initial public offering
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An initial public offering (IPO) or stock launch is a
public offering A public offering is the offering of securities of a company or a similar corporation to the public. Generally, the securities are to be listed on a stock exchange. In most jurisdictions, a public offering requires the issuing company to publish a ...
in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically
underwritten Underwriting (UW) services are provided by some large financial institutions, such as banks, insurance companies and investment houses, whereby they guarantee payment in case of damage or financial loss and accept the financial risk for liabili ...
by one or more
investment banks Investment banking pertains to certain activities of a financial services company or a corporate division that consist in advisory-based financial transactions on behalf of individuals, corporations, and governments. Traditionally associated wit ...
, who also arrange for the shares to be listed on one or more stock exchanges. Through this process, colloquially known as ''floating'', or ''going public'', a privately held company is transformed into a
public company A public company is a company whose ownership is organized via shares of stock which are intended to be freely traded on a stock exchange or in over-the-counter markets. A public (publicly traded) company can be listed on a stock exchange ( ...
. Initial public offerings can be used to raise new equity capital for companies, to
monetize Monetization (American and British English spelling differences, also spelled monetisation) is, broadly speaking, the process of converting something into money. The term has a broad range of uses. In banking, the term refers to the process of co ...
the investments of private shareholders such as company founders or
private equity In the field of finance, the term private equity (PE) refers to investment funds, usually limited partnerships (LP), which buy and restructure financially weak companies that produce goods and provide services. A private-equity fund is both a t ...
investors, and to enable easy trading of existing holdings or future capital raising by becoming publicly traded. After the IPO, shares are traded freely in the open market at what is known as the free float.
Stock exchanges A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for the ...
stipulate a minimum free float both in absolute terms (the total value as determined by the share price multiplied by the number of shares sold to the public) and as a proportion of the total share capital (i.e., the number of shares sold to the public divided by the total shares outstanding). Although IPO offers many benefits, there are also significant costs involved, chiefly those associated with the process such as banking and legal fees, and the ongoing requirement to disclose important and sometimes sensitive information. Details of the proposed offering are disclosed to potential purchasers in the form of a lengthy document known as a prospectus. Most companies undertake an IPO with the assistance of an investment banking firm acting in the capacity of an underwriter. Underwriters provide several services, including help with correctly assessing the value of shares (share price) and establishing a public market for shares (initial sale). Alternative methods such as the
Dutch auction A Dutch auction is one of several similar types of auctions for buying or selling goods. Most commonly, it means an auction in which the auctioneer begins with a high asking price in the case of selling, and lowers it until some participant acc ...
have also been explored and applied for several IPOs.


History

The earliest form of a company which issued ''public shares'' was the case of the ''
publicani In antiquity, publicans (Greek τελώνης ''telōnēs'' (singular); Latin ''publicanus'' (singular); ''publicani'' (plural)) were public contractors, in whose official capacity they often supplied the Roman legions and military, managed the c ...
'' during the
Roman Republic The Roman Republic ( la, Res publica Romana ) was a form of government of Rome and the era of the classical Roman civilization when it was run through public representation of the Roman people. Beginning with the overthrow of the Roman Ki ...
, although this claim is not shared by all modern scholars. Like modern joint-stock companies, the ''publicani'' were legal bodies independent of their members whose ownership was divided into shares, or ''partes''. There is evidence that these shares were sold to public investors and traded in a type of
over-the-counter Over-the-counter (OTC) drugs are medicines sold directly to a consumer without a requirement for a prescription from a healthcare professional, as opposed to prescription drugs, which may be supplied only to consumers possessing a valid prescr ...
market in the
Forum Forum or The Forum (plural forums or fora) may refer to: Common uses * Forum (legal), designated space for public expression in the United States *Forum (Roman), open public space within a Roman city **Roman Forum, most famous example *Internet ...
, near the
Temple of Castor and Pollux The Temple of Castor and Pollux ( it, Tempio dei Dioscuri) is an ancient temple in the Roman Forum, Rome, central Italy. It was originally built in gratitude for victory at the Battle of Lake Regillus (495 BC). Castor and Pollux (Greek Polydeuces ...
. The shares fluctuated in value, encouraging the activity of speculators, or ''quaestors''. Mere evidence remains of the prices for which ''partes'' were sold, the nature of initial public offerings, or a description of stock market behavior. ''Publicani'' lost favor with the fall of the Republic and the rise of the
Empire An empire is a "political unit" made up of several territories and peoples, "usually created by conquest, and divided between a dominant center and subordinate peripheries". The center of the empire (sometimes referred to as the metropole) ex ...
. In the United States, the first IPO was the public offering of
Bank of North America The Bank of North America was the first chartered bank in the United States, and served as the country's first ''de facto'' central bank. Chartered by the Congress of the Confederation on May 26, 1781, and opened in Philadelphia on January 7, 17 ...
around 1783.


