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Definition of Red Herring

A document used to solicit indications of interest during the cooling off period for a new issue of securities. All of the information in the preliminary prospectus is subject to revision and change. The cover of a preliminary prospectus must have a statement saying that the securities have not yet become registered and that they may not be sold until the registration becomes effective. This statement is written in red ink and that is where the term "red herring" comes from.

Applying "Red Herring" to Securities Exams:

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