Hi,
Can someone please tell me when exactly is an IPO sold and to whom? Does IPO mean that it is first sold on the primary exchange on which it is listed? Or, is the IPO exclusively sold to institutional or private investors before the issue is listed on the exchange? In other words, if a security is listed and sold on an exchange, even on its first day, does that mean that that security is already in the secondary market?
Thanks.
An IPO is the first time a private, or closely held, company will issue shares on a public exchange. An investment bank will underwrite the securities for the company and "pre-sell" shares to institutional investors in the primary market who then sell shares to the public on the IPO date. At this point, individual investors can buy and sell shares amongst themselves in the secondary market.
Before a company's first day of trading their shares are not available in the secondary markets.
Hope this helps.
Can you explain why Investment Banks "pre-sell" shares of companies about to IPO to institutional investors? Why cant they just "pre-sell" it to the public?
Thanks. I guess what I was getting at was that is the "pre-sale" considered an IPO, or is that a private placement, or is some other term used for this kind of sale?
Does "IPO" exclusively refer to the very first day that the security trades on its listing exchange and is therefore available for purchase by John Q. Public?
I thought IPO was not available for just anyone. However, if IPO does in fact mean that the security is traded on an exchange, how can it not be available to anyone?
Thank you.
What are you still missing? The shares are allocated to institutional investors beforehand who then in turn trade the shares on the exchanges. The ipo price is what these shares are sold to the institutional buyers for. At opening bell, the price is set via the bid-ask spread. At this time shares are opened to non-accredited investors have access.
Think about the logic of a bank trying to distribute extremely small amounts of shares to every individual who wanted in? Besides, in general, you should be represented by institutional investors in one way or another through pension/retirement/mutual funds. Hope that clarifies.
Two points to note: 1) once a security (or anything, really) has changed hands and is no longer being sold by its initial owner in that market, it is considered on the secondary market. 2) the issue gets shopped to the bank’s clients because they have existing relationships with folks who might be interested in the offering. Pretend you’re a wine importer with a big shipment coming in: you’ll try to get the wine shops to sign up to buy some of that wine before the shipment even arrives so you aren’t sitting on a bunch of unsold wine. It’s a similar situation.
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