Advantages and disadvantages


Advantages

When a company lists its securities on a
public exchange Public Exchanges are trading venues open to all interested parties (many sellers and many buyers) that use a common technology platform and that are usually run by third parties or industry consortia. Public exchanges support community activities l ...
, the money paid by the investing public for the newly issued shares goes directly to the company (primary offering) as well as to any early private investors who opt to sell all or a portion of their holdings (secondary offerings) as part of the larger IPO. An IPO, therefore, allows a company to tap into a wide pool of potential investors to provide itself with capital for future growth, repayment of the debt, or working capital. A company selling common shares is never required to repay the capital to its public investors. Those investors must endure the unpredictable nature of the open market to price and trade their shares. After the IPO, when shares are traded in the market, money passes between public investors. For early private investors who choose to sell shares as part of the IPO process, the IPO represents an opportunity to
monetize Monetization (American and British English spelling differences, also spelled monetisation) is, broadly speaking, the process of converting something into money. The term has a broad range of uses. In banking, the term refers to the process of co ...
their investment. After the IPO, once shares are traded in the open market, investors holding large blocks of shares can either sell those shares piecemeal in the open market or sell a large block of shares directly to the public, at a
fixed price A fixed price is a price set for a good or a service that is not subject to bargaining. The price may be fixed because the seller has set it, or because the price is regulated by the authorities under price controls. Bargaining is very common ...
, through a secondary market offering. This type of offering is not dilutive since no new shares are being created. Stock prices can change dramatically during a company's first days in the public market. Once a company is listed, it is able to issue additional common shares in a number of different ways, one of which is the
follow-on offering A follow-on offering, also known as a follow-on public offering (FPO), is a type of public offering of stock that occurs subsequent to the company's initial public offering (IPO). A follow-on offering can be categorised as dilutive or non-dilu ...
. This method provides capital for various corporate purposes through the issuance of equity (see
stock dilution Stock dilution, also known as equity dilution, is the decrease in existing shareholders' ownership percentage of a company as a result of the company issuing new equity. New equity increases the total shares outstanding which has a dilutive effe ...
) without incurring any debt. This ability to quickly raise potentially large amounts of capital from the marketplace is a key reason many companies seek to go public. An IPO accords several benefits to the previously private company: * Enlarging and diversifying equity base * Enabling cheaper access to capital * Increasing exposure, prestige, and public image * Attracting and retaining better management and employees through liquid equity participation * Facilitating acquisitions (potentially in return for shares of stock) * Creating multiple financing opportunities: equity,
convertible debt In finance, a convertible bond or convertible note or convertible debt (or a convertible debenture if it has a maturity of greater than 10 years) is a type of bond that the holder can convert into a specified number of shares of common stock in ...
, cheaper bank loans, etc. * Benefits for pre-IPO owners in the form of Tax Receivable Agreements


Disadvantages

There are several disadvantages to completing an initial public offering: * Significant legal, accounting, and marketing costs, many of which are ongoing * Requirement to disclose financial and business information * Meaningful time, effort, and attention required of management * Risk that required funding will not be raised * Public dissemination of information that may be useful to competitors, suppliers and customers. * Loss of control and stronger agency problems due to new shareholders * Increased risk of litigation, including private securities class actions and shareholder derivative actions


Procedure

IPO procedures are governed by different laws in different countries. In the United States, IPOs are regulated by the
United States Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against marke ...
under the Securities Act of 1933. In the United Kingdom, the
UK Listing Authority The Financial Conduct Authority (FCA) is a financial regulatory body in the United Kingdom, but operates independently of the UK Government, and is financed by charging fees to members of the financial services industry. The FCA regulates financ ...
reviews and approves prospectuses and operates the listing regime.


