The effective date in the investment community has a number of meanings. The one on most investors’ mind is the date trading can commence on public shares as dictated by the Securities & Exchange Commission. This date is usually 20 days after the offering company has registered for the trading of their shares with the SEC.
This allotted time is given so the SEC can do further investigation on the offering. According to the SEC findings, a registration can be accepted or denied. If the SEC demands changes in the registration, amendments can be added. But if the suggested modifications are not addressed, the registration can be stalled or rejected.
Effective date also is applied to the date when any contract takes effect. This can apply to insurance policies, liens, or any number of legal agreements. It can also apply to the date when interest starts on an interest rate swap.
An interest rate swap can occur between two or more parties and facilitates the exchange of a fixed payment amount in a period for a floating payment joined to a new agreed upon interest rate. In this arrangement, cash outlay is minimized. There is no exchange of the principal amount. It is the difference between the two payment amounts that is given to the entitled entity without exchanging full interest.
An effective date is dictated by rules and regulations, and is legally binding once the parties involved are in agreement. This date cannot be changed or modified without legal action.