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This is the amount of stock in an initial public offering (IPO) granted by the underwriter to an investor. For most IPOs, the allocation is significantly less than the indication of interest. The allocations are meted out based on commission volume, trading history and type of investor.

Trading in the IPO subsequent to its offering is called the aftermarket. Trading volume in IPOs is extremely high on the first day due to flipping and aftermarket purchases. Trading volume can decline precipitously in the following days.

Aftermarket Orders
Underwriters look favorably on investors who buy IPOs in the days after the IPO first goes public. While underwriters cannot solicit aftermarket orders, some expect investors to purchase two or three times their IPO allocation in the aftermarket.

Aftermarket Performance
The price appreciation (or depreciation) in IPOs is measured from the offering price going forward. However, to obtain a better benchmark of IPO aftermarket performance, some investors track performance from the first day close.

American Depository Receipts (ADRs)/American Depository Shares (ADSs)
Non-U.S. companies that wish to list on a U.S. exchange must abide by the regulatory and reporting standards of the Securities and Exchange Commission (SEC). These securities are called receipts because they represent a certain amount of the company"s actual shares. Examples of ADRs are France Telecom, British Sky Broadcasting and Equant.


Beauty Contest
When a company is considering doing an IPO, the company"s executives typically interview a number of investment banks to determine which ones would do the best job of managing the offering and provide ongoing research reports once the company is public. The parade of investment bankers through a company"s offices is known as the beauty contest. (来源:www.EnglishCN.com)

When an investor places an indication of interest for shares in an IPO and receives no shares.

Blue Sky
These are state securities laws designed to protect individual investors. The phrase purportedly originated from a state judge who said that the securities of a particular company had all the value of a patch of blue sky. Both companies and mutual funds are affected by state blue sky laws. However, the SEC and Congress are in the process of superseding these rules, because the rules in some states are obsolete, arbitrary and poorly enforced.

Board of Directors
The composition of the Board of Directors is particularly critical for an IPO. Typically, a board is composed of inside and outside directors. Inside directors could be management, significant shareholders, venture capitalists, vendors and relatives. Outside directors have no underlying financial or personal relationship with the company that could create a conflict of interest and are on the board for their experience, business judgment and contacts. Outside directors may own stock, but are not large shareholders. Investors should look for a board that has at least two outside directors. Typically, IPOs add their first outside directors at or immediately after the offering.

Book Running Manager
The book running manger is the underwriter controlling the offering. This underwriter"s name almost always appears on the top left at the bottom of the cover page of the prospectus. In some cases, however, the underwriter whose name appears in this position does not control the order book listing of buy orders from prospective investors. That role is taken by one of the other underwriters listed on the cover page. That is why investors ask, "Who is the book running manger?"

Broken IPOs
If an IPO trades under its IPO price in the aftermarket, it is said to be a broken IPO. This is not a good thing. Regardless of fundamentals, investors regard breaking issue price as a bad omen. In the old days of Wall Street, syndicates of underwriters would prop up the IPO price with a stabilizing bid, often for days. Due to profit considerations, the lead manager may disband the syndicate even if the IPO is cratering.

Bucket Shop
These are brokerage firms with dubious reputations. Many of these are fly-by-night operations, consisting of many brokers making cold calls to investors. These shops specialize in low priced "penny stocks", which they sell to one fool and then to a greater fool. The brokers may hop from shop to shop, just ahead of federal regulators.


This refers to upcoming IPOs and secondary offerings. Brokerage houses have equity calendars, bond calendars and municipal calendars.

A specific type of spin-off in which the corporate parent consolidates a particular line of business (e.g. Cantor Fitzgerald"s combination of its electronic bond trading units into one subsidiary) and then sells that newly created subsidiary to investors. In essence, the company is "carving out" a piece of its business with a specific business focus and selling it to the public to highlight the value of niche business operations within the larger company. Usually done in the form of a true spin-off with an independent board and separate financial statements, but heavy cross ownership by parent. Sometimes done in the form of a tracking stock structure (e.g. AT&T Wireless).

