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Effective date

The Effective date is the day on which investors can start buying and selling shares of a specific security.

Expanded Definition

So, the effective date is the date on which something goes live, and in the stock market the term generally refers to the date on which the shares from an initial public offering (IPO) become available for trading. The Securities and Exchange Commission (SEC) determines the effective date after reviewing the documents submitted by a company wishing to go public.

It's usually about 20 days between the filing of the IPO registration with the SEC and the effective date when trading begins. It's in this "cooling off" period that the investment bank that is underwriting the IPO goes out with the prospectus to institutional investors, looking for buyers. This process includes no effective date (because the SEC hasn't set it) and no price (because the company and the investment bank have not set it).

New rules and laws also have effective dates, generally the next Jan. 1 or next Nov. 1, when the federal fiscal year starts. They might also be applied retroactively. Especially keep up to date on the effective dates of changes in the tax laws so you don't get stuck with a larger bill than expected.

Remember to check the effective date on all kinds of changes in your company or your stock -- for instance, the CEO's resignation, a decrease in the dividend, a stock split, etc. -- so that you can be prepared to make any necessary moves ahead of time.

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