What is the Depository Trust Company IPO Tracking System

The Depository Trust Company IPO Tracking System is a service provided by the Depository Trust Company to underwriters, which enables them to track both the sales and purchases of securities that have been issued through an initial public offering (IPO) and identify flippers.

BREAKING DOWN Depository Trust Company IPO Tracking System

The Depository Trust Company IPO Tracking System monitors the market activity associated with an IPO, including the flipping of shares, and provides reports of these share movements to underwriters.

Flippers are investors who buy an allotment of shares of a company going public and then sell them on the secondary market, to make a quick profit –because the opening price is often significantly higher than the offering price. While underwriters need some flippers in order to make shares available to retail investors, they do not want everyone selling their shares at once. They will have endeavored, on behalf of their clients, to find buyers who want to own the stock and possibly increase their holding, if the company does well. Underwriters, who set the IPO price based on trading expectations, may be on the hook to buy back flipped shares to stabilize prices at the offering price in a greenshoe option — returning those shares to the issuer, if prices drop in a break issue.

Because there is no government regulation prohibiting the flipping of IPO shares – except for company insiders who are prohibited from selling their shares during the lock-up period — underwriters want to make sure that clients who have agreed not to flip their shares keep their promises.

If an underwriter learns through the DTC that a client broke a promise not to flip, the underwriter may not offer them shares in the next IPO. For that reason, clients who plan to flip their shares will usually let the underwriter know, in order not to jeopardize future business.

The DTC, based in New York City is one of the world's largest securities depositories, and provides safekeeping through electronic recordkeeping of securities balances. It also acts as a clearinghouse to process and settle trades in corporate and municipal securities.

For more in-depth information on IPOs and flipping, read IPO Flippers and the Companies Who Hate Them.