Class Action Suit
Litigation undertaken on behalf of shareholders against companies whose shares have declined in price, alleging misstatements or omissions in the prospectus or other material communicated to the public is called a class action. These lawsuits, now harder to mount due to Federal legislation, are spearheaded by a handful of law firms specializing in this area and are focused on recent IPOs and technology companies.

Clearing Price
The price at which all shares of an IPO can be sold to investors in a Dutch Auction. Sometimes referred to as the 搈arket clearing price?

Most initial public offerings and secondary offerings have more than one underwriter. The manager controlling the offering is called the lead manager. Other underwriters are co-managers. The names of these underwriters appear on the bottom of the front page of the prospectus, with the most important manager appearing on the top left, and the co-managers arrayed from left to right in order of importance.

The commissions paid to brokers for buying or selling stock range from 3 to 5 cents a share for institutions to 15 cents a share for discount brokers. But when you purchase an IPO at the offer price, you pay no commission. Instead, the underwriter charges the issuing company a gross spread, which is the difference between the public offering price and what the issuing company received. Typically, this spread is 7% to 8% of the IPO"s offering price. The profitability of doing IPOs is one important reason why investment banks focus on developing this business.

When investment bankers decide how to price an IPO, they study the valuations of similar, already public companies. These are called comparables. The pricing range indicated in the registration statement or in the prospectus reflects the proposed valuation of the IPO relative to the comparables. It is critical to select good comparables. Bankers sometimes lean toward comparables with high valuations, but knowledgeable investors do their own homework. Sometimes, an IPO may be the first company in its industry to go public. Then, there are no comparables. In those cases, investors look to analogous companies on which to base a valuation. Companies that had no direct comparables at the time they went public include Yahoo!, Amazon.com, and MFS (now MCI Worldcom).


Day To Day (DTD)
When an IPO is listed as day-to-day on the offering calendar, it means that the lead underwriter does not have sufficient orders in the book. IPOs listed as DTD are likely to be postponed.

Day Trader
Once a term used to describe professional investors who aggressively trade stocks, bonds and other financial instruments to capture short-term swings in prices, it is now applied to individuals who frequent small brokerage firms that offer terminals and quote streams. These individuals use their own capital - sometimes borrowed - to establish an account and then trade on a short-term basis. The term is also applied to individual investors who trade online for short-term gains. Regulators such as the SEC are currently examining the operations of day-trading brokerage firms, who may be reaping huge profits in the form of commissions at the expense of their high-volume customers.

Dead Cat Bounce
This is the short rebound a stock makes after is has dropped significantly in price. It is likely caused by short sellers closing out positions rather than real buying.

Depositary Trust Company (DTC)
The DTC is essentially a clearinghouse between institutional buyers and sellers of securities and brokers. It allows institutional investors to seamlessly buy and sell stock using multiple brokers.

Direct Public Offering (DPO)
To avoid the expense of high-priced lawyers and investment bankers, some companies try to go it alone by selling their shares directly to the public. This has been used by small consumer products companies with loyal customers. These offerings are usually extremely small and highly illiquid.

Due Diligence
As part of the process of taking a company public, the investment bankers and lawyers for the underwriters conduct an in-depth examination of the proposed IPO. They speak with management about the company"s prospects, strategy, competitors and financial statements. Information that is material to the company"s prospects must be disclosed in the prospectus.
Dutch Auction
An alternative to the traditional negotiated pricing process used by underwriters to set IPO prices. This method requires the underwriter to solicit bids from potential investors. Investors indicate the number of shares that they want and the price that they are willing to pay per share. Shares are then priced at the lowest clearing price. Allocations are made with priority given to the highest bidders, first with regard to bid price and then according to bidded share size. Because the only considerations taken into consideration for allocating shares is the bid price and shares, this pricing method does not discriminate between institutions and individuals with regard to allocations. W.R. Hambrecht is the only investment bank to employ this method and does so only through the use of an online bidding platform.


Brokerage firms that both specialize in offering online trading capabilities and participate in IPO underwritings are called e-managers. They have arrangements with the lead managers to allocate a certain amount of the offering to their customers, predominately individual investors. Many e-managers allocate the shares on a first-come, first-served basis.

