Initial public offering

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Initial public offering (IPO) or stock market launch is a type of public offering in which shares of a company are sold to institutional investors [1] and usually also retail (individual) investors; an IPO is underwritten by one or more investment banks, 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. Initial public offerings can be used: to raise new equity capital for the company concerned; to monetize the investments of private shareholders such as company founders or private equity investors; and to enable easy trading of existing holdings or future capital raising by becoming publicly traded enterprises.

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 prospectus detailing the terms and rights attached to the offered security, as well as information on the company itself and its finances. Many other regulatory requirements surround any public offering and they vary according to jurisdiction.

An institutional investor is an entity which pools money to purchase securities, real property, and other investment assets or originate loans. Institutional investors include banks, insurance companies, pensions, hedge funds, REITs, investment advisors, endowments, and mutual funds. Operating companies which invest excess capital in these types of assets may also be included in the term. Activist institutional investors may also influence corporate governance by exercising voting rights in their investments.

Underwriting services are provided by some large financial institutions, such as banks, or insurance or investment houses, whereby they guarantee payment in case of damage or financial loss and accept the financial risk for liability arising from such guarantee. An underwriting arrangement may be created in a number of situations including insurance, issue of securities in a public offering, and bank lending, among others. The person or institution that agrees to sell a minimum number of securities of the company for commission is called the underwriter.

Contents

After the IPO, shares traded freely in the open market are known as the free float. Stock exchanges 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 have also been explored and applied for several IPOs.

Prospectus (finance)

A prospectus, in finance, is a disclosure document that describes a financial security for potential buyers. It commonly provides investors with material information about mutual funds, stocks, bonds and other investments, such as a description of the company's business, financial statements, biographies of officers and directors, detailed information about their compensation, any litigation that is taking place, a list of material properties and any other material information. In the context of an individual securities offering, such as an initial public offering, a prospectus is distributed by underwriters or brokerages to potential investors. Today, prospectuses are most widely distributed through websites such as EDGAR and its equivalents in other countries.

An investment bank is a financial services company or corporate division that engages in advisory-based financial transactions on behalf of individuals, corporations, and governments. Traditionally associated with corporate finance, such a bank might assist in raising financial capital by underwriting or acting as the client's agent in the issuance of securities. An investment bank may also assist companies involved in mergers and acquisitions (M&A) and provide ancillary services such as market making, trading of derivatives and equity securities, and FICC services. Most investment banks maintain prime brokerage and asset management departments in conjunction with their investment research businesses. As an industry, it is broken up into the Bulge Bracket, Middle Market, and boutique market.

Dutch auction

A Dutch auction is one of several similar kinds of auctions. Most commonly, it means an auction in which the auctioneer begins with a high asking price, and lowers it until some participant accepts the price, or it reaches a predetermined reserve price. This has also been called a clock auction or open-outcry descending-price auction. This type of auction is good for auctioning goods quickly, since a sale never requires more than one bid. Strategically, it's similar to a first-price sealed-bid auction.

History

Courtyard of the Amsterdam Stock Exchange (Beurs van Hendrick de Keyser  [ nl
]) by Emanuel de Witte, 1653. Modern-day IPOs have their roots in the 17th-century Dutch Republic, the birthplace of the world's first formally listed public company, first formal stock exchange and market. Emanuel de Witte - De binnenplaats van de beurs te Amsterdam.jpg
Courtyard of the Amsterdam Stock Exchange (Beurs van Hendrick de Keyser  [ nl ]) by Emanuel de Witte, 1653. Modern-day IPOs have their roots in the 17th-century Dutch Republic, the birthplace of the world's first formally listed public company, first formal stock exchange and market.
The Dutch East India Company (also known by the abbreviation "VOC" in Dutch), the first formally listed public company in history, In 1602 the VOC undertook the world's first recorded IPO, in its modern sense. "Going public" enabled the company to raise the vast sum of 6.5 million guilders. Vereenigde Oostindische Compagnie spiegelretourschip Amsterdam replica.jpg
The Dutch East India Company (also known by the abbreviation “VOC” in Dutch), the first formally listed public company in history, In 1602 the VOC undertook the world's first recorded IPO, in its modern sense. "Going public" enabled the company to raise the vast sum of 6.5 million guilders.

