I've been on the buy-side for many years and the IPO market is a joke. Every time an IPO pops +20% it's irrefutable evidence that the banks are either incompetent and/or untruthful. I remain mystified that companies, particularly the hot issues like LinkedIn, ProtoLabs, et al, dont opt for auctions. It's the 8th wonder of the world.
The other solution would be to be to have an adjustable underwriting fee that declines depending on how much the stock is up using the ~5 day average closing price after the IPO. If the stock was up some percent over the IPO price, say 40%, the underwriting fee would drop from 7% to 1%. Over 50%? No fees. Something along those lines would keep the banks honest. You failed (purposefully or not) to price the offering correctly and needlessly transferred hundred of million in wealth from the company to trading clients? Fine, you dont get paid.
For the hot issues, trust me, there is still plenty of demand. Tons. You really think no one would buy Splunk at $35, that an IPO would fail? It happens millions of times per day already in the secondary market, so clearly there's more than enough demand. The difference would be that the hedge funds who generate utterly insane commission dollars wouldn't have an interest in the offering...it would be more buy-and-hold guys subscribing, and those folks just aren't that profitable for the bank trade desks. I used to work at one of these big funds and I've seen this all first hand and it's ridiculous.
The other solution would be to be to have an adjustable underwriting fee that declines depending on how much the stock is up using the ~5 day average closing price after the IPO. [...] You failed (purposefully or not) to price the offering correctly and needlessly transferred hundred of million in wealth from the company to trading clients? Fine, you dont get paid.
Except they still get kickbacks from their double dealing.
I remember Google's IPO vividly. Google's stock price didnt pop much. It priced at $85 and hit $100 the first day of trading. It hung around $100 for a few weeks and then started moving steadily higher throughout the fall, in large part because they reported an insane third quarter. The auction had other problems but the pricing was largely fine.
I'm talking about first day pops. These are situations that are clearly mismanaged. A stock that's supposedly worth $20 at 5pm on Tuesday is magically worth $35 at 9:30am on Wednesday despite nothing having changed. No supposedly functional market should be that inefficient. Unfortunately it's by design.
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I've been on the buy-side for many years and the IPO market is a joke. Every time an IPO pops +20% it's irrefutable evidence that the banks are either incompetent and/or untruthful. I remain mystified that companies, particularly the hot issues like LinkedIn, ProtoLabs, et al, dont opt for auctions. It's the 8th wonder of the world.
The other solution would be to be to have an adjustable underwriting fee that declines depending on how much the stock is up using the ~5 day average closing price after the IPO. If the stock was up some percent over the IPO price, say 40%, the underwriting fee would drop from 7% to 1%. Over 50%? No fees. Something along those lines would keep the banks honest. You failed (purposefully or not) to price the offering correctly and needlessly transferred hundred of million in wealth from the company to trading clients? Fine, you dont get paid.
For the hot issues, trust me, there is still plenty of demand. Tons. You really think no one would buy Splunk at $35, that an IPO would fail? It happens millions of times per day already in the secondary market, so clearly there's more than enough demand. The difference would be that the hedge funds who generate utterly insane commission dollars wouldn't have an interest in the offering...it would be more buy-and-hold guys subscribing, and those folks just aren't that profitable for the bank trade desks. I used to work at one of these big funds and I've seen this all first hand and it's ridiculous.
The other solution would be to be to have an adjustable underwriting fee that declines depending on how much the stock is up using the ~5 day average closing price after the IPO. [...] You failed (purposefully or not) to price the offering correctly and needlessly transferred hundred of million in wealth from the company to trading clients? Fine, you dont get paid.
Except they still get kickbacks from their double dealing.
GOOG popped over 100%, with its auction.
I remember Google's IPO vividly. Google's stock price didnt pop much. It priced at $85 and hit $100 the first day of trading. It hung around $100 for a few weeks and then started moving steadily higher throughout the fall, in large part because they reported an insane third quarter. The auction had other problems but the pricing was largely fine.
I'm talking about first day pops. These are situations that are clearly mismanaged. A stock that's supposedly worth $20 at 5pm on Tuesday is magically worth $35 at 9:30am on Wednesday despite nothing having changed. No supposedly functional market should be that inefficient. Unfortunately it's by design.