Planning

Planning is crucial to a successful IPO. One book suggests the following seven planning steps: # develop impressive management and professional team # grow the company's business with an eye to the public marketplace # obtain audited financial statements using IPO-accepted accounting principles # clean up the company's act # establish antitakeover defenses # develop good corporate governance # create insider bail-out opportunities and take advantage of IPO windows.


Retention of underwriters

IPOs generally involve one or more
investment bank Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing i ...
s known as "
underwriter Underwriting (UW) services are provided by some large financial institutions, such as banks, insurance companies and investment houses, whereby they guarantee payment in case of damage or financial loss and accept the financial risk for liabilit ...
s". The company offering its shares, called the "issuer", enters into a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell those shares. A large IPO is usually underwritten by a "
syndicate A syndicate is a self-organizing group of individuals, companies, corporations or entities formed to transact some specific business, to pursue or promote a shared interest. Etymology The word ''syndicate'' comes from the French word ''syndicat ...
" of investment banks, the largest of which take the position of "lead underwriter". Upon selling the shares, the underwriters retain a portion of the proceeds as their fee. This fee is called an
underwriting spread The underwriting spread is the difference between the amount paid by the underwriting group in a new issue of securities and the price at which securities are offered for sale to the public. It is the underwriter's gross profit margin, usually expr ...
. The spread is calculated as a discount from the price of the shares sold (called the gross spread). Components of an underwriting spread in an initial public offering (IPO) typically include the following (on a per-share basis): Manager's fee, Underwriting fee—earned by members of the syndicate, and the Concession—earned by the broker-dealer selling the shares. The Manager would be entitled to the entire underwriting spread. A member of the syndicate is entitled to the underwriting fee and the concession. A broker-dealer who is not a member of the syndicate but sells shares would receive only the concession, while the member of the syndicate who provided the shares to that broker-dealer would retain the underwriting fee. Usually, the managing/lead underwriter, also known as the bookrunner, typically the underwriter selling the largest proportions of the IPO, takes the highest portion of the gross spread, up to 8% in some cases. Multinational IPOs may have many syndicates to deal with differing legal requirements in both the issuer's domestic market and other regions. For example, an issuer based in the E.U. may be represented by the major selling syndicate in its domestic market, Europe, in addition to separate group corporations or selling them for US/Canada and Asia. Usually, the lead underwriter in the head selling group is also the lead bank in the other selling groups. Because of the wide array of legal requirements and because it is an expensive process, IPOs also typically involve one or more law firms with major practices in
securities law Securities regulation in the United States is the field of U.S. law that covers transactions and other dealings with securities. The term is usually understood to include both federal and state-level regulation by governmental regulatory agencies ...
, such as the
Magic Circle A magic circle is a circle of space marked out by practitioners of some branches of ritual magic, which they generally believe will contain energy and form a sacred space, or will provide them a form of magical protection, or both. It may be mark ...
firms of London and the
white-shoe firm A white-shoe firm is an American term used to describe prestigious professional services firms that have traditionally been associated with the upper-class elite who graduated from Ivy League colleges. The term is most often used to describe leadi ...
s of New York City. Financial historians
Richard Sylla Richard Eugene Sylla (born ) is the chairman of the board of trustees of the Museum of American Finance. Before his retirement in 2015, he served as the Henry Kaufman Professor of the History of Financial Institutions and Markets and a professor ...
and
Robert E. Wright Robert Eric Wright (born January 1, 1969 in Rochester, N.Y.) is a business, economic, financial, and monetary historian and the inaugural Rudy and Marilyn Nef Family Chair of Political Economy at Augustana University in Sioux Falls, South Dak ...
have shown that before 1860 most early U.S. corporations sold shares in themselves directly to the public without the aid of intermediaries like investment banks. The
direct public offering A direct public offering (DPO) or direct listing is a method by which a company can offer an investment opportunity directly to the public. Description A DPO is similar to an initial public offering (IPO) in that securities, such as stock or debt ...
(DPO), as they term it, was not done by auction but rather at a share price set by the issuing corporation. In this sense, it is the same as the fixed price public offers that were the traditional IPO method in most non-US countries in the early 1990s. The DPO eliminated the agency problem associated with offerings intermediated by investment banks.