The earliest form of a company which issued public shares was the case of the publicani during the Roman Republic. 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 market in the Forum, near the Temple of Castor and Pollux. 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. [10]

Roman Republic Period of ancient Roman civilization (509–27 BC)

The Roman Republic was the era of classical Roman civilization beginning with the overthrow of the Roman Kingdom, traditionally dated to 509 BC, and ending in 27 BC with the establishment of the Roman Empire. It was during this period that Rome's control expanded from the city's immediate surroundings to hegemony over the entire Mediterranean world.

Over-the-counter (finance) trading done directly between two parties

Over-the-counter (OTC) or off-exchange trading is done directly between two parties, without the supervision of an exchange. It is contrasted with exchange trading, which occurs via exchanges. A stock exchange has the benefit of facilitating liquidity, providing transparency, and maintaining the current market price. In an OTC trade, the price is not necessarily published for the public.

Roman Forum Archaeological site in Rome, Italy

The Roman Forum, also known by its Latin name Forum Romanum, is a rectangular forum (plaza) surrounded by the ruins of several important ancient government buildings at the center of the city of Rome. Citizens of the ancient city referred to this space, originally a marketplace, as the Forum Magnum, or simply the Forum.

In the early modern period, the Dutch were financial innovators who helped lay the foundations of modern financial systems. [11] [12] The first modern IPO occurred in March 1602 when the Dutch East India Company offered shares of the company to the public in order to raise capital. The Dutch East India Company (VOC) became the first company in history to issue bonds and shares of stock to the general public. In other words, the VOC was officially the first publicly traded company, because it was the first company to be ever actually listed on an official stock exchange. While the Italian city-states produced the first transferable government bonds, they did not develop the other ingredient necessary to produce a fully fledged capital market: corporate shareholders. As Edward Stringham (2015) notes, "companies with transferable shares date back to classical Rome, but these were usually not enduring endeavors and no considerable secondary market existed (Neal, 1997, p. 61)." [13]

The Dutch East India Company was an early megacorporation founded by a government-directed amalgamation of several rival Dutch trading companies (voorcompagnieën) in the early 17th century. It was established on March 20, 1602 as a chartered company to trade with India and Indianised Southeast Asian countries when the Dutch government granted it a 21-year monopoly on the Dutch spice trade. It has been often labelled a trading company or sometimes a shipping company. However, VOC was in fact a proto-conglomerate company, diversifying into multiple commercial and industrial activities such as international trade, shipbuilding, and both production and trade of East Indian spices, Formosan sugarcane, and South African wine. The Company was a transcontinental employer and an early pioneer of outward foreign direct investment. The Company's investment projects helped raise the commercial and industrial potential of many underdeveloped or undeveloped regions of the world in the early modern period. In the early 1600s, by widely issuing bonds and shares of stock to the general public, VOC became the world's first formally-listed public company. In other words, it was the first corporation to be listed on an official stock exchange. It was influential in the rise of corporate-led globalisation in the early modern period.

Bond (finance) instrument of indebtedness

In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. The most common types of bonds include municipal bonds and corporate bonds.

Share (finance) single unit of ownership in a corporation, mutual fund, or any other organization

In financial markets, a share is a unit used as mutual funds, limited partnerships, and real estate investment trusts. The owner of shares in the corporation/company is a shareholder of the corporation. A share is an indivisible unit of capital, expressing the ownership relationship between the company and the shareholder. The denominated value of a share is its face value, and the total of the face value of issued shares represent the capital of a company, which may not reflect the market value of those shares.

In the United States, the first IPO was the public offering of Bank of North America around 1783. [14]

Bank of North America United States bank established in 1781

The Bank of North America was a private bank first adopted on May 26, 1781, by the Confederation Congress, and opened in Philadelphia on January 7, 1782. It was based upon a plan presented by US Superintendent of Finance Robert Morris on May 17, 1781 that created the Nation's first de facto central bank. When shares in the bank were sold to the public, the Bank of North America became the country's first initial public offering. It was succeeded in its role as central bank by the First Bank of the United States in 1791.

Advantages and disadvantages

Advantages

When a company lists its securities on a public exchange, 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 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 freely in the open 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 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, through a secondary market offering. This type of offering is not dilutive since no new shares are being created.

