Spinning

DEFINITION of 'Spinning'

The act by a brokerage firm or underwriter of offering shares in an IPO to preferred customers, as a means of retaining or obtaining their business. In theory, spinning benefits both parties; the underwriter or brokerage firm cultivates loyalty and/or a broader client base, while the preferred customer enjoys the benefits, i.e. equity gains, afforded by a dynamic new public company. However, the practice is controversial, as many consider it unethical.


Spinning is also known as "IPO spinning."

BREAKING DOWN 'Spinning'

Spinning is a lucrative means of enticing the business of large companies. By swaying the decision of the top executives, investment brokerage houses can secure a quid pro quo type of arrangement.


According to a 2009 study by professors Xiaoding Liu and Jay R. Ritter of the University of Florida, spinning does accomplish its goals. Liu and Ritter found that "spun" IPOs had first-day returns 23% greater than similar IPOs. In addition, the companies that were offered IPOs switched underwriters only 6% of the time, compared to 31% of the time for companies that were not offered IPOs. However, the study's authors also noted that "since 2001 the spinning of corporate executives has largely ceased in the U.S. This is due to both a regulatory crackdown and a dearth of hot IPOs to allocate."

RELATED TERMS
  1. Spin Out

    A type of corporate restructuring. Spin outs occur when a corporation ...
  2. Stabilizing Bid

    A practice used by underwriters to stabilize the secondary market ...
  3. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
  4. Tax-Free Spinoff

    A corporate action in which a publicly traded company spins off ...
  5. Eating Stock

    The forced purchase of a security when there are insufficient ...
  6. Underwriter

    An underwriter is a company or other entity that administers ...
Related Articles
  1. Managing Wealth

    Finding Spin In The Financial Services Industry

    The financial services industry may stop short of lying outright, but that doesn't mean that everything they say about their products is the truth.
  2. Investing

    Initial Public Offering (IPO) Explained

    An initial public offering (IPO) marks the start of a company's publicly traded life. Find out why companies undergo IPOs, and how the process works.
  3. Markets

    How To Track Upcoming IPOs

    Interested in investing through IPOs? Here is the list of free sources for information on upcoming IPOs.
  4. Managing Wealth

    5 Tips For Investing In IPOs

    Thinking of investing in IPOs? Here are five things to remember before jumping into these murky waters.
  5. Trading

    IPO Flippers And The Companies Who Hate Them (TWTR, ETSY)

    Learn how flipping activity affects an initial public offering.
  6. Investing

    What Does an Underwriter Do?

    In the investment world, an underwriter is a company that helps corporations or other issuing bodies distribute their securities.
  7. Investing

    Why Are Companies Taking Longer To Go Public?

    Learn why private companies are waiting longer to have their IPOs. Understand why it may be more advantageous for a company to stay private.
  8. Managing Wealth

    5 Tips For Investing In IPOs

    It’s not easy to profit from IPO​s, but the money is there.
  9. Investing

    Will Health Care Continue to Drive IPOs in 2016?

    Learn why health care IPOs may be slowing in 2016, and how Obamacare, poor previous filings and economic factors are affecting the health care sector.
  10. Managing Wealth

    Top 6 Performing IPOs of 2015 (ONCE, GBT)

    2015 has produced a mixed year for initial public offerings, with small biotechs overcrowding the winner’s list.
RELATED FAQS
  1. How do I build a profitable strategy when spotting a Spinning Top pattern?

    Learn a simple, low-risk trading strategy that can be employed when a spinning top candlestick forms under certain circumstances ... Read Answer >>
  2. How effective is creating trade entries after spotting a Spinning Top pattern?

    Understand the significance of the spinning top candlestick pattern and learn how to create more effective trade entries ... Read Answer >>
  3. How can average investors get involved in an IPO?

    An initial public offering, or IPO, is the first sale of stock by a new company, usually a private company trying to go public. ... Read Answer >>
  4. How are Spinning Top patterns interpreted by analysts and traders?

    Discover the spinning top candlestick pattern and understand its significance and how it is commonly interpreted by traders ... Read Answer >>
  5. How does an underwriter syndicate work together on an initial public offering (IPO)?

    Learn how underwriting syndicates work together when helping a company undertake an initial public offering, and learn about ... Read Answer >>
  6. What does the underwriter do in a new stock offering?

    Learn the role an underwriter plays for an initial public offering, and the steps an underwriter takes in preparing for an ... Read Answer >>
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center