What does ipo mean in stock market

Initial public offering IPO or stock market launch is a type of public offering in which shares of a company usually are sold to institutional investors [1] that in turn, sell to the general public, on a securities exchange , for the first time.

Through this process, a privately held company transforms into a public company. Initial public offerings are mostly used by companies to raise the expansion of capital, possibly to monetize the investments of early private investors, and to become publicly traded enterprises.

A company selling shares is never required to repay the capital to its public investors. After the IPO, when shares trade freely in the open market, money passes between public investors. Although IPO offers many advantages, there are also significant disadvantages, chief among these are the costs associated with the process and the requirement to disclose certain information that could prove helpful to competitors.

The IPO process is colloquially known as going public. 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. In terms of size and public participation, the two most notable examples of this method is the Google IPO [2] and Snapchat's parent company Snap Inc.

What Is an IPO: Definition, Pros, Cons, Process

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 parties.

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. Publicanis lost favor with the fall of the Republic and the rise of the Empire. In the early modern period, the Dutch were financial innovators who helped lay the foundations of modern financial system.

What Does an IPO Mean in Business? | qyzofolawory.web.fc2.com

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: As Edward Stringham notes, "companies with transferable shares date back to classical Rome, but these were usually not enduring endeavors and no considerable secondary market existed Neal, , p.

In the United States, the first IPO was the public offering of Bank of North America around When a company lists its securities on a public exchange , the money paid by the investing public for then 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 offering 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. 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 trade 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. 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. The launch by eDreams Europe's largest independent online travel agency illustrates some of the risks involved in an IPO.

Independent Board Member James Hare James Otis Hare II oversaw the company's public launch on 4 April That stock price had fallen to 1. James Otis Hare for the exercise of his mandate as director of the Company until his resignation as of 25 March, In June , CEO Dana Dunne introduced a new strategy focusing on mobile, revenue diversification and customer experience improvements, which led to a strong turnaround in business performance.

Dunne's new strategy caused that stock price to rise above 3 euros by January But it had been a tough lesson for the company, and a warning of the dangers inherent in any IPO. 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 Planning is crucial to a successful IPO. One book [21] suggests the following 7 advance planning steps:.

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.

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. 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 most early U. 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 s.

The DPO eliminated the agency problem associated with offerings intermediated by investment banks. There has recently been a movement based on crowd funding to revive the popularity of Direct Public Offerings. The sale allocation and pricing of shares in an IPO may take several forms. 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.

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. 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 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.

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. 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 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. One potential method for determining underpricing is through the use of IPO underpricing algorithms. 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. 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 s. 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. 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. In determining the success or failure of a Dutch Auction, one must consider competing objectives. 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. A Dutch Auction IPO by WhiteGlove Health, Inc.

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". 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. Securities and Exchange Commission, The other "quiet period" refers to a period of 10 calendar days following an IPO's first day of public trading. 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.

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.

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. Prior to , the United States was the leading issuer of IPOs in terms of total value. From Wikipedia, the free encyclopedia.

For other uses, see IPO disambiguation. Retrieved 14 March Retrieved 21 April Retrieved 27 November The Origins of Value: The Financial Innovations that Created Modern Capital Markets.

The History of Financial Innovation , in Carbon Finance, Environmental Market Solutions to Climate Change. Yale School of Forestry and Environmental Studies, chapter 1, pp. 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.

Creating Order in Economic and Social Life. Oxford University Press, , ISBN , p. Retrieved 12 July Retrieved 16 September Retrieved 7 September Retrieved 16 June Securities and Exchange Commission. Retrieved 12 December Wright, "Reforming the U. Lessons from History and Theory", Accounting, Business, and Financial History November , — New Data and Perspectives". In Jonathan Koppell ed. Palgrave McMillan, , — Retrieved 18 December Retrieved 22 July Retrieved 23 July Process That Is Customer-Friendly".

The New York Times. Retrieved on 16 October Initial Public Offerings IPOs. Butterworth-Heineman, an imprint of Elsevier. Can it be Predicted? Review of Financial Studies. How UK Firms Choose Their Listing Contracts". Journal of Business Finance and Accounting. Journal of Business Venturing. Drucker, Steven; Puri, M.

Handbook of Corporate Finance. IPO Initial Public Offerings. Retrieved 14 September Mondo Visione web site: Accessed 21 September Friesen, Geoffrey C. Anderlini, Jamil 13 August Retrieved 13 August Hu, Bei and Vannucci, Cecile. Retrieved "Pricing the 'biggest IPO in history ' ". Accessed "Quiet Period". Retrieved 4 March The federal securities laws do not define the term "quiet period", which is also referred to as the "waiting period".

However, historically, a quiet period extended from the time a company files a registration statement with the SEC until SEC staff declared the registration statement "effective". During that period, the federal securities laws limited what information a company and related parties can release to the public. Corporate finance and investment banking.

Convertible debt Exchangeable debt Mezzanine debt Pari passu Preferred equity Second lien debt Senior debt Senior secured debt Shareholder loan Stock Subordinated debt Warrant.

At-the-market offering Book building Bookrunner Corporate spin-off Equity carve-out Follow-on offering Greenshoe Reverse Initial public offering Private placement Public offering Rights issue Seasoned equity offering Secondary market offering Underwriting.