Stock exchange organization that provides services for stock brokers and traders to trade securities

A stock exchange, securities exchange or bourse, is a facility where stock brokers and traders can buy and sell securities, such as shares of stock and bonds and other financial instruments. Stock exchanges may also provide for facilities the issue and redemption of such securities and instruments and capital events including the payment of income and dividends. Securities traded on a stock exchange include stock issued by listed companies, unit trusts, derivatives, pooled investment products and bonds. Stock exchanges often function as "continuous auction" markets with buyers and sellers consummating transactions via open outcry at a central location such as the floor of the exchange or by using an electronic trading platform.

The term fixed price is a phrase used to mean the price of a good or a service is not subject to bargaining. The term commonly indicates that an external agent, such as a merchant or the government, has set a price level, which may not be changed for individual sales. In the case of governments, this may be due to price controls.

A secondary market offering, according to the U.S. Financial Industry Regulatory Authority (FINRA), is a registered offering of a large block of a security that has been previously issued to the public. The blocks being offered may have been held by large investors or institutions, and proceeds of the sale go to those holders, not the issuing company. Also called secondary distribution.

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. This method provides capital for various corporate purposes through the issuance of equity (see stock dilution) 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:

Disadvantages

There are several disadvantages to completing an initial public offering:

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 under the Securities Act of 1933. [16] In the United Kingdom, the UK Listing Authority reviews and approves prospectuses and operates the listing regime. [17]

Advance planning

Planning is crucial to a successful IPO. One book [18] suggests the following 7 advance planning steps:

  1. develop an impressive management and professional team
  2. grow the company's business with an eye to the public marketplace
  3. obtain audited financial statements using IPO-accepted accounting principles
  4. clean up the company's act
  5. establish antitakeover defences
  6. develop good corporate governance
  7. create insider bail-out opportunities and take advantage of IPO windows.

Retention of underwriters

IPOs generally involve one or more investment banks known as "underwriters". 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" 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 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. [19] 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 main selling syndicate in its domestic market, Europe, in addition to separate syndicates or selling groups for US/Canada and for Asia. Usually, the lead underwriter in the main 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, such as the Magic Circle firms of London and the white-shoe firms of New York City.

Financial historians Richard Sylla and Robert E. Wright 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. [20] The direct public offering or DPO, as they term it, [21] 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:

Public offerings are sold to both institutional investors and retail clients of the underwriters. A licensed securities salesperson (Registered Representative in the USA 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 or overallotment option. This option is always exercised when the offering is considered a "hot" issue, by virtue of being oversubscribed.

In the USA, clients are given a preliminary prospectus, known as a red herring prospectus, 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. [22] 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, where in 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. [23]

Before legal actions initiated by New York Attorney General Eliot Spitzer, which later became known as the Global Settlement enforcement agreement, some large investment firms 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 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. [24] A typical violation addressed by the settlement was the case of CSFB and Salomon Smith Barney, which were alleged to have engaged in 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").

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, 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 IPO which helped fuel the IPO "mania" of the late 1990s internet era. Underwritten by Bear Stearns 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. [25] The process of determining an optimal price usually involves the underwriters ("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 underpricing is through the use of IPO underpricing algorithms.

Dutch auction

A Dutch auction 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. [26] [27] One version of the Dutch auction is OpenIPO, which is based on an auction system designed by Nobel Memorial Prize-winning economist William Vickrey. 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, 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 auctions 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, Ravenswood Winery, Clean Energy Fuels, and Boston Beer Company. [28] In 2004, Google used the Dutch Auction system for its Initial Public Offering. [29] 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. [30] [31] 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, 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 cited the reasons as "broader stock-market volatility and uncertainty about the global economy have made investors wary of investing in new stocks". [32] [33]

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. [34] 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. [34]

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 certificates to the clearing agent bank's custodian, or a delivery versus payment (DVP) arrangement with the selling group brokerage 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" or selling them on the first day of trading.

