Red Herring (economy)

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A Red Herring or Preliminary Offering Memorandum is a preliminary securities issue prospectus and refers to a document (usually written in English) in booklet form of up to several hundred A4 pages.

This prospectus contains the details of a bond issue of a new bond to be brought onto the capital market with all the facts, figures and balance sheets of the issuer , background information on industry and much more. Even political circumstances, market situations, interdependencies and other information from the issuer can be mentioned in the Red Herring.

In a Red Herring, all issue data is printed without the relevant data such as coupon , exact issue and expiry date, early repayment date, issue size, partial denominations, etc. and distributed or sent to interested investors during the marketing phase (the so-called roadshow ). In contrast to criminology, the Red Herring is a publication that clearly defines all relevant facts except for the bond issue dates mentioned above. Presumably it is called Red Herring because the draft emission on the title page of the Preliminary Offering Memorandum contains a notice in red text that the information is not yet complete and may change. The information is irrelevant for investors insofar as all other aspects of a new issue are currently more important in order to make the fundamental decision to take out a new bond as an investment. In the second phase, the possible price is predefined during the roadshow.

The relevant bond data and those missing in Red Herring are defined in the course of the marketing phase in the committee of syndicate banks and the institution based on the existing demand. On the day of issue, the dates are specified and the price of the bond is determined. The final issue prospectus is reprinted and archived due to the pricing .