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Initial public offering IPO or stock market launch is a type of public offering in which shares of a company newly listed companies in indian stock market sold to institutional investors  and usually also retail individual investors; an IPO is underwritten by one or more investment bankswho also arrange for the shares to be listed on one or more stock exchange.
Through this process, colloquially known as floatingor going publica privately held company is transformed into a public company. Initial public offerings can be used: After the IPO, those shares which trade 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 share sold to the public and as a proportion of the total share capital i. 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. 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 Forumnear the Temple of Castor and Pollux.
The shares fluctuated in value, encouraging the activity of speculators, or quaestors. Newly listed companies in indian stock market 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. In the early modern period, the Dutch were financial innovators who helped lay the foundations of modern financial system.
In other words, the VOC was officially the first publicly traded companybecause 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.
When a company lists its securities on a public exchangethe 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 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 trade 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 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. IPO procedures are governed by different laws in different countries.
Planning is crucial to a successful IPO. One book  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 newly listed companies in indian stock market 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 newly listed companies in indian stock market fee.
This fee is called an underwriting spread. The newly listed companies in indian stock market 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 newly listed companies in indian stock market 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 lawsuch 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 newly listed companies in indian stock market 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. 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 undersubscribedand 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 prospectusduring 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 newly listed companies in indian stock market changed. The actual wording can vary, although most roughly follow the format exhibited on the Facebook Newly listed companies in indian stock market red herring. Brokers can, newly listed companies in indian stock market, 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 Spitzerwhich 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. 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.
Flippingor quickly selling shares for a profitcan 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. Newly listed companies in indian stock market the best known example of this is the Facebook IPO in Underwriters, therefore, take many newly listed companies in indian stock market 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.
The process of determining an optimal price usually involves the underwriters "syndicate" arranging share purchase commitments from leading institutional investors. 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 billsnotes, 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. 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 newly listed companies in indian stock market 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 discoveryalthough 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.