IPO University
IPO Investing Glossary
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. Investor allocations are often meted out based on commission volume, trading history and type of investor. IPO allocations are normally communicated to investors the morning after the pricing. Large investors typically receive almost all of the allocations of an IPO, and individuals must participate in aftermarket trading.
Aftermarket
Trading in the IPO subsequent to its offering is called the aftermarket. Trading volume in IPOs is extremely high on the first day (typically ~70% of the float) due to flipping and aftermarket orders. Trading volume can decline precipitously in the following days.
Aftermarket Performance
The price appreciation (or depreciation) in IPOs is measured from the offering price going forward. However, some investors also track returns from the first day close in order to get a better benchmark of IPO performance. While investors often need allocations to capture first-day returns, aftermarket performance is available to anyone.
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 traded securities are called receipts because they represent a certain amount of the company's actual shares. Examples of ADR offerings include Alibaba, France Telecom, and Banco Santander Brasil.
