3 ms·

What determines the initial listing price if this approach is taken? (Sorry I am not well versed on IPO's and moving to a public company.)

kgwgk 9y ago
The same thing that determines the price when the market open on the first day of trading following an IPO: the point where sellers and buyers meet. But if liquidity is scarce and trading volumes are low, price discovery will indeed be hard.
sdkmvx 9y ago
There is none. On the first day of trading there would be an opening auction as is done with every other stock listed on the NYSE. Prior to open, everyone interested in trading submits his orders. Then as many shares as can be traded are traded at the price at which the maximum number of shares can be traded. That is, the price is determined by supply and demand. The IPO price is the price at which shares are sold by the company to the public and represents the new money invested in the company. Then on the morning on which trading opens there is an opening auction as described. Ideally this price is near the IPO price, meaning that neither the company nor the investors left money on the table. Spotify is proposing to skip the IPO, and not raise further money. They must think that their stock is already widely held enough to support trading, and that they have no need of further money. It will be interesting to see what happens if they go forward with this. While the mechanics are no different than any other day of trading, I suspect the type of trading will be very different. Currently all holders of Spotify stock are long-term investors, simply because there is no market. Until traders acquire enough of it, liquidity will be bad and the price will probably jump around a lot. In addition, many people will want to invest, so they will buy. Will current holders want to sell? I suspect they will want to watch trading instead of selling at the first possible moment. I think we'll see a rapid rise in Spotify's price due to high demand and lack of supply. The current holders will undoubtedly be looking to reduce their stake. Will demand keep up as they begin selling, or will price rapidly fall as trading becomes, for lack of a better term, "normal."
- justinjlynn 9y ago
  In short: grabs bowl of popcorn this is going to be fun.
- notyourwork 9y ago
  So basically the IPO is a way to formalize the initial price of the stock. By bypassing that process, they will sell for whatever the market dictates for better or worse, is that correct? If this is the case, is it possible the market could drive the price way up or way down (more volatile?) Additionally, is it possible that all private share holders could prior to first day of listing come to an agreement on a minimum price they would sell for? This would essentially be them setting their own price. Now whether people are willing to pay at that price is another story.
  - sigstoat 9y ago
    > So basically the IPO is a way to formalize the initial price of the stock. no. it is the company selling their stock to the public for the first time, to raise cash. the company chooses a price it is willing to sell at. further, "formalizing" the price of the stock isn't a thing. the price of the stock is whatever somebody will sell it to you for. > By bypassing that process, they will sell for whatever the market dictates for better or worse, is that correct? once the stock is on the market, it sells for whatever someone will buy it. the IPO happens shortly before it hits the market. > Additionally, is it possible that all private share holders could prior to first day of listing come to an agreement on a minimum price they would sell for? sure, they could. but there are probably already hundreds or thousands of them.
    - adventured 9y ago
      > no. it is the company selling their stock to the public for the first time, to raise cash. That's incorrect. The company is not raising cash with this IPO. The insiders are doing the IPO to sell, which should tell you what's actually going on. By direct listing, they avoid the traditional lock-up, so they can liquidate immediately.
jnordwick 9y ago
I assume it would be the opening auction. At the start of trading every day (and on every interday restart and close of day) there is an auction held. All interested participants enter market or limit on open orders from 5 to 15 minutes before the auction (depending on which auction). The exchange will periodically publish what are called imbalance numbers that show relative buy/sell pressure and what price the auction would go off at if it happened that instance. When the auction does go off, the price is chosen to maximize volume. This is how we get opening and closing prices of a stock. It isn't just the last price traded. In this context, the those that have stock (including the company itself) would probably have their shares moved to a brokerage and then they can sell directly to the public who wish to buy. Basically the same that would happen with the first day of public trading on the secondary market after the initial offering.

kgwgk 9y ago

The same thing that determines the price when the market open on the first day of trading following an IPO: the point where sellers and buyers meet. But if liquidity is scarce and trading volumes are low, price discovery will indeed be hard.

sdkmvx 9y ago

There is none. On the first day of trading there would be an opening auction as is done with every other stock listed on the NYSE. Prior to open, everyone interested in trading submits his orders. Then as many shares as can be traded are traded at the price at which the maximum number of shares can be traded. That is, the price is determined by supply and demand. The IPO price is the price at which shares are sold by the company to the public and represents the new money invested in the company. Then on the morning on which trading opens there is an opening auction as described. Ideally this price is near the IPO price, meaning that neither the company nor the investors left money on the table. Spotify is proposing to skip the IPO, and not raise further money. They must think that their stock is already widely held enough to support trading, and that they have no need of further money. It will be interesting to see what happens if they go forward with this. While the mechanics are no different than any other day of trading, I suspect the type of trading will be very different. Currently all holders of Spotify stock are long-term investors, simply because there is no market. Until traders acquire enough of it, liquidity will be bad and the price will probably jump around a lot. In addition, many people will want to invest, so they will buy. Will current holders want to sell? I suspect they will want to watch trading instead of selling at the first possible moment. I think we'll see a rapid rise in Spotify's price due to high demand and lack of supply. The current holders will undoubtedly be looking to reduce their stake. Will demand keep up as they begin selling, or will price rapidly fall as trading becomes, for lack of a better term, "normal."

justinjlynn 9y ago
In short: grabs bowl of popcorn this is going to be fun.
notyourwork 9y ago
So basically the IPO is a way to formalize the initial price of the stock. By bypassing that process, they will sell for whatever the market dictates for better or worse, is that correct? If this is the case, is it possible the market could drive the price way up or way down (more volatile?) Additionally, is it possible that all private share holders could prior to first day of listing come to an agreement on a minimum price they would sell for? This would essentially be them setting their own price. Now whether people are willing to pay at that price is another story.
- sigstoat 9y ago
  > So basically the IPO is a way to formalize the initial price of the stock. no. it is the company selling their stock to the public for the first time, to raise cash. the company chooses a price it is willing to sell at. further, "formalizing" the price of the stock isn't a thing. the price of the stock is whatever somebody will sell it to you for. > By bypassing that process, they will sell for whatever the market dictates for better or worse, is that correct? once the stock is on the market, it sells for whatever someone will buy it. the IPO happens shortly before it hits the market. > Additionally, is it possible that all private share holders could prior to first day of listing come to an agreement on a minimum price they would sell for? sure, they could. but there are probably already hundreds or thousands of them.
  - adventured 9y ago
    > no. it is the company selling their stock to the public for the first time, to raise cash. That's incorrect. The company is not raising cash with this IPO. The insiders are doing the IPO to sell, which should tell you what's actually going on. By direct listing, they avoid the traditional lock-up, so they can liquidate immediately.

jnordwick 9y ago

I assume it would be the opening auction. At the start of trading every day (and on every interday restart and close of day) there is an auction held. All interested participants enter market or limit on open orders from 5 to 15 minutes before the auction (depending on which auction). The exchange will periodically publish what are called imbalance numbers that show relative buy/sell pressure and what price the auction would go off at if it happened that instance. When the auction does go off, the price is chosen to maximize volume. This is how we get opening and closing prices of a stock. It isn't just the last price traded. In this context, the those that have stock (including the company itself) would probably have their shares moved to a brokerage and then they can sell directly to the public who wish to buy. Basically the same that would happen with the first day of public trading on the secondary market after the initial offering.