Established by the SEC, this is the system used by companies and mutual funds to file documents electronically. It is significant to individual investors, because you can directly access the EDGAR filing room on the Internet and retrieve IPO prospectuses, annual reports and quarterly filings for free.

Fallen Angel
These are high quality companies which drop below their issues prices due to market conditions or lack of research coverage. Knowledgeable investors often do screens of IPOs that have performed poorly to identify the gems among the pieces of coal.

Fast Track
It usually takes eight weeks for an IPO to complete the offering process, which begins with the filing of the registration statement with the SEC and ends with the pricing of the IPO. However, some companies are so confident that their registration statements will pass SEC review with no changes that they speed up the process by printing the preliminary prospectus immediately and beginning the road show process. These IPOs are on a fast track.

Final Prospectus
After the IPO has been priced, the company prints a final updated prospectus and distributes it to buyers of its IPO. The final prospectus contains the information presented to the public in the preliminary prospectus, printed before the offering.

First Day Close
The closing price at the end of the first day of trading reflects not only how well the lead manager priced and placed the deal, but what the near-term trading is likely to be. For example, IPOs that shoot up 100% or 200% on their first day of trading are likely to fall back in price on subsequent days due to profit taking. Conversely, IPOs that break offer price immediately are likely to drop further as institutions bail out. Breaking IPO price right out of the box is a poor reflection on the lead manager"s pricing and placement.

These are market participants who try to get shares of stock at the IPO price and immediately sell the shares in the aftermarket. While many flippers are small players looking for a point or two of quick profit, large, well-known mutual funds also practice flipping. It is a controversial practice because the underwriters want to control the trading in the IPO immediately after it goes public and the company wants their shares placed with long-term investors. However, flipping also provides liquidity for additional purchases of stock. The underwriters try to discourage flipping by placing stock in the hands of long term investors, particularly ones that have promised aftermarket orders. Nevertheless, flippers who are identified by underwriters move on to flip again by setting up new firms. Brokerage firms try to curb flipping by individual investors by imposing waiting periods and fees on sellers and a penalty bid on the individual"s broker. To the underwriters dismay, however, the largest institution investors and mutual funds continue to flip with impunity because of their great size and influence.

When a company is publicly traded, a distinction is made between the total number of shares outstanding and the number of shares in circulation, referred to as the float. The float consists of the company"s shares held by the general public. For example, if a company offers 2 million shares to the public in an IPO and has 20 million shares outstanding, its float is 2 million shares.
Friends and Family
IPO shares set aside by underwriters to be allocated, at the behest of the issuer, to individuals and entities which have a close working or familial relationship with the issuer. These shares are sold at the IPO price. Examples include: suppliers, top customers, consultants, employee relatives, etc.


Green Shoe
A typical underwriting agreement allows the underwriters to buy up to an additional 15% of shares at the offering price for a period of several weeks after the offering. This option is also called the overallotment and is exercised when the IPO is oversubscribed and trading above its offer price. The ability to buy additional shares also allows the underwriter to manage the aftermarket trading. The term comes from the Green Shoe Company, which was the first to have this option.

Gross Spread
When you purchase an IPO at the offer price, you pay no commission. Instead, the underwriter charges the issuing company a gross spread, which is the difference between the public offering price and what the issuing company receives. Typically, this spread is 7% to 8% of the IPO"s offering price. The profitability of doing IPOs is one important reason why investment banks focus on developing this business.
Group Sold
When underwriters allocate the overwhelming bulk of IPO shares to a small group of large investors or an investment bank抯 best clients. Usually indicative of both high demand from big investors and the desire of the issuer and banker to restrict distribution to a more knowledgeable and stable investor base.


Hot Issue
When there is significantly more demand than supply for an IPO it is said to be a hot issue. The term hot issue has particular significance to the SEC because federal law prevents hot IPOs from being sold to owners or employees of broker-dealers and other industry insiders.


