IPO Glossary
Definitions for the terms that appear in IPO filings and coverage. A term in bold with a link has a full explainer. Where a term is commonly misused, we say what it is confused with.
A
Allocation The underwriters' discretionary decision about which investors receive shares at the offer price, and how many. Not pro-rata, and not a queue.
All-inclusive annual listing fee Nasdaq's bundled annual charge to listed companies, which covers most ongoing regulatory fees. Scaled by market tier and shares outstanding.
Anchor investor An investor who commits to a large allocation in advance of the bookbuild, giving the deal credibility. Distinguished from a cornerstone investor mainly by market convention and whether the commitment is disclosed and locked.
ADR (American Depositary Receipt) A negotiable instrument representing shares in a non-US company, allowing them to trade on a US exchange. ADR listings are tracked separately in our statistics.
Amendment (S-1/A) A revised registration statement filed in response to SEC comments or to update terms. The price range typically first appears in an amendment.
B
Bake-off The pitch process in which investment banks compete for the underwriting mandate. Also called a beauty contest.
Best efforts offering An offering in which the underwriter or selling agent agrees only to use reasonable efforts to sell the shares, without committing to buy them. Contrast with firm commitment. Regulation A offerings are frequently best-efforts.
Blue sky laws US state securities laws. The name dates to early 20th-century efforts to stop the sale of speculative schemes backed by nothing but "so many feet of blue sky." Kansas passed the first in 1911.
Book The record of investor demand assembled by the underwriters during bookbuilding.
Bookbuilding The process of collecting indications of interest from investors to determine price and allocation.
Bookrunner The underwriter that maintains the book and runs the offering. The lead-left bookrunner appears leftmost on the prospectus cover and has primary responsibility.
Broken issue An IPO trading below its offer price. See What happens if an IPO trades below its offer price?.
Bull / bear Rising and falling markets. "Bear" came first, from the proverb about selling the bear's skin before catching the bear — 18th-century short sellers in London were known as bearskin jobbers. "Bull" followed as its opposite.
C
Capitalisation table The prospectus table showing the company's debt and equity before and after the offering.
Clawback A mechanism, used in some markets including Hong Kong, that shifts shares from the institutional tranche to retail when retail demand is exceptionally strong. Not a feature of standard US deals.
Comfort letter A letter from the auditors to the underwriters regarding financial information in the registration statement. Part of the underwriters' diligence defence.
Comment letter Written SEC staff comments on a registration statement. Published on EDGAR after the fact.
Controlled company A listed company in which an individual or group holds more than 50% of voting power, which permits certain exemptions from exchange governance requirements. The status and the exemptions relied upon must be disclosed.
Cornerstone investor An investor who agrees before launch to buy a fixed dollar amount at the offer price, typically with a lock-up, disclosed in the prospectus. Standard practice in Hong Kong and increasingly visible in large US deals.
D
Delaying amendment Language included in a registration statement that prevents it from going effective automatically, so that effectiveness can be requested when the issuer is ready.
Designated Market Maker (DMM) The NYSE participant responsible for managing the opening auction in a listed security, including publishing price indications on IPO day.
Dilution The difference between what new investors pay per share and the net tangible book value per share after the offering. Disclosed in its own prospectus section.
Direct listing An exchange listing without a traditional underwritten allocation. Historically secondary-only, with no capital raised; NYSE and Nasdaq rules now also permit direct listings with a primary capital raise.
Directed share programme (DSP) Shares set aside at the offer price for employees, customers, or others connected to the company. Also called a friends-and-family programme.
DRS (Draft Registration Statement) A registration statement submitted confidentially to the SEC before public filing.
Dual-class shares A capital structure with multiple classes of common stock carrying different voting rights, typically preserving founder control. Increasingly accompanied by sunset provisions.
Dutch auction A pricing method in which investors bid price and quantity and a single clearing price is set. Used by Google in 2004; rare.
