What Is the Initial Offering Date?
The initial offering date is when a stock or security is first made available for public purchase. The initial offering date is part of the process for an initial public offering (IPO), which is when a private company issues new shares of stock or securities to public investors. Initial offering dates can be advertised for all types of securities, with stocks and managed funds being two of the most common.
- An initial offering date is a date set during the underwriting process on which a security is first made available for public purchase.
- An initial public offering (IPO) is when a private corporation issues new equity shares or securities to public investors.
- The initial offering date helps a company raise capital through its IPO, allowing public investors to buy their stock or security.
- The initial offering date can also allow early investors in a start-up, such as venture capitalists, to cash out on their investments.
Understanding Initial Offering Date
The IPO process in which a private corporation becomes a publicly-traded company is significant. Companies that want to bring their company public must meet regulatory requirements by the Securities and Exchange Commission (SEC). Also, there are listing requirements for the exchanges, such as the New York Stock Exchange (NYSE), before a company can list and be traded on that exchange.
A company is considered to be a private company before an IPO. However, there are shareholders and investors in the private company before the IPO that can include venture capitalists and angel investors who invest in companies with promising growth potential. Investors can also include the founder or founders and their families.
IPOs are helpful to companies since the new issuance of equity shares that are purchased by investors provides an inflow of capital—or money—which can be used to invest in their business. Companies hire investment banks to underwrite or facilitate the IPO process, which includes analyzing the market, gauging investor demand, establishing the IPO price, and the initial offering date.
Underwriting New Offerings
An underwriting team at an investment bank is usually tasked with preparing the security for its initial offering date. A particular underwriter might be chosen based on their knowledge of the soon-to-be-public company's industry, its access to individual and institutional investors, which are managers of large funds, such as pensions. The goal, in part, is to get the best price for the IPO by gauging interest to ensure an orderly and efficient distribution of the new shares leading up to and during the initial offering date.
The underwriting and filing process for offering new securities in the market is different for each security. Stocks and mutual funds provide two examples of the most common types of new offerings. Historically, new offerings are often underpriced leading up to their initial offering date, potentially providing for large capital gains at issuance. This can also create pent-up demand for shares on the first day of trading and provide greater profit potential for those who can subscribe to the issue before the initial offering date.
Generally, new offerings will experience high trading volatility or price fluctuations in the early phases of their public offering. This can occur more often for stocks since only a small percentage of the outstanding shares (typically less than 25%) is eligible to trade on the first day.
Companies planning to offer their equity shares on a public market exchange must undergo a thorough due diligence and underwriting process. Companies might partner with investment banks such as Bank of America, J.P. Morgan, or Morgan Stanley for underwriting services.
Underwriters on new equity IPOs are generally responsible for leading the initial public offering process, undergoing all due diligence, setting the price of the offering, and marketing the offering to investors. Underwriting agreements typically involve support from the underwriters in buying newly offered shares and contingent purchases for shares after trading in the open market for a specified timeframe.
For mutual funds, the process leading to an initial public offering is different than for public stocks since funds are subject to different regulations and regulatory filing requirements. In a mutual fund offering, the company partners with a distributor who is also the principal underwriter on the fund. The distributor partners with the company’s legal and compliance teams to file a registration statement with the SEC, which must include full details on the fund in a prospectus and statement of additional information.
Distributors serve as the underwriter, buy shares of the fund, and are responsible for marketing the fund for its initial offering date. Distributors seek to list the fund with discount brokerages and financial advisor platforms across the industry. These are the primary channels of distribution for a mutual fund and are important for its launch.