Indication of Interest
If an investor is interested in buying an IPO, he or she will give the lead manager an order for a specific amount of stock. Since most IPOs are oversubscribed, indications of interest are usually for several times what the investor really wants. On some deals, the valuation of the IPO may be an issue. In this case an investor might give a limit order for the IPO. For example, the investor might say, "I"m in up to $15", meaning they will take shares if they are priced at $15 or less.

Initial Public Offering
This is the event of a company first selling its shares to the public. Due to unseasoned trading and lack of information, equities are often referred to as IPOs for months, if not years, following their debuts.

Management, directors and significant stockholders are regarded as insiders because they are privy to information about the operations of a company not known to the general public. Insiders are restricted in the timing and manner in which they can dispose of shares.

IPO Plus Aftermarket Fund
This is the only mutual fund specializing in investing in IPOs. The IPO Plus Fund is managed by Renaissance Capital.

IPO Price
Individual investors often ask why the price at which an IPO starts trading is different from its offer price. This occurs because the offer price is set by the underwriters before the stock starts trading. Once the stock starts trading, the price is determined by actual supply and demand and can be higher or lower.

IPO Research
Prior to the offering, the underwriters involved in the IPO are prohibited from issuing research or recommendations. Following the IPO, the underwriter is allowed to issue a research report. These research reports are invariably positive. Renaissance Capital, through its IPO Intelligence research service, provides independent analyses of these companies. Investors can purchase individual IPO Intelligence reports to obtain information on a company prior to its IPO. Investors interested in purchasing an IPO Intelligence report can search for an IPO by company name or ticker symbol at http://www.ipohome.com/common/iposearchf.asp.


Lead Manager
This is the underwriter who has ultimate control of the offering. Other underwriters are called co-managers. The names of the managers appear on the bottom of the front page of the prospectus, with the lead manager"s name in the uppermost left. The lead manager controls all aspects of the offering, including how many shares of stock the co-managers get to sell, the timing of the road show, and the ultimate pricing of the deal.

Lock Up Period
The lead underwriter restricts insiders from selling their shares for a period of time - usually 180 days. However, the lead underwriter has the option of lifting the lock-up period earlier. Knowledgeable investors track the termination of lock up periods, knowing that stocks may weaken at about the six-month mark.


Market Capitalization
The total market value of a firm. It is defined as the product of the company"s stock price per share and the total number of shares outstanding. The market cap should not be confused with the float, which is the amount of shares in circulation. A company"s market cap can greatly exceed the float, especially in the case of a new publicly traded company.

Market Value
The market value of a company is determined by multiplying the number of shares outstanding by the current price of the stock.

Net Offerings
The SEC for years has allowed small companies to bypass the expensive system of using an underwriter through the Small Company Offering Registration process. The number of companies opting for a direct public offering has increased with the advent of electronic commerce on the Internet.

Net Road Show
The Internet has opened up a new way for companies to sell their deals to the public. Underwriters are starting to post on their web sites the presentation that management makes to institutional investors. These net road shows range from the video of an actual road show presentation, complete with questions from investors, to slides accompanied by audio. Regrettably, underwriters limit access to net road shows to institutional investors by requiring passwords and changing them frequently.


Offering Price
This is the price at which the IPO is first sold to the public. It is set by the lead manager, usually after the close of stock market trading the night before the shares are distributed to IPO buyers. In the case of some foreign IPOs, the pricing occurs over the weekend.

Offering Range
On the front page of the preliminary prospectus, the company indicates a price range within which they expect to sell stock. The range usually has a spread of $2. For example, $15 to $17. However, the ultimate price to the public may be above the range, below the range or within the range, depending on demand and market conditions.

The most powerful institutional investors merit private meetings with the management of the IPO. As with the group road show presentations, management is limited in its discussion to what is contained in the preliminary prospectus.

Operating Margin
The operating margin of a company is a key measure of profitability and performance. The operating margin is determined by deducting operating expenses (e.g.. cost of goods and services, sales and marketing, general and administrative, and depreciation and amortization) from total revenues and then dividing the result by total revenues. Note that operating margin excludes interest expense, interest income, other income, one-time gains or losses and taxes.