Allocation and pricing

The sale (allocation and pricing) of shares in an IPO may take several forms. Common methods include: * Best efforts contract *
Firm commitment contract In investment banking, an underwriting contract"The Investment Banking Handbook" by J. Peter Williamson, 1988, ""Underwriting Contracts", p. 128/ref> is a contract between an underwriter and an issuer of securities. The following types of underwr ...
* All-or-none contract * Bought deal Public offerings are sold to both institutional investors and retail clients of the underwriters. A licensed securities salesperson (
Registered Representative A registered representative, also called a general securities representative, a stockbroker, or an account executive, is an individual who is licensed to sell securities and has the legal power of an agent in the United States. Registered repr ...
in the US and Canada) selling shares of a public offering to his clients is paid a portion of the selling concession (the fee paid by the issuer to the underwriter) rather than by his client. In some situations, when the IPO is not a "hot" issue (undersubscribed), and where the salesperson is the client's advisor, it is possible that the financial incentives of the advisor and client may not be aligned. The issuer usually allows the underwriters an option to increase the size of the offering by up to 15% under a specific circumstance known as the
greenshoe Greenshoe, or over-allotment clause, is the term commonly used to describe a special arrangement in a U.S. registered share offering, for example an initial public offering (IPO), which enables the investment bank representing the underwriters to ...
or overallotment option. This option is always exercised when the offering is considered a "hot" issue, by virtue of being oversubscribed. In the US, clients are given a preliminary prospectus, known as a
red herring prospectus A red herring prospectus, as a first or preliminary prospectus, is a document submitted by a company (issuer) as part of a public offering of securities (either stocks or bonds). Most frequently associated with an initial public offering (IPO), t ...
, during the initial quiet period. The red herring prospectus is so named because of a bold red warning statement printed on its front cover. The warning states that the offering information is incomplete, and may be changed. The actual wording can vary, although most roughly follow the format exhibited on the Facebook IPO red herring. During the quiet period, the shares cannot be offered for sale. Brokers can, however, take indications of interest from their clients. At the time of the stock launch, after the Registration Statement has become effective, indications of interest can be converted to buy orders, at the discretion of the buyer. Sales can only be made through a final prospectus cleared by the Securities and Exchange Commission. The final step in preparing and filing the final IPO prospectus is for the issuer to retain one of the major financial "printers", who print (and today, also electronically file with the SEC) the registration statement on Form S-1. Typically, preparation of the final prospectus is actually performed at the printer, wherein one of their multiple conference rooms the issuer, issuer's counsel (attorneys), underwriter's counsel (attorneys), the lead underwriter(s), and the issuer's accountants/auditors make final edits and proofreading, concluding with the filing of the final prospectus by the financial printer with the Securities and Exchange Commission. Before legal actions initiated by New York Attorney General Eliot Spitzer, which later became known as the
Global Settlement The Global Analyst Research Settlement was an enforcement agreement reached in the United States on April 28, 2003, between the United States Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (NASD), New York Stock Ex ...
enforcement agreement, some large
investment firms Investment banking pertains to certain activities of a financial services company or a corporate division that consist in advisory-based financial transactions on behalf of individuals, corporations, and governments. Traditionally associated wit ...
had initiated favorable research coverage of companies in an effort to aid corporate finance departments and retail divisions engaged in the marketing of new issues. The central issue in that enforcement agreement had been judged in court previously. It involved the conflict of interest between the investment banking and
analysis Analysis ( : analyses) is the process of breaking a complex topic or substance into smaller parts in order to gain a better understanding of it. The technique has been applied in the study of mathematics and logic since before Aristotle (3 ...
departments of ten of the largest investment firms in the United States. The investment firms involved in the settlement had all engaged in actions and practices that had allowed the inappropriate influence of their research analysts by their investment bankers seeking lucrative fees. A typical violation addressed by the settlement was the case of CSFB and
Salomon Smith Barney Salomon Brothers, Inc., was an American multinational bulge bracket investment bank headquartered in New York. It was one of the five largest investment banking enterprises in the United States and the most profitable firm on Wall Street dur ...
, which were alleged to have engaged in the inappropriate spinning of "hot" IPOs and issued fraudulent research reports in violation of various sections within the Securities Exchange Act of 1934.