Largest IPOs

CompanyYear of IPOAmountInflation adjusted
The Alibaba Group 2014$25B [35] $26 billion
SoftBank Group 2018$23.5B [36] $24 billion
Agricultural Bank of China 2010$22.1B [37] $25 billion
Industrial and Commercial Bank of China 2006$21.9B [38] $27 billion
American International Assurance 2010$20.5B [39] $24 billion
Visa Inc. 2008$19.7B [40] $23 billion
General Motors 2010$18.15B [41] $21 billion
NTT DoCoMo 1998$18.05B [40] $28 billion
Enel 1999$16.59B [40] $25 billion
Facebook 2012$16.01B [42] $17 billion

The Government of Saudi Arabia is considering IPO of Saudi Aramco and selling around 5% of them. [43] The IPO has been predicted by Forbes to have a price of $100 billion. [44]

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, Shenzhen and Hong Kong) has been the leading issuer, raising $73 billion (almost double the amount of money raised on the New York Stock Exchange and NASDAQ combined) up to the end of November 2011. The Hong Kong Stock Exchange raised $30.9 billion in 2011 as the top course for the third year in a row, while New York raised $30.7 billion. [45] Indian Stock Markets are also emerging as a leading IPO market in the world. As many as 153 initial public offers hit the Indian stock market in 2017 and raised USD 11.6 billion.

See also

Related Research Articles

The primary market is the part of the capital market that deals with the issuance and sale of equity-backed securities to investors directly by the issuer. Investor buy securities that were never traded before. Primary markets create long term instruments through which corporate entities raise funds from the capital market. It is also known as the New Issue Market (NIM).

Financial market generic term for all markets in which trading takes place with capital

A financial market is a market in which people trade financial securities and derivatives such as futures and options at low transaction costs. Securities include stocks and bonds, and precious metals.

A closed-end fund (CEF) or closed-ended fund is a collective investment model based on issuing a fixed number of shares which are not redeemable from the fund. Unlike open-end funds, new shares in a closed-end fund are not created by managers to meet demand from investors. Instead, the shares can be purchased and sold only in the market, which is the original design of the mutual fund, which predates open-end mutual funds but offers the same actively-managed pooled investments.

Public company Company that offers its securities for sale to the general public

A public company, publicly traded company, publicly held company, publicly listed company, or public limited company is a corporation whose ownership is dispersed among the general public in many shares of stock which are freely traded on a stock exchange or in over the counter markets. In some jurisdictions, public companies over a certain size must be listed on an exchange. A public company can be listed or unlisted.

Gross spread refers to the fees that underwriters receive for arranging and underwriting an offering of debt or equity securities. The gross spread for an initial public offering (IPO) can be higher than 10% while the gross spread on a debt offering can be as low as 0.05%.

Formally known as an "over-allotment option," a greenshoe is the term commonly used to describe a special arrangement in a share offering, for example an initial public offering (IPO), which enables the investment bank representing the underwriters to support the share price after the offering without putting their own capital at risk. The option is codified as a provision in the underwriting agreement between the leading underwriter - the lead manager - and the issuer or vendor.

Rights issue

A rights issue or rights offer is a dividend of subscription rights to buy additional securities in a company made to the company's existing security holders. When the rights are for equity securities, such as shares, in a public company, it is a non-dilutive pro rata way to raise capital. Rights issues are typically sold via a prospectus or prospectus supplement. With the issued rights, existing security-holders have the privilege to buy a specified number of new securities from the issuer at a specified price within a subscription period. In a public company, a rights issue is a form of public offering.

A reverse takeover or reverse merger takeover 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. The transaction typically requires reorganization of capitalization of the acquiring company. Sometimes, conversely, the private company is bought by the public listed company through an asset swap and share issue.

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. Most frequently associated with an initial public offering (IPO), this document, like the previously submitted Form S-1 registration statement, must be filed with the Securities and Exchange Commission (SEC).

A follow-on offering is an issuance of stock subsequent to the company's initial public offering. A follow-on offering can be either of two types : dilutive and non-dilutive. A secondary offering is an offering of securities by a shareholder of the company. A follow on offering is preceded by release of prospectus similar to IPO: a Follow-on Public Offer (FPO).

A Direct Public Offering (DPO) is a method by which a business can offer an investment opportunity directly to the public.