Order Book
When the underwriter refers to how well orders are building for an IPO or a secondary deal, he means the book or listing of buy orders from investors. The book for a deal can be many times oversubscribed. In fact, an oversubscribed deal is desired by both underwriters and investors, because it means that there will be an initial pop in the stock when it begins trading and subsequent aftermarket orders.

This is the fancy name for the green shoe, the underwriting agreement which allows the underwriters to buy up to an additional 15% of shares at the offering prices for a period of several weeks after the offering.

When a deal has more orders than there are shares available it is said to be oversubscribed. Many underwriters like to see a book several times oversubscribed because they know that investors inflate the size of their indications of interest. When a book is grossly oversubscribed it is said to be a hot deal.


Penalty bid
To discourage individual investors from quickly selling IPOs, some brokerage firms impose a penalty bid on the individual broker if his or her client sells an IPO within a certain period of time. Thus, a broker who would incur a financial penalty if a client wants to quickly sell an IPO has a built-in conflict of interest. Long a little publicized practice, penalty bids are now receiving greater scrutiny by the SEC and some state regulatory agencies. In any case, individual investors should find out ahead of buying an IPO whether the brokerage firm imposes penalty bids. However, if your broker fails to return telephone calls or fails to sell securities as you direct, you should seriously - and immediately consider - changing brokers.

This is a form of a preliminary prospectus containing no price range or number of shares sometimes used by foreign companies doing an IPO in the US. The proposed price range and estimated number of shares to be offered is stated in the preliminary prospectus. The actual offering price and number of shares is eventually set and published in the final prospectus.

Once a company files its registration statement (or S-1) with the SEC, it becomes part of the pipeline of IPOs expected to be priced over the next few months. It usually takes an IPO eight weeks to emerge from SEC review to its offering.

Preliminary Prospectus
This is the offering document printed by the company containing a description of the business, discussion of strategy, presentation of historical financial statements, explanation of recent financial results, management and their backgrounds and ownership. The preliminary prospectus has red lettering down the left hand side of the front cover of the prospectus and is called the "red herring." It is the company"s principal marketing document. Management, when touring on the road show, is limited to discussing only the information contained in the prospectus.

This is what happens when an IPO fails to attract sufficient buyers. Sometimes the lead manager will lower the price to entice buyers. When a deal is postponed, it usually takes at least six months for an IPO to hit the comeback trail. Examples of big name IPOs that had successful debuts the second time around after being postponed were Donna Karan and Goldman Sachs.

In a perfect world, IPOs are designed to be priced at a discount to existing publicly traded companies. In theory, this is meant to reward early investors for buying an unseasoned company with no public track record. In reality, it is the lead manager"s educated estimate on the highest price at which there will be solid demand for the IPO, both on the offering and in the aftermarket. The difference between the IPO price and its opening price is called the premium. Some investors think the difference between the IPO price and the price at the first day"s close is a better measurement of the IPO premium due to the confusion that normally surrounds balancing buy and sell orders at the opening.

Price Range
When a company files an IPO with the Securities and Exchange Commission (SEC), it is required to state at what price it expects to price its offering. This price is normally expressed as a range with a spread of two or three dollars. For example: $10 to $12 or $15 to $18. The proposed price range is generally, but not always (see Quiet Filings), set at the time the company makes its IPO filing with the SEC. Going forward, the proposed price range may be adjusted up or down depending on market conditions and investor reaction to the proposed price.

Companies go public to raise money. The money raised is referred to as proceeds. In every prospectus there is a section entitled "Use of Proceeds". Investors should read this section to find out whether the company plans to use the money it raises in the IPO for capital investment (good) or to pay off insiders (bad).

Public Venture Capital
A derogatory term used to describe a company in an early stage of development - that is, lacking revenues, operating profits and perhaps even products - that ordinarily would be financed with private capital before accessing the public markets via an IPO.