Pricing

A company planning an IPO typically appoints a lead manager, known as a bookrunner, to help it arrive at an appropriate price at which the shares should be issued. There are two primary ways in which the price of an IPO can be determined. Either the company, with the help of its lead managers, fixes a price ("fixed price method"), or the price can be determined through analysis of confidential investor demand data compiled by the bookrunner ("
book building Book building is a systematic process of generating, capturing, and recording investor demand for shares. Usually, the issuer appoints a major investment bank to act as a major securities underwriter or bookrunner. Book building is an alternativ ...
"). Historically, many IPOs have been underpriced. The effect of underpricing an IPO is to generate additional interest in the stock when it first becomes publicly traded.
Flipping Flipping is a term used to describe purchasing a revenue-generating asset and quickly reselling (or "flipping") it for profit. Within the real estate industry, the term is used by investors to describe the process of buying, rehabbing, and sel ...
, or quickly selling shares for a profit, can lead to significant gains for investors who were allocated shares of the IPO at the offering price. However, underpricing an IPO results in lost potential capital for the issuer. One extreme example is
theglobe.com theGlobe.com was an internet startup founded in 1995
IPO which helped fuel the IPO "mania" of the late 1990s internet era. Underwritten by
Bear Stearns The Bear Stearns Companies, Inc. was a New York-based global investment bank, securities trading and brokerage firm that failed in 2008 as part of the global financial crisis and recession, and was subsequently sold to JPMorgan Chase. The comp ...
on 13 November 1998, the IPO was priced at $9 per share. The share price quickly increased 1,000% on the opening day of trading, to a high of $97. Selling pressure from institutional flipping eventually drove the stock back down, and it closed the day at $63. Although the company did raise about $30  million from the offering, it is estimated that with the level of demand for the offering and the volume of trading that took place they might have left upwards of $200 million on the table. The danger of overpricing is also an important consideration. If a stock is offered to the public at a higher price than the market will pay, the underwriters may have trouble meeting their commitments to sell shares. Even if they sell all of the issued shares, the stock may fall in value on the first day of trading. If so, the stock may lose its marketability and hence even more of its value. This could result in losses for investors, many of whom being the most favored clients of the underwriters. Perhaps the best-known example of this is the Facebook IPO in 2012. Underwriters, therefore, take many factors into consideration when pricing an IPO, and attempt to reach an offering price that is low enough to stimulate interest in the stock but high enough to raise an adequate amount of capital for the company. When pricing an IPO, underwriters use a variety of key performance indicators and non-GAAP measures. The process of determining an optimal price usually involves the
underwriters Underwriting (UW) services are provided by some large financial institutions, such as banks, insurance companies and investment houses, whereby they guarantee payment in case of damage or financial loss and accept the financial risk for liabilit ...
("syndicate") arranging share purchase commitments from leading institutional investors. Some researchers (Friesen & Swift, 2009) believe that the underpricing of IPOs is less a deliberate act on the part of issuers and/or underwriters, and more the result of an over-reaction on the part of investors (Friesen & Swift, 2009). One potential method for determining to underprice is through the use of IPO underpricing algorithms.