Book building is a systematic process of generating, capturing, and recording investor demand for shares during an initial public offering (IPO), or other securities during their issuance process, in order to support efficient price discovery. Usually, the issuer appoints a major investment bank to act as a major securities underwriter or bookrunner.

A French auction is a multiple-price auction used for pricing initial public offerings.

IPO underpricing is the increase in stock value from the initial offering price to the first-day closing price. Many believe that underpriced IPOs leave money on the table for corporations, but some believe that underpricing is inevitable. Investors state that underpricing signals high interest to the market which increases the demand. On the other hand, overpriced stocks will drop long-term as the price stabilizes so underpricing may keep the issuers safe from investor litigation.

The social networking company Facebook held its initial public offering (IPO) on Friday, May 18, 2012. The IPO was the biggest in technology and one of the biggest in Internet history, with a peak market capitalization of over $104 billion.

Following is a glossary of stock market terms.

References

  1. Note: the price the company receives from the institutional investors is the IPO price
  2. Funnell, Warwick; Robertson, Jeffrey: Accounting by the First Public Company: The Pursuit of Supremacy. (Routledge, 2013, ISBN   0415716179)
  3. Petram, Lodewijk: The World's First Stock Exchange: How the Amsterdam Market for Dutch East India Company Shares Became a Modern Securities Market, 1602–1700. Translated from the Dutch by Lynne Richards. (Columbia University Press, 2014, 304pp)
  4. Brooks, John: The Fluctuation: The Little Crash in '62, in Business Adventures: Twelve Classic Tales from the World of Wall Street. (New York: Weybright & Talley, 1968)
  5. Neal, Larry (2005). “Venture Shares of the Dutch East India Company,” in Origins of Value, in The Origins of Value: The Financial Innovations that Created Modern Capital Markets, Goetzmann & Rouwenhorst (eds.), Oxford University Press, 2005, pp. 165–175
  6. Shiller, Robert (2011). Economics 252, Financial Markets: Lecture 4 – Portfolio Diversification and Supporting Financial Institutions (Open Yale Courses). [Transcript]
  7. Macaulay, Catherine R. (2015). “Capitalism's renaissance? The potential of repositioning the financial 'meta-economy'”. (Futures, Volume 68, April 2015, p. 5–18)
  8. Funnell, Warwick; Robertson, Jeffrey (2013)
  9. Kaiser, Kevin; Young, S. David (2013): The Blue Line Imperative: What Managing for Value Really Means. (Jossey-Bass, 2013, ISBN   978-1118510889), p. 26. As Kevin Kaiser & David Young (2013) explained, "There are other claimants to the title of first public company, including a twelfth-century water mill in France and a thirteenth-century company intended to control the English wool trade, Staple of London. Its shares, however, and the manner in which those shares were traded, did not truly allow public ownership by anyone who happened to be able to afford a share. The arrival of VOC shares was therefore momentous, because as Fernand Braudel pointed out, it opened up the ownership of companies and the ideas they generated, beyond the ranks of the aristocracy and the very rich, so that everyone could finally participate in the speculative freedom of transactions."
  10. "Books & Reading: Chapter One" . Retrieved 27 November 2016.
  11. Goetzmann, William N.; Rouwenhorst, K. Geert (2005). The Origins of Value: The Financial Innovations that Created Modern Capital Markets. (Oxford University Press, ISBN   978-0195175714))
  12. Goetzmann, William N.; Rouwenhorst, K. Geert (2008). The History of Financial Innovation, in Carbon Finance, Environmental Market Solutions to Climate Change. (Yale School of Forestry and Environmental Studies, chapter 1, pp. 18–43). As Goetzmann & Rouwenhorst (2008) noted, "The 17th and 18th centuries in the Netherlands were a remarkable time for finance. Many of the financial products or instruments that we see today emerged during a relatively short period. In particular, merchants and bankers developed what we would today call securitization. Mutual funds and various other forms of structured finance that still exist today emerged in the 17th and 18th centuries in Holland."