Quiet Filing
Sometimes a company has unresolved issues - choice of underwriter, number of shares to be offered, timing, or thinks it may have a lengthy SEC review. Such a company would make a quiet filing of its registration statement. The registration statement might lack an offering range, number of shares to be offered, or the total number of shares. The purpose of the quiet filing is to get the SEC review underway.

Quiet Period
After the IPO is priced, the underwriters face further restrictions on issuing research. This is called the quiet period. It lasts up to 40 days. However, under some circumstances the underwriters can issue a research recommendation more quickly. If the distribution is complete, meaning they have disbanded the syndicate and are not exercising the overallotment, the SEC allows a safe harbor for research.


Companies change the structure of its debt and equity because they have too much debt and too little equity or because interest rates have dropped. A recapitalization is akin to a mortgage refinancing for an individual. Typically, when a company uses an IPO to recapitalize, it uses the proceeds to pay off some of its debt and replaces the remaining debt with new debt obtained on more favorable terms.

Red Herring
This is the term of art for the preliminary prospectus. It gets its name from the printed red disclaimer on the left side of the prospectus.

Registration Statement
To go public, a company must file a registration statement with the SEC. This document, filed electronically via EDGAR, contains a description of the company, its management and its financials. The material is reviewed by the SEC for its completeness, amount of disclosure and its presentation of accounting information. The IPO cannot go forward until the SEC is satisfied with the document. In some cases such as when the SEC takes issue with a company"s accounting methodology, the registration process can take months.

Reverse LBO
A common investment strategy is for the management of a company or a financial group to acquire a company using debt. Buyouts are usually highly leveraged, hence the name LBO. When the owners decide to use the IPO market to reduce the company"s debt load, the process is called a reverse LBO, because they are replacing debt with equity. They are able to accomplish this only if they have improved the operations of the company sufficiently to attract public equity holders.

Road Show
When a company launches its IPO, management schedules a nationwide series of lunches, breakfasts and dinners to make its pitch to institutional investors. These presentations are organized by the lead manager and are held at hotel dining rooms in major cities. Usually, but not always, the road shows start overseas, then move to the West Coast and finish in New York or Boston, which have the highest concentrations of large institutional investors. For particularly hot IPOs, these presentations attract hundreds of investors who are jammed 10 or 12 to a table.

This is an IPO of independent companies in the same industry that merge into a single company at the time of the offering. Mostly used in fragmented industries, the approach has been applied to equipment rental firms, floral distributors, office products distributors, travel agencies, temporary staffing organizations, dental practices and car dealerships. The financier most associated with the concept is Jay Ledecky, who took public US Office Products, US Floral Products and Consolidated Capital, which invests in roll-ups.


Selling Group
Members of the selling group are part of the syndicate, the group of underwriters formed to underwrite an IPO. Today, the term "selling group" is a bit of a misnomer because these underwriters usually get no actual shares to sell. The manager and co-managers reserve the actual selling of IPO shares (and the accompanying fees) to themselves. Selling group members are usually listed on the prospectus because they performed prior services to the company going public and get only a small portion of the fees from the offering. However, selling group members do share legal and financial risks of the underwriting.

Selling Shareholders
These are the shareholders of the IPO who are selling shares at the time of the offering. The front cover of the prospectus indicates the total amount of shares being offered. The identities and breakdown of shares sold are detailed within the prospectus. The prospectus will also indicate whether shareholders will be selling on the Green Shoe. Investors should be skeptical of any IPO in which shareholders are selling large amounts of stock.

A little talked about subject until the Wall Street Journal wrote an article describing how some investment banks favored certain clients with IPO shares in the hope of getting future investment banking business. For example, the CEO of a privately held Silicon Valley software firm who has an account with XYZ Securities might find that he or she was the recipient of a tidy profit from several thousand shares of a particularly hot issue that was bought and sold on the same day.

When a company sells a portion or all of a division to the public in the form of an IPO they are doing a spin-off. The parent company would do a spin-off for several reasons. First, to raise capital. The parent may be highly leveraged. Second, to rationalize its operations by selling off a non-core business. In this type of spin-off the managers of the newly public company are (or should be) incentivized to perform well by holding stock in the new company. Finally, a parent may decide to spin-off a division in order to draw attention to the newly independent entity and perhaps to raise the stock price of the parent.

