What is an IPO?
IPO is the short form of Initial Public Offerings. It is the issuance of the first set of shares once a company decides and gets approval to go public. There will be several companies out there in the market that you could buy and sell. However, these shares are not from an IPO at the moment. Only the new companies entering the market would provide IPOs to the investors. The process of buying the IPO shares will be different from that of ordinary listed shares. There is an allotment process beforehand that will decide whether you could have the shares or not. There are differences between live market trading and an IPO. In this article, let us discuss this in brief.
What is a grey market?
Before the allotment of an IPO happens, there will be some out-of-market activities happening with the shares. It is known as the 股票暗盤. There are some procedures to be a part of this grey market, and you could buy and sell the shares of an IPO before it gets listed in the actual market. The demand for the shares in this grey market could have an impact on the share’s listing day price. If there is a huge demand, the stock will come with an increased price than the IPO price.
Allotment process of an IPO
If a company is coming into the market after a few days, it should get approval from the regulatory body of stocks in the country. Once they get the approval, the regulatory body will allot a particular price band at which the IPO should be released by the company. There will be a lower limit and an upper limit for this band. Like in a live market, investors could not get these shares by simply paying for them. They have to apply for the shares during the application period. Usually, an IPO application process will last for a maximum of three days to five days. You should apply to it within this period. There will be some processes involved in the application, and you would have to submit some documents and forms. However, you could not be sure that you will get the shares even after application. Because the shares will be allotted to the applicants on a lottery basis if the number of applicants is more than the issue size. As there will be a limited number of shares released by the company, only a few people could buy them. So, if more people have applied, only a part of them will get allotment. However, you could not apply for a few shares alone. There will be a minimum number of shares to buy at least. It is known as a lot. You could apply only in lots. After the application and allotment, the shares will get listed in the market after a few days. Thereafter, they will behave as ordinary shares, and anyone could buy and sell them.