Saxo Hong Kong

An Initial Public Offering (IPO) is an excellent way for a private company to transition from privately held to publicly traded. According to Investopedia, “An IPO occurs when a company first sells shares of its stock,” and the sale is meant to raise capital. Also, “The owners can utilize some of the proceeds for personal usage or reinvest in their business.”

When an IPO goes public, that means that it has been sold on the market open to everyone who may potentially want to buy it. It also means that anyone can now sell it.

Before an IPO goes public, there are restrictions, such as limits on how much stock can be owned by one shareholder. Significant shareholders must maintain specific ownership percentages after the company has gone public.

Can an IPO be bought before it goes public?

Investors buy iPOs at the price they are willing to pay for them, so if you have enough money, you can buy an IPO before it goes public. This process is how some companies have successfully gained customers, generating more revenue in their private state than after going public.

What are the restrictions on purchasing IPOs before they go public?

Only authorized participants participate

Regulation M under the Exchange Act of 1934 requires that all secondary market transactions in an IPO happen only between “Authorized Participants.” By definition, these are broker-dealers who purchase large blocks of shares. No one outside this scope can participate until the stock is available to everyone. According to Investopedia, “Regulation M ensures there is a fair distribution of securities at the time of an initial public offering.” The purpose behind this is to prevent any overloading upon release, leading to lower prices for the emerging company. You can find an excellent dealer-broker at Saxo Hong Kong.

Significant shareholders cannot sell shares for six months

According to CNBC, shareholders cannot sell after buying stock six months after it goes public. It is done to discourage market manipulation by significant shareholders who are known to have purchased it before the IPO.

MVP management must not sell shares for three months

According to CNBC, managers of an emerging company cannot sell their shares in that company for three months after the IPO goes public. The purpose behind this is to protect against insider trading and fraudulent attempts by middle management at private companies.

No pledges are allowed for six months

According to Investopedia, “An issuer may not permit any person who has taken an important position in its equity securities or obtained substantial leverage over the issuer through loans or other arrangements to pledge such holdings within six months following the effective date of an initial public offering.” The purpose behind this is to prevent private shareholders from artificially inflating the price of an IPO for their gains.

No hedging or pledges allowed for six months

According to Investopedia, “An issuer may not permit any person who has taken a substantial position in its equity securities or obtained substantial leverage over the issuer through loans or other arrangements to hedge such holdings within six months following the effective date of an initial public offering.” It prevents private companies from hedging their investments or stocks they have already bought to discourage market manipulation.

Should one wait for an IPO to go public before purchasing?

It is one hundred per cent your own choice whether you wish to wait for an IPO to go public before purchasing it. Most successful companies see a significant increase in revenue and stock value after going public, which is something you might want to ponder when making your decision. If you cannot afford the IPO priced at the market value, it may be worth your time to wait until after it goes public so you can purchase it at a lower price. If you have the money to buy the stock before an initial public offering but do not want or cannot afford to purchase it for its inflated market price, waiting until after an initial public offering is probably your best bet.

By AKDSEO