Really, who’s kidding who?
These offerings aren’t public, not in any sense of the word.
Just another example of the underwriters padding the pockets of their wealthy or politically connected friends.
Aren’t they shooting themselves in the foot? Wouldn’t they make more commissions selling to millions of investors, big and small, rather than just selling to thousands of wealthy clients - especially ones who aren’t even citizens of this country?
It makes me sick.
I agree with you. I have been saying the same thing for many years. It is an open scam that a small group of people get shares that turn a fast profit on the opening day the great majority of the time. I don’t understand why they even need the initial set of investors. You could have dutch auction style bidding that replaces the current system. This would set the value more accurately and sometimes give more money directly to the company itself as long as it has real value.
I think what makes an IPO public is that the shares trade in the public markets thereafter, not whether any random member of the general public can buy the shares at the strike price.
It’s called an initial public offering because that’s when shares are made available to the public (via the public stock exchanges) for the first time.
You’re right that you can certainly sell your shares directly to the public without underwriting, if you want. But that’s hard. You now have to execute a large publicity campaign to convince millions of people to buy your new public shares on the first day. It’s also much harder to gauge how much your shares can sell for if you have to rely on guessing what the public at large will do instead of a few investment banks that you can negotiate with.
(You would also need to work out a deal with a broker to actually sell your shares on the market in the first place. I’m not sure precisely how that would work.)
So, since the earliest days of stock trading, new companies have come to investment banks to ask them to invest in their IPOs. The investment banks asked “what’s in it for us?” And so the company agrees to go public at somewhat of a discount, so the investment banks can make a quick buck on the secondary market.
This system is not required, and banks nor the stock markets enforce it. But it has become the de facto standard because there doesn’t seem to be a better way to do it. It can certainly be abused. It’s absurd when a buzz stock IPOs for $30 a share and a bunch of chumps on the secondary market hype it up to $200 over the next month for no reason. But that’s why God invented short selling.
I’m no expert, but isn’t there some regulation that the IPO be open only to “qualified” investors, and not just any riff-raff. I imagine it’s supposedly a way to contain any irrational exuberance that only (shyeah right!) we proles are so prone to.
There have been many IPOs that have declined on the first day of trading (see Zynga). So it’s definitely NOT a risk-free way to make a quick buck that goes to just those that are connected.
No. Exactly the opposite. Companies that don’t want to take on the burden and scrutiny of being publicly traded are restricted to private placements where they can sell shares only to accredited investors as defined by the SEC. If you want to sell to anyone you go public.
And as we can see, getting in early was of little to no benefit in today’s FB IPO.
Several clients in my office made $5 a share at 11:30. Several others (who weren’t in on the IPO) were able to buy in at a hair north of $38 less than an hour later.
Wow, NASDAQ messed that up BIG time! My office is still not sure if we were filled on the opening print or not. What a mess…
Could you clarify this, please? Sounds interesting…
NASDAQ’s trade matching system malfunctioned leading up to the IPO, their website crashed, yet they still opened the stock for trading. People attempting to trade the stock weren’t given information as to whether or not their trades had gone through until hours after the fact.
They are in the literal sense of the word where the stock is offered to the public for the first time.
What you are referring to are people who are given the opportunity to buy into a stock before it’s IPO.
That’s actually kind of racist (or jingoist…whatever).
And no. They are not “shooting themselves in the foot”. That’s what underwriters do. The company issuing the IPO has a bunch of shares. The investment bank gives them cash and takes the shares. The bank now assumes all the risk of selling those shares. Which means if they can’t sell them, they don’t make money on the transaction.