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. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
  2. Laddering

    The promotion of inflated pre-IPO prices for the sake of obtaining ...
  3. Spin Out

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

    A practice used by underwriters to stabilize the secondary market ...
  5. IPO ETF

    An exchange-traded fund that focuses on stocks that have recently ...
  6. Book Building

    The process by which an underwriter attempts to determine at ...
Related Articles
  1. Retirement

    IPO Basics: Conclusion

    Let's review the basics of an IPO: An initial public offering (IPO) is the first sale of stock by a company to the public. Broadly speaking, companies are either private or public. Going public ...
  2. Expenses

    While an IPO brings a lot of cash in the door, there are plenty of costs before you reach the IPO. Some can be paid by IPO proceeds, but you should seriously consider if your company can bear ...
  3. Trading Strategies

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

    Learn how flipping activity affects an initial public offering.
  4. Retirement

    IPO Basics: Getting In On An IPO

    The Underwriting Process Getting a piece of a hot IPO is very difficult, if not impossible. To understand why, we need to know how an IPO is done, a process known as underwriting. When a company ...
  5. Personal Finance

    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.
  6. Investing

    How To Track Upcoming IPOs

    Interested in investing through IPOs? Here is the list of free sources for information on upcoming IPOs.
  7. Fundamental Analysis

    Top Reasons IPO Valuations Miss The Mark (MS, ZNGA)

    The costly services of investment banks don’t necessarily guarantee accuracy in IPO pricing.
  8. Retirement

    IPO Basics: Don't Just Jump In

    Let's say you do get in on an IPO. Here are a few things to look out for. No History It's hard enough to analyze the stock of an established company. An IPO company is even trickier to analyze ...
  9. Professionals

    Public Issue And Cash Offer

    These are just two ways that companies can raise capital.
  10. Investing Basics

    5 Tips For Investing In IPOs

    Thinking of investing in IPOs? Here are five things to remember before jumping into these murky waters.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. Are IPOs available to short sell immediately upon trading, or is there a time limit ...

    The quick answer to this question is that an IPO can be shorted upon initial trading, but it is not an easy thing to do at ... Read Answer >>
  5. Who can get access to a highly anticipated IPO?

    Purchasing a highly anticipated initial public offering may seem like a sound investment strategy, but most individual investors ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center