By raising capital from the public, a company is creating new relationships, and opening up potential liabilities which are closely scrutinised by regulators. Investors may claim the full value of their loss if the information in the prospectus is proved to be wrong, possibly years later. A POSI policy has limits tailored to the specific transaction, and for the duration of the exposures in the relevant jurisdiction.
Rules and regulations
Companies that want to offer their securities to the public, or trade their securities on a regulated market like the stock exchange, have to issue a prospectus. There are detailed rules about what has to be in a prospectus, what may or may not be left out and processes to follow in the case that anything material changes once issued or in the case an error is discovered.