After the IPO begins trading, the lead manager may decide that the members of the syndicate need to support the stock price with aftermarket purchases, and they make a stabilizing bid to ensure that the IPO doesn"t fall below its offer price.

Story Stock
When a company has no earnings or perhaps no revenues, but generates interest because management weaves a good story, it is called a story stock. Because virtually all Internet IPOs have no earnings, they would technically fall under this definition. However, this term has not been applied to Internet companies.

Institutional investors usually make indications of interest that are several times larger than what they really want, hoping to end up with a reasonable allocation. While this strategy works most of the time, sometimes the order book doesn"t build the way the lead manager hopes. At this point, the lead manager can cut the price of the offering, which might increase demand, cut the size of the offering, or give the institutional investors all the stock they requested. This is getting stuffed. Institutional investors who get stuffed usually think there is something wrong with the stock and sell.

This is the group of underwriters formed to underwrite an IPO. A syndicate might include underwriters who specialize in institutional business as well as retail-oriented firms. Syndicates once had a legitimate selling function. Today, the lead manager and co-managers usually do all of the selling. The syndicate members just share in the risk of underwriting the IPO.


To educate the sales force about an upcoming IPO, the lead manager will sponsor a teach-in during which time the management of the IPO will make a presentation to the sales force and answer their questions. This event normally occurs at the launch of the road show.

When an IPO is completed, the underwriting group advertises their involvement by publishing a list of underwriters in the financial press. The underwriters are listed in descending order of importance. The lead manager"s name appears on the upper most left.

Tracking Stocks
When a parent company wants to recognize the underlying value of one of its businesses, it can either spin off a portion of the shares of the company to the public, thus establishing a value for the business, or it can issue tracking stock. Unlike the shares of a spin-off, which have claim to the assets and profits of the spun-off company, a tracking share has no such claim. As the term states, the shares are meant to "track" the performance of that particular business. A parent company may choose to issue tracking stock because it wants to retain full voting control over the business or because the assets of the division cannot be easily separated from the parent. Tracking stock is also called letter stock. Examples of tracking stocks are: GME (GM"s EDS division), GMH (GM"s Hughes division), ZD Net (Ziff Davis"s Internet division) and DLJ Direct (Donaldson Lufkin Jenrette"s online brokerage business).

A French word used to describe segments of the IPO being sold in different countries. A multi-tranche distribution is commonly used for large U.S. and foreign IPOs where there is demand both in the U.S. and in their home country.


This is a brokerage firm that raises money for companies using public equity and debt markets. Underwriters are financial intermediaries that buy stock or bonds from an issuer and then sell these securities to the public. The process through which this is accomplished is highly regulated by the SEC and the National Association of Securities Dealers.

One reason why IPOs are different from stocks in the broader market indexes is that they lack a trading history, have a limited float and have not developed long-term shareholders who are knowledgeable about the company. For these reasons the stock is said to be unseasoned.


Valuation Multiple
An approach to valuing companies that relies on comparing a company抯 stock price to its income from operations, cash flow from operations, or earnings per share. The higher the multiple, the more richly valued the company is. Underwriters use valuation multiples of an IPO抯 peers, or comparables, to determine the appropriate level at which the IPO should be priced.

Vapor Ware
Derogatory term for IPO issuers peddling products that are not yet commercialized, or lack significant demand from potential customers. Often used when the investment community harbors suspicions that an issuer抯 growth targets are not supported by past sales uptake. Also a generic expression for companies with wildly optimistic hopes for speculative business models.

Venture Capital
Venture Capital firms invest in private companies that need capital to develop and market their products. In return for this investment, the venture capitalists exact a price - significant ownership of the company and seats on the board of directors. For the most part, venture capitalists focus on companies in the technology, medical and retail sectors. Venture capitalists raise money from institutional investors, state pension funds and high-net worth individuals, usually in the form of partnerships. Investors should look at the venture capital firms track record and expertise when evaluating an IPO.
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