Ipology (eBook)

The Science of the Initial Public Offering

Marc Rene Deschenaux (Autor)

eBook Download: EPUB

2021 | 1. Auflage
330 Seiten
Bookbaby (Verlag)
978-1-7364515-3-3 (ISBN)

The Initial Public Offering (IPO) is one of the most complex financial transactions, as it involves knowledge in finance, national and international laws, marketing trends analysis, macro and microeconomies, financial public relations, and many other aspects of finance. 'IPOLOGY' covers a new field of studying IPOs, created by world-renowned expert in high finance, Marc Rene Deschenaux. This one-of-a-kind book reveals invaluable information on the IPO, kills the myths, and provides real knowledge in every relevant discipline.

The IPO - Initial Public Offering is the most complex financial transaction as it involves knowledge in finance, in many national andinternational laws, in marketing trends analysis, in macro- andmicro- economy, in financial public relations, in econometrics, infundamental corporate analysis, in financial and securities markets analysis as well as in traditional, financial and analyticalaccounting. Too many people, including experts, talk about the IPO without any understanding of the other fields involved beside their own. Everyone pretends to know, what they really do not know, because it requires multiple different fields of knowledge and because the Initial Public Offering transaction is at the crossroad of thesedisciplines. This is why I decided to study a new field I called IPOLOGY selecting IPO relevant information from each discipline and to write a series of books about it, teaching real knowledge, killing the myths or fake information and providing real knowledge in all of the abovementioned fields and disciplines combined. This is the first book of the first edition of the second book of theIPOLOGY collection. All books are also available under audiobook format.

Stock Market

Before a company decides to sell its shares through the initial Public Offering process, a company is considered private, and the business grows with a relatively small number of shareholders.

These shareholders include owners, capital ventures, private investment firms, friends, and family members. When a company reaches a stage in its growth process where progress, expansion, or further development requires more investment, it will begin to advertise its interest in going public.

Typically, this growth stage is achieved when the company is valued at $1 Billion, otherwise known as the Unicorn Stage. However, private companies that do not meet the requirements of the unicorn stages can still offer IPO’s if they harbor strong fundamentals and show high profitability potential.

When a private company has met all the requirements of SEC regulations along with its benefits and responsibilities to the shareholder, its shares are launched in the stock market, known as IPO.

2.1 Definition

The stock market refers to various markets and exchanges where regular buying, selling, and issuance of shares of publicly-held companies takes place. Although the terms stock market and stock exchange are used interchangeably, they are quite different.

While the stock market signifies a marketplace where all sorts of stock-related activities are conducted, the stock exchange is a subset of the prior mentioned stock market.

For instance, if a person claims to trade in the stock market, it means that person trades in more than one stock exchange.

The stock market is primarily known for trading stock and securities. However, it caters to other financial securities, such as exchange-traded funds, corporate bonds, commodities, currencies, and bonds.

The stock market also provides a safe place to transact financial securities in a regulated and secure environment. Operating under defined rules, the stock market serves as a primary and a secondary market.

As a primary market, the stock exchange provides a safe space for privately-owned organizations to offer their shares through the IPO process and facilitates their transition to public limited companies. However, as a secondary market, the stock exchange earns a fee for every trade that takes place on its platform.

2.2 Type

The stock market is a crucial aspect of a free-market economy, and without it, businesses would not be able to generate massive investments from the public (Contact, 2018)

.Moreover, the stock exchange serves as a platform through which savings and earning of individuals is channelized into productive financial growth.

This financial growth bears favorable results for the economy, the individual who invested, and the company that sold its share if everything goes well. However, there are risk factors involved in the stock market.

However, through proper calculations, evaluations, and historic chart analysis, investors make sure to dodge losses and earn profit.

Amidst all the buying and selling of shares, the stock market makes its profit by charging a set fee per transaction. However, the stock has two different types. These two types of stock markets deal in different financial security so that one market does not disrupt the other.

Off-Exchange

Over-The-Counter

Off-Exchange

An exchange is a marketplace where financial securities such as commodities, derivatives, and other financial instruments are traded.

The primary function of an exchange is to facilitate an orderly fair trade of financial instruments and efficient sharing of price information regarding any financial security being traded on the exchange.

In simple terms, an exchange enables governments, companies, and other groups to sell their shares to the general public from a centralized platform.