  13. Stringham, Edward Peter: Private Governance: Creating Order in Economic and Social Life. (Oxford University Press, 2015, ISBN   9780199365166), p.42
  14. "Exhibits — America's First IPO — Museum of American Finance". Moaf.org. Retrieved 12 July 2012.
  15. Rose Selden, Shannon; Goodman, Mark. "The Shift in Litigation Risks When U.S. Companies Go Public". Transaction Advisors. ISSN   2329-9134.
  16. "The Laws That Govern the Securities Industry". Securities and Exchange Commission. Retrieved 12 December 2014.
  17. "UK Listing Authority" . Retrieved 12 December 2014.
  18. Lipman, International and U.S. IPO Planning, ISBN   978-0-470-39087-0
  19. Series 79 Investment Banking Representative Qualification Examination, Study Manual, 41st Edition. Securities Trading Corporation. 2010.
  20. Robert E. Wright, "Reforming the U.S. IPO Market: Lessons from History and Theory", Accounting, Business, and Financial History (November 2002), 419–437.
  21. Robert E. Wright and Richard Sylla, "Corporate Governance and Stockholder/Stakeholder Activism in the United States, 1790–1860: New Data and Perspectives". In Jonathan Koppell (ed.), Origins of Shareholder Advocacy (New York: Palgrave McMillan, 2011), 231–51.
  22. "Registration Statement on Form S-1". www.sec.gov. Retrieved 2017-12-10.
  23. "The Main Players In An Initial Public Offering". 26 February 2012. Retrieved 22 July 2014.
  24. "Ten of Nation's Top Investment Firms Settle Enforcement Actions Involving Conflict of Interest". 28 April 2003. Retrieved 23 July 2014.
  25. Gould, Michael. "How Non-GAAP Measures Can Impact Your IPO". Transaction Advisors. ISSN   2329-9134.
  26. Demos, Telis. (21 June 2012) What Is a Dutch Auction? – Deal Journal – WSJ. Blogs.wsj.com. Retrieved on 2012-10-16.
  27. Hasen, Richard L. (12 October 2012) What Is a Dutch Auction IPO? – Slate Magazine. Slate.com. Retrieved on 2012-10-16.
  28. Sommer, Jeff (18 February 2012). "An I.P.O. Process That Is Customer-Friendly". The New York Times.
  29. "Journal of Business & Technology Law - Academic Journals - University of Maryland Francis King Carey School of Law" (PDF). Retrieved 27 November 2016.
  30. Hensel, Nayantara. (4 November 2005) Are Dutch Auctions Right for Your IPO? – HBS Working Knowledge. Hbswk.hbs.edu. Retrieved on 2012-10-16.
  31. http://law.bepress.com/cgi/viewcontent.cgi?article=3706&context=expresso
  32. WhiteGlove seeks to raise $32.5 million in 'Dutch auction' IPO. www.statesman.com. Retrieved on 16 October 2012.
  33. Cowan, Lynn. (21 September 2011) WhiteGlove Health Shelves IPO Indefinitely – WSJ.com. Online.wsj.com. Retrieved on 2012-10-16.
  34. 1 2 http://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-15-30.pdf
  35. "Alibaba IPO Biggest in History as Bankers Exercise 'Green Shoe' Option". The New York Times. 18 September 2013.
  36. "Softbank Corp IPO Second Biggest in History". Fortune.com. 11 December 2018.
  37. "Agricultural Bank of China Sets IPO Record as Size Raised to $22.1 Billion". Bloomberg. 15 August 2010.
  38. "ICBC completed its record $21.9 billion IPO in October 2006". Bloomberg. 28 July 2010.
  39. "AIA's IPO Boosted to $20.5 Billion With Overallotment". Bloomberg. 29 October 2010.
  40. 1 2 3 Grocer, Stephen (17 November 2010). "How GM's IPO Stacks Up Against the Biggest IPOs on Record". Wall Street Journal .
  41. "GM Says Total Offering Size $23.1 Billion Including Overallotment Options", Bloomberg, 26 November 2010
  42. Rusli, Evelyn M.; Eavis, Peter (17 May 2012), "Facebook Raises $16 Billion in I.P.O.", The New York Times
  43. "Saudi Arabia is considering an IPO of Aramco, probably the world's most valuable company". The Economist. 7 January 2016. Retrieved 23 May 2016.
  44. Wald, Ellen R. "The World's Biggest IPO Is Coming: What You Should Know About Aramco". Forbes.
  45. "China eclipses US as top IPO venue". 28 December 2011.

Further reading