3 ms·

They are quite literally setting the prices of IPO's though, by fiat, and not via an auction or some other market-oriented mechanism. I have no opinion about a

by davidw 9y ago

They are quite literally setting the prices of IPO's though, by fiat, and not via an auction or some other market-oriented mechanism. I have no opinion about actual 'collusion' but the mechanism looks pretty bad seen from afar.

acchow 9y ago
The banks compete against each other on price - the company gets to freely choose the underwriter and they take price into account. Do you have evidence the banks are colluding on price? Edit: to clarify, no the banks do not really set the IPO price. The banks offer different underwriting prices. The company ultimately chooses the price among the many banks' offers.
- davidw 9y ago
  > Do you have evidence the banks are colluding on price? Nope, which is why I wrote that I have no opinion on that. Edit: I think that very direct collusion would probably not be a stable arrangement, long term. But perhaps 'not competing too hard' between a low number of competitors with big barriers to entry is realistic. > Edit: to clarify, no the banks do not really set the IPO price. The banks offer different underwriting prices. The company ultimately chooses the price among the many banks' offers. That's still a way less transparent and market-oriented option than auctioning the shares. It's a hell of a lot easier for a few banks to be 'gentlemanly' in their competition than it is for lots of people trying to get some shares at an IPO via an auction. I mean, we're discussing an IPO that was "oversubscribed" at the set price, meaning money was being left on the table, right?
chimeracoder 9y ago
> They are quite literally setting the prices of IPO's though, by fiat, and not via an auction or some other market-oriented mechanism. Er, no, it's literally set by an auction (the auction occurring between the different banks who can underwrite the IPO). A bank that is consistently able to predict the IPO opening-bell price better than the others, or is willing to accept a slightly smaller cut than the others, will win the auction, and will outperform the others on average.
- kgwgk 9y ago
  > the auction occurring between the different banks who can underwrite the IPO What do you mean? Do you have a reference?
  - sah2ed 9y ago
    I wouldn't characterize the activities between banks underwriting an IPO as an auction, probably closer to a negotiation [0]. This [1] is a well-written prose from Matt Levine on the role of underwriters in working with Snap prior to their IPO. [0] https://www.bloomberg.com/view/articles/2016-01-15/uber-is-raising-more-money-from-rich-people https://www.bloomberg.com/view/articles/2016-01-15/uber-is-r... [1] https://www.bloomberg.com/view/articles/2017-03-27/banks-that-sold-snap-ipo-say-it-s-a-buy https://www.bloomberg.com/view/articles/2017-03-27/banks-tha...
    - kgwgk 9y ago
      How is that related to the claim of the IPO price being set by an "auction occurring between the different banks who can underwrite the IPO"? Edit: thanks for the clarification
      - sah2ed 9y ago
        I've edited my comment above to be more clear.

by davidw 9y ago

acchow 9y ago

The banks compete against each other on price - the company gets to freely choose the underwriter and they take price into account. Do you have evidence the banks are colluding on price? Edit: to clarify, no the banks do not really set the IPO price. The banks offer different underwriting prices. The company ultimately chooses the price among the many banks' offers.

davidw 9y ago
> Do you have evidence the banks are colluding on price? Nope, which is why I wrote that I have no opinion on that. Edit: I think that very direct collusion would probably not be a stable arrangement, long term. But perhaps 'not competing too hard' between a low number of competitors with big barriers to entry is realistic. > Edit: to clarify, no the banks do not really set the IPO price. The banks offer different underwriting prices. The company ultimately chooses the price among the many banks' offers. That's still a way less transparent and market-oriented option than auctioning the shares. It's a hell of a lot easier for a few banks to be 'gentlemanly' in their competition than it is for lots of people trying to get some shares at an IPO via an auction. I mean, we're discussing an IPO that was "oversubscribed" at the set price, meaning money was being left on the table, right?

chimeracoder 9y ago

> They are quite literally setting the prices of IPO's though, by fiat, and not via an auction or some other market-oriented mechanism. Er, no, it's literally set by an auction (the auction occurring between the different banks who can underwrite the IPO). A bank that is consistently able to predict the IPO opening-bell price better than the others, or is willing to accept a slightly smaller cut than the others, will win the auction, and will outperform the others on average.

kgwgk 9y ago
> the auction occurring between the different banks who can underwrite the IPO What do you mean? Do you have a reference?
- sah2ed 9y ago
  I wouldn't characterize the activities between banks underwriting an IPO as an auction, probably closer to a negotiation [0]. This [1] is a well-written prose from Matt Levine on the role of underwriters in working with Snap prior to their IPO. [0] https://www.bloomberg.com/view/articles/2016-01-15/uber-is-raising-more-money-from-rich-people https://www.bloomberg.com/view/articles/2016-01-15/uber-is-r... [1] https://www.bloomberg.com/view/articles/2017-03-27/banks-that-sold-snap-ipo-say-it-s-a-buy https://www.bloomberg.com/view/articles/2017-03-27/banks-tha...
  - kgwgk 9y ago
    How is that related to the claim of the IPO price being set by an "auction occurring between the different banks who can underwrite the IPO"? Edit: thanks for the clarification
    - sah2ed 9y ago
      I've edited my comment above to be more clear.