend the Number of shares and or Limit Price and click Continue
    • Review terms of revised COB and click Submit to submit your revised COB
    • The next screen will confirm that the COB has been received. You may either:
      • Select View activity to view your conditional offer on the Activity tab
      • Select Fund your account, if you would like to add to the available buying power to support your conditional offer, or
      • "X" out of the page to close it
    • After a COB has been submitted, it can be viewed on the Activity tab
    • COBs can be amended or cancelled up until the offering enters the "allocate" stage.

How can I view my COB and allocation history?
You may view your COB and allocation history as follows:

• Navigate to the IPOs & Other Equity Offerings page on the New Issue Center where COBs are submitted.
• Select the Activity tab

Allocation

How does E*TRADE allocate shares in an IPO?
The primary determinant for which eligible COBs will be allocated shares, and how many shares they will receive, is the amount of shares available for sale by E*TRADE versus the overall demand from E*TRADE customers during that offering. Shares are allocated to eligible accounts as a proportion, or percentage, of the size of their COB. The percentage is based primarily on the number of shares provided to E*TRADE for sale to its customers and the size of the overall demand for shares from E*TRADE's customers.

Given the generally high demand for shares in offerings (particularly IPOs) and the limited availability of shares available for sale to E*TRADE customers, many COBs will not be allocated shares. Additionally, in many instances, allocations will be significantly smaller than the size of shares requested in a customer's COB.

When and how will I know if I have been allocated shares in an offering?
E*TRADE makes its allocations after the pricing of the overall offering but before the stock begins trading. E*TRADE will inform customers via alert or email whether they have been allocated shares. Any allocation should be reflected in the relevant customer account once that allocation has been processed by E*TRADE.

Why did I not receive any shares, or an allocation less than my COB?
The demand for shares may exceed the supply available to allocate. A COB is not a guarantee an allocation of shares to any individual investor. Given the generally high demand for shares in follow-on offerings and the limited availability of shares available for sale to E*TRADE customers, many COBs will not be allocated shares. Additionally, in many instances, allocations will typically be significantly smaller than the size of shares requested in a customer's COB.

When can I sell the shares of an IPO if I receive an allocation?
While E*TRADE does not prevent customers from selling securities acquired through offerings at any time once the stock is eligible to trade on a public exchange, we prefer that investors hold their shares for at least 30 calendar days. Selling or transferring out shares of an offering within 30 calendar days following the offer is considered flipping and may affect your eligibility to participate in other new issues in the future. We will not impede the sales of any customers who choose to sell these shares before that period; however, we reserve the right to exclude any such customers from any future participation in these kinds of offerings.

Margin / Short Selling / Secondary Market

Are the shares offered in IPOs available for short sales in the secondary market?
E*TRADE is not permitted to effect short sales in margin accounts for 30 days following an IPO if E*TRADE participates in the offering as a member of the syndicate. If E*TRADE does not act in that capacity, customers may short shares of a company which recently went public once the shares are available to borrow. In no situation will E*TRADE effect short sales in non-margin accounts.

Can E*TRADE extend margin to customers for IPO shares?
E*TRADE will not extend credit on shares of companies that conducted an IPO for thirty days following the initial public offering, regardless of whether the IPO was made available via E*TRADE.

When can I purchase shares of a company that has recently conducted an IPO?
Please be aware that market orders are not accepted on IPOs. Further, market orders cannot be taken until the shares of the company conducting the IPO have commenced trading on an exchange in the secondary market. E*TRADE can accept limit orders as soon as the firm receives notification from the lead underwriter in the initial public offering that the IPO distribution is complete.