E
EDGAR The SEC's Electronic Data Gathering, Analysis, and Retrieval system, where all US registration statements and reports are filed and are publicly readable.
EFFECT The EDGAR notice recording that a registration statement has been declared effective.
Emerging growth company (EGC) A category created by the JOBS Act of 2012 for issuers below specified revenue and other thresholds, carrying reduced disclosure requirements, confidential submission, testing-the-waters rights, and exemption from the post-IPO research quiet period.
F
F-1 The registration statement form used by foreign private issuers, analogous to the S-1.
Firm commitment An underwriting in which the banks purchase the entire offering from the issuer and resell it, bearing the risk. The standard structure for US IPOs.
FINRA Rule 5110 The rule governing underwriting terms and arrangements, including the treatment of an over-allotment option above 15% of the base offering as unreasonable.
FINRA Rule 5121 The rule addressing public offerings in which a participating member has a conflict of interest, imposing disclosure requirements and, in specified circumstances, the involvement of a qualified independent underwriter.
FINRA Rule 2241 The equity research rule. Sets a minimum 10-day post-IPO quiet period for members that participated as underwriter or dealer, replacing the former 40-day and 25-day periods in 2015. Emerging growth companies are exempt.
Float The shares actually available for public trading, excluding restricted and closely held stock. A small float relative to demand is a frequent driver of first-day volatility.
Free writing prospectus (FWP) Written offering material used alongside the statutory prospectus, filed with the SEC.
Fully diluted shares Shares outstanding including options, RSUs, warrants, and convertible instruments. The number that matters for understanding ownership; usually larger than the basic count on the cover.
G
Greenshoe The over-allotment option. Named for the Green Shoe Manufacturing Company, whose 1963 IPO was the first to use it. (The company was founded in 1919; the two dates are frequently conflated.)
Gross spread The underwriting discount as a percentage of gross proceeds. Clusters at 7% for small and mid-sized US deals; materially lower on large ones.
Gun-jumping Offering activity that occurs before a registration statement is filed, or impermissible communications during the registration process.
I
Indication of interest A non-binding expression by an investor of how many shares they would buy and at what price. The raw material of the book.
Initial public offering (IPO) The first sale of a company's shares to public investors through a registered offering.
L
Lock-up A contractual restriction on insider selling after the offering, customarily around 180 days from the prospectus date. Increasingly includes staggered tranches and price-based early-release triggers.
Lock-up waiver A release from lock-up restrictions granted by the underwriters, usually the lead bookrunners, before the scheduled expiration.
M
MD&A Management's Discussion and Analysis. The narrative section explaining the financial statements, and often the most informative part of a prospectus.
Money left on the table (First-day close − offer price) × shares sold at the offer price. A descriptive measure of the value transferred from issuer and selling holders to allocated buyers.
O
Offer price The price at which shares are sold to allocated investors. Set on pricing night. Distinct from the opening price. See Offer price vs. opening price.
Opening auction The exchange process that produces the first trade price by matching accumulated buy and sell interest. Run by a DMM on the NYSE; the IPO cross on Nasdaq.
Over-allotment option See greenshoe.
Oversubscription Demand exceeding the shares offered, usually expressed as a multiple of the deal size. A widely quoted figure that is neither audited nor standardised, and should be treated as an indication rather than a measurement.
P
Pop The first-day gain over the offer price. Ambiguous unless you say which metric: offer-to-open, offer-to-close, or open-to-close. See Why do IPOs pop?.
Price range The indicative price band published in the preliminary prospectus, subject to revision before pricing.
Pricing night The evening before trading, when the final offer price and size are set and the registration statement is declared effective.
Primary shares Newly issued shares sold by the company. Proceeds go to the company.
Prospectus The offering document contained within the registration statement, delivered to investors.
Q
Qualified independent underwriter (QIU) An underwriter meeting independence and experience criteria that participates in the preparation of the offering document and assumes associated responsibilities where FINRA Rule 5121 requires it.