In the recent decade, stock exchange trading has transitioned to fully electronic domains, facilitating traders, leveraging internet capabilities, and trade without leaving their house. Sophisticated algorithms and price matching have made it possible to safely trade stocks online without needing a representative to be physically present on the floor.

However, registering as a company on an exchange has a unique set of requirements to be achieved to start selling shares.

Some exchanges are more rigid than others, but it is not impossible to be listed on an exchange. With that said, the basic requirements of being listed on an exchange include regular financial reports, audited earning reports, and minimum capital requirements.

Perhaps the best example of an exchange is the New York Stock Exchange that saw its first trade in 1792. The NYSE floor sees transactions from 9:30 till 4:00, Monday to Friday, in a continuous manner.

Prior to the electronic exchange, the brokers employed by the NYSE traded shares physically from the NYSE building. However, the stock market slowly adapted to electronic means, and exchanges were introduced by 1990.

This changed the entire process of the stock market as trading started to become automated. It was not until 2005 when all share trade was automated, and physical trading was only possible if the trader owned a seat at the NYSE.

Nevertheless, these seats are expensive and traded off on a one-year lease. Although the automated stock exchange is an excellent step in facilitating stock trade and boosting IPO shares, there is a fleet of problems with the system that might be challenging to managing in the future.

One of the most adamant disadvantages of an automated trading system is that the buyer has no relationship with the broker. This lack of personal relationships with brokers has left new buyers stranded in the open without much knowledge of different companies operating in the stock exchange.

Regardless of the disadvantage mentioned above, electronic exchanges are still better at serving the general public with productive investment opportunities that lead to a better economy and affect the entire financial structure of an individual, company, or the state.

Over-The-Counter

Over-The-Counter refers to trading stocks and securities through a broker-dealer network instead of a centralized exchange. In simple terms, OTC is the buying and selling of stocks, bonds, and other financial instruments between two parties instead of a stock exchange involvement.

Over-the-counter trading involves debt instruments, equities, and derivatives that derive their value from underlying stocks such as commodities. The reason why over-the-counter trading is conducted when a centralized trading system is present is that some securities do not meet the requirement of being listed on a standard centralized stock exchange.

However, OTC trade can include equities listed on the stock exchange and stocks that are not listed. An unlisted stock on the stock exchange is traded via OTC and is known as OTC securities.

The OTC trading market can be quite discreet when it comes to selling stocks. OTC trade works through a dealer who acts as a market maker by quoting prices for securities, currencies, and other financial products.

A trade can be quickly initiated between two parties in an OTC market without anyone else being aware of the price at which the stock or other financial securities were traded.

Likewise, OTC trade is also called penny stocks, where every kind of stock is sold at a reasonably low price. Most of the time, stock deals are conducted on call or by email.

The OTC market consists of stocks that do not need to meet the stock exchange requirements.

Moreover, companies that are on the verge of filing bankruptcy also sell their stocks in the OTC markets in hopes of recovering from their financial downfall. On top of this, companies that cannot keep their stock prices above a specific price per share also launch their shares in the OTC market.

Risks of OTC Market

OTC markets have improved substantially over the years. Technological innovation, electronic quotations have enhanced the OTC market experience.

However, the OTC market is still far from perfect and harbors several risks that investors often overlook.

One of the most substantial downsides of the OTC market is the lack of regulations.

Although the Financial Industry Regulatory Authority monitors the OTC market, stock exchange markets are subjected to stringent regulations than OTC. Another disadvantage of the OTC market is the lack of transparency. When OTC securities are traded, the price is not disclosed until the security is traded.

This lack of information prevents investors from making informed decisions, and the OTC market becomes highly unpredictable. Comparatively, the stock exchange trades are conducted with full public transparency, and everyone is aware of the stock price being traded even before the trade happens.

However, lack of transparency and regulations can all be managed if OTC stocks weren’t highly volatile. Moreover, OTC stocks can be subjected to market manipulation; therefore, risk management techniques must be involved in trading OTC stocks.

A proper risk management technique with a stop loss method can prevent investors from suffering substantial losses and overcome market manipulation strategies.

Transitioning from OTC to a Major Exchange.

While OTC stocks might seem profitable for the investor, companies...

Erscheint lt. Verlag	1.9.2021
Sprache	englisch
Themenwelt	Wirtschaft ► Betriebswirtschaft / Management ► Finanzierung
ISBN-10	1-7364515-3-7 / 1736451537
ISBN-13	978-1-7364515-3-3 / 9781736451533

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