Buy side Control premium Demerger Divestment Drag-along right Management due diligence Managerial entrenchment Minority discount Pitch book Pre-emption right Proxy fight Post-merger integration Sell side Shareholder rights plan Special situation Squeeze out Staggered board of directors Stock swap Super-majority amendment Tag-along right Takeover Reverse Tender offer.

Debt restructuring Debtor-in-possession financing Financial sponsor Leveraged buyout Leveraged recapitalization High-yield debt Private equity Project finance.

List of investment banks Outline of finance. Primary market Secondary market Third market Fourth market. Common stock Golden share Preferred stock Restricted stock Tracking stock. Authorised capital Issued shares Shares outstanding Treasury stock. Broker-dealer Day trader Floor broker Floor trader Investor Market maker Proprietary trader Quantitative analyst Regulator Stock trader. Electronic communication network List of stock exchanges Opening times Multilateral trading facility Over-the-counter.

Alpha Arbitrage pricing theory Beta Bid—ask spread Book value Capital asset pricing model Capital market line Dividend discount model Dividend yield Earnings per share Earnings yield Net asset value Security characteristic line Security market line T-model. Algorithmic trading Buy and hold Concentrated stock Contrarian investing Day trading Dollar cost averaging Efficient-market hypothesis Fundamental analysis Growth stock Market timing Modern portfolio theory Momentum investing Mosaic theory Pairs trade Post-modern portfolio theory Random walk hypothesis Sector rotation Style investing Swing trading Technical analysis Trend following Value investing.

Block trade Cross listing Dark liquidity Dividend Dual-listed company DuPont analysis Efficient frontier Flight-to-quality Haircut Initial public offering Margin Market anomaly Market capitalization Market depth Market manipulation Market trend Mean reversion Momentum Open outcry Public float Public offering Rally Returns-based style analysis Reverse stock split Share repurchase Short selling Slippage Speculation Stock dilution Stock market index Stock split Trade Uptick rule Volatility Voting interest Yield.

Economic history of the Netherlands.

Amsterdam Stock Exchange Bank of Amsterdam Amsterdamsche Wisselbank Brabantsche Compagnie Compagnie van Verre Dutch East India Company Dutch West India Company New Netherland Company Noordsche Compagnie. De Nederlandsche Bank Stichting Max Havelaar. Pieter de la Court Joseph de la Vega Louis De Geer Gerard Adriaan Heineken Isaac Le Maire Johan Palmstruch Anton Philips Gerard Philips Nico Roozen Coenraad Johannes van Houten Frans van der Hoff A. Bear raid Central banking Collective investment schemes Common stock Corporate bond Corporate finance Corporate governance Corporate social responsibility Dividend dividend policy Dutch auction Fairtrade certification fairtrade labelling , fair trade labelling initiative , fair trade certification initiative Formal capital markets Futures contract formal futures markets Government debt public debt , national debt Initial public offering IPO Investment banking Listed company Mutual fund Open art market Outward foreign direct investment FDI Public company publicly traded company Secondary markets Securities markets Securitization Share finance Shareholder activism activist shareholder Shareholder advocacy Shareholder revolt shareholder rebellion Stock certificate Short selling naked short selling Stock exchange Stock market equity market Stockbroker Stock trader Stock trading Technical analysis Tontine Transnational corporation.

Financial markets Financial capitalism Financial revolution International financial centres global financial centres Economic growth Economic boom Economic miracle Economic bubble financial bubble , speculative bubble Stock market crash Deindustrialization. Violet Barbour Fernand Braudel Reuven Brenner Jan de Vries William N. Goetzmann Jonathan Israel Deirdre McCloskey K.

Geert Rouwenhorst Jacob Soll Edward Stringham Richard Sylla Peter J. Hollander beater ; Wind-powered sawmill. Financial history of the United Kingdom ; History of the British national debt ; History of British financial markets ; Bank of England ; Cornelius Vermuyden ; Bernard Mandeville. Early industrialization in Sweden ; History of European banknotes ; Bank of Sweden ; Johan Palmstruch ; Louis De Geer.

Retrieved from " https: Initial public offering Stock market terminology Economic history of the Netherlands. Use dmy dates from May Navigation menu Personal tools Not logged in Talk Contributions Create account Log in.

IPO Definition | What Does Initial Public Offering Mean | IG UK

Views Read Edit View history. Navigation Main page Contents Featured content Current events Random article Donate to Wikipedia Wikipedia store. Interaction Help About Wikipedia Community portal Recent changes Contact page. Tools What links here Related changes Upload file Special pages Permanent link Page information Wikidata item Cite this page. This page was last edited on 16 June , at Text is available under the Creative Commons Attribution-ShareAlike License ; additional terms may apply.

By using this site, you agree to the Terms of Use and Privacy Policy. Privacy policy About Wikipedia Disclaimers Contact Wikipedia Developers Cookie statement Mobile view.

Agricultural Bank of China. Industrial and Commercial Bank of China. Equity offerings At-the-market offering Book building Bookrunner Corporate spin-off Equity carve-out Follow-on offering Greenshoe Reverse Initial public offering Private placement Public offering Rights issue Seasoned equity offering Secondary market offering Underwriting. Pre Amsterdam Stock Exchange Bank of Amsterdam Amsterdamsche Wisselbank Brabantsche Compagnie Compagnie van Verre Dutch East India Company Dutch West India Company New Netherland Company Noordsche Compagnie.