Quiet period A loose term covering several distinct restrictions: Securities Act offering-communications limits, research-analyst restrictions under FINRA rules, and prospectus-delivery obligations. The SEC notes the securities laws do not define a single period by this name.
R
Red herring The preliminary prospectus. Named for the legend printed on its cover in red ink stating that the registration statement has not yet become effective.
Reference price The price published by an exchange before a direct listing opens. Not an offer price, and not a valuation — a starting point for the auction.
Registration statement The complete filing submitted to the SEC (Form S-1 or F-1), containing the prospectus plus additional information.
Regulation A An exemption permitting public offerings with lighter disclosure than full registration, sometimes called a mini-IPO. Offerings are qualified rather than registered, and are tracked separately from traditional IPOs in our statistics.
Regulation M The rules governing stabilisation and trading activity by participants in a distribution.
Restricted person A category defined in FINRA rules — largely broker-dealer personnel and their immediate families — barred from receiving allocations in new issues.
RW The EDGAR form used to withdraw a registration statement. See Withdrawn and postponed IPOs.
S
S-1 The registration statement form used by US domestic issuers for an IPO.
424B4 The final prospectus filed after pricing, carrying the final terms. See S-1 vs. 424B4.
Scripomania The speculative frenzy in 1791 around subscription rights ("scrip") for the First Bank of the United States — an early demonstration that public offerings and mania are old companions.
Secondary shares Existing shares sold by existing holders. Proceeds go to those sellers, not to the company.
Section 11 The Securities Act provision imposing liability for material misstatements or omissions in a registration statement. See Section 11 liability.
Selling concession The portion of the gross spread paid to syndicate members for shares they sell.
Shelf registration Registration of securities for future sale, permitted under SEC Rule 415 since 1982. Relevant to follow-on offerings rather than IPOs.
SPAC A special purpose acquisition company: a blank-check vehicle that raises capital through its own IPO and then merges with a private target, taking it public.
Stabilisation Permitted underwriter activity supporting the price after listing, governed by Regulation M.
Sunset provision A term in a dual-class structure causing super-voting shares to convert to ordinary voting shares after a stated period or triggering event.
Syndicate The group of underwriters distributing the offering.
T
Testing the waters Permitted pre-filing or pre-launch communications with qualified institutional buyers and institutional accredited investors to gauge interest.
Tracking stock A class of stock whose performance is tied to a specific business unit rather than the whole company.
Transfer agent The party that maintains the register of shareholders and processes transfers.
U
Underpricing Setting the offer price below the level the market clears at on day one. Measured as a first-day return.
Underwriter The investment bank or banks that structure, price, and distribute the offering.
Up-C structure An umbrella partnership C-corporation structure, in which a newly public corporation holds an interest in an operating partnership. Common for issuers converting from partnership or LLC form; usually accompanied by a tax receivable agreement.
Uplisting Moving from over-the-counter quotation to a national securities exchange. Not an IPO, and excluded from our default universe.
Use of proceeds The prospectus section stating what the company intends to do with the money, and confirming it receives nothing from shares sold by selling stockholders.
W
Waiting period The period between filing a registration statement and its effectiveness, during which offers may be made under specified conditions but sales may not be completed.
Terms we deliberately don't define here
Some widely used IPO vocabulary has no fixed meaning and we avoid it rather than give it false precision: "hot issue," "IPO window," "quality of the book," and "oversubscribed by Nx" all describe impressions rather than measurements. Where we use them, we say whose impression they are.
Related
What is an IPO? · How to read an IPO prospectus · Editorial standards · Methodology
Sources
- Securities Act of 1933; Securities Exchange Act of 1934; Regulation S-K; Regulation M; Rule 415
- FINRA Rules 2241, 5110, 5121, and rules on restricted persons
- NYSE Listed Company Manual; NYSE auction materials; Nasdaq Listing Center rules and IPO process materials
- SEC guidance on the quiet period and on registration
- JOBS Act of 2012
- Issuer filings on EDGAR