Dutch auction

A
Dutch auction A Dutch auction is one of several similar types of auctions for buying or selling goods. Most commonly, it means an auction in which the auctioneer begins with a high asking price in the case of selling, and lowers it until some participant acc ...
allows shares of an initial public offering to be allocated based only on price aggressiveness, with all successful bidders paying the same price per share. One version of the Dutch auction is
OpenIPO OpenIPO is a modified Dutch auction which allows shares of an initial public offering (IPO) to be allocated impartially. It is a variation on the traditional way that shares are sold during the IPO process and results in all successful bidders payi ...
, which is based on an auction system designed by economist
William Vickrey William Spencer Vickrey (21 June 1914 – 11 October 1996) was a Canadian-American professor of economics and Nobel Laureate. Vickrey was awarded the 1996 Nobel Memorial Prize in Economic Sciences with James Mirrlees for their research into the e ...
. This auction method ranks bids from highest to lowest, then accepts the highest bids that allow all shares to be sold, with all winning bidders paying the same price. It is similar to the model used to auction
Treasury bills United States Treasury securities, also called Treasuries or Treasurys, are government debt instruments issued by the United States Department of the Treasury to finance government spending as an alternative to taxation. Since 2012, U.S. gov ...
, notes, and bonds since the 1990s. Before this, Treasury bills were auctioned through a discriminatory or pay-what-you-bid auction, in which the various winning bidders each paid the price (or yield) they bid, and thus the various winning bidders did not all pay the same price. Both discriminatory and uniform price or "Dutch" auctions have been used for IPOs in many countries, although only
uniform price auction A multiunit auction is an auction in which several homogeneous items are sold. The units can be sold each at the same price (a uniform price auction) or at different prices (a discriminatory price auction). Uniform price auction A uniform pric ...
s have been used so far in the US. Large IPO auctions include Japan Tobacco, Singapore Telecom, BAA Plc and Google (ordered by size of proceeds). A variation of the Dutch auction has been used to take a number of U.S. companies public including Morningstar, Interactive Brokers Group,
Overstock.com Overstock.com, Inc. is an American internet retailer selling primarily furniture headquartered in Midvale, Utah, near Salt Lake City. Businessman Patrick M. Byrne founded Overstock.com in 1999. The company initially sold exclusively surplus and ...
, Ravenswood Winery, Clean Energy Fuels, and Boston Beer Company. In 2004, Google used the Dutch auction system for its initial public offering. Traditional U.S. investment banks have shown resistance to the idea of using an auction process to engage in public securities offerings. The auction method allows for equal access to the allocation of shares and eliminates the favorable treatment accorded important clients by the underwriters in conventional IPOs. In the face of this resistance, the Dutch auction is still a little used method in U.S. public offerings, although there have been hundreds of auction IPOs in other countries. In determining the success or failure of a Dutch auction, one must consider competing objectives. If the objective is to reduce risk, a traditional IPO may be more effective because the underwriter manages the process, rather than leaving the outcome in part to random chance in terms of who chooses to bid or what strategy each bidder chooses to follow. From the viewpoint of the investor, the Dutch auction allows everyone equal access. Moreover, some forms of the Dutch auction allow the underwriter to be more active in coordinating bids and even communicating general auction trends to some bidders during the bidding period. Some have also argued that a uniform price auction is more effective at
price discovery In economics and finance, the price discovery process (also called price discovery mechanism) is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers. Overview Price discovery is diff ...
, although the theory behind this is based on the assumption of independent private values (that the value of IPO shares to each bidder is entirely independent of their value to others, even though the shares will shortly be traded on the aftermarket). Theory that incorporates assumptions more appropriate to IPOs does not find that sealed bid auctions are an effective form of price discovery, although possibly some modified form of auction might give a better result. In addition to the extensive international evidence that auctions have not been popular for IPOs, there is no U.S. evidence to indicate that the Dutch auction fares any better than the traditional IPO in an unwelcoming market environment. A Dutch auction IPO by WhiteGlove Health, Inc., announced in May 2011 was postponed in September of that year, after several failed attempts to price. An article in ''
the Wall Street Journal ''The Wall Street Journal'' is an American business-focused, international daily newspaper based in New York City, with international editions also available in Chinese and Japanese. The ''Journal'', along with its Asian editions, is published ...
'' cited the reasons as "broader stock-market volatility and uncertainty about the global economy have made investors wary of investing in new stocks".


Quiet period

Under American securities law, there are two-time windows commonly referred to as "quiet periods" during an IPO's history. The first and the one linked above is the period of time following the filing of the company's S-1 but before SEC staff declare the registration statement effective. During this time, issuers, company insiders, analysts, and other parties are legally restricted in their ability to discuss or promote the upcoming IPO (U.S. Securities and Exchange Commission, 2005). The other "quiet period" refers to a period of 10 calendar days following an IPO's first day of public trading. During this time, insiders and any underwriters involved in the IPO are restricted from issuing any earnings forecasts or research reports for the company. When the quiet period is over, generally the underwriters will initiate research coverage on the firm. A three-day waiting period exists for any member that has acted as a manager or co-manager in a secondary offering.


Delivery of shares

Not all IPOs are eligible for delivery settlement through the DTC system, which would then either require the physical delivery of the
stock certificate In corporate law, a stock certificate (also known as certificate of stock or share certificate) is a legal document that certifies the legal interest (a bundle of several legal rights) of ownership of a specific number of shares (or, under Ar ...
s to the clearing agent bank's custodian or a
delivery versus payment Delivery versus payment or DvP is a common form of settlement for securities. The process involves the simultaneous delivery of all documents necessary to give effect to a transfer of securities in exchange for the receipt of the stipulated payment ...
(DVP) arrangement with the selling group firm.


Stag profit (flipping)

"Stag profit" is a situation in the stock market before and immediately after a company's initial public offering (or any new issue of shares). A "stag" is a party or individual who subscribes to the new issue expecting the price of the stock to rise immediately upon the start of trading. Thus, stag profit is the financial gain accumulated by the party or individual resulting from the value of the shares rising. This term is more popular in the United Kingdom than in the United States. In the US, such investors are usually called flippers, because they get shares in the offering and then immediately turn around "
flipping Flipping is a term used to describe purchasing a revenue-generating asset and quickly reselling (or "flipping") it for profit. Within the real estate industry, the term is used by investors to describe the process of buying, rehabbing, and sel ...
" or selling them on the first day of trading.


Largest IPOs


Largest IPO markets

Prior to 2009, the United States was the leading issuer of IPOs in terms of total value. Since that time, however, China (
Shanghai Shanghai (; , , Standard Mandarin pronunciation: ) is one of the four direct-administered municipalities of the People's Republic of China (PRC). The city is located on the southern estuary of the Yangtze River, with the Huangpu River flowin ...
,
Shenzhen Shenzhen (; ; ; ), also historically known as Sham Chun, is a major sub-provincial city and one of the special economic zones of China. The city is located on the east bank of the Pearl River estuary on the central coast of southern province ...
and
Hong Kong Hong Kong ( (US) or (UK); , ), officially the Hong Kong Special Administrative Region of the People's Republic of China (abbr. Hong Kong SAR or HKSAR), is a city and special administrative region of China on the eastern Pearl River Delta i ...
) has been the leading issuer, raising $73 billion (almost double the amount of money raised on the
New York Stock Exchange The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District of Lower Manhattan in New York City. It is by far the world's largest stock exchange by market capitalization of its listed ...
and NASDAQ combined) up to the end of November 2011.


See also

*
Alternative public offering An alternative public offering (APO) is the combination of a reverse merger with a simultaneous private investment of public equity (PIPE). It allows companies an alternative to an initial public offering (IPO) as a means of going public while ra ...
*
Direct public offering A direct public offering (DPO) or direct listing is a method by which a company can offer an investment opportunity directly to the public. Description A DPO is similar to an initial public offering (IPO) in that securities, such as stock or debt ...
*
Public offering without listing A public offering without listing, often called a POWL deal or a POWL, is a form of public equity offering by non-Japanese firms in the Japanese market, without the previously required simultaneous listing on a local exchange (e.g. TSE). History ...
*
Reverse takeover A reverse takeover (RTO), reverse merger, or reverse IPO is the acquisition of a public company by a private company so that the private company can bypass the lengthy and complex process of going public. Sometimes, conversely, the public compa ...
* Smaller reporting company *
Venture capital Venture capital (often abbreviated as VC) is a form of private equity financing that is provided by venture capital firms or funds to start-up company, startups, early-stage, and emerging companies that have been deemed to have high growth poten ...


References


Further reading

* * * * * Chambers, Clem (2006-07-14)
"Who needs stock exchanges?"
''Exchanges Handbook''. Mondo Visione. Accessed 21 September 2011. * * * * * * Hu, Bei and Vannucci, Cecile

Published 2010-10-29. Retrieved 2011-09-21 * * * * * *


External links


Nasdaq database of all U.S. Initial Public Offerings beginning Jan. 1997
{{DEFAULTSORT:Initial Public Offering Stock market terminology