You are here
Prices & Quotes - New Issues - About New issues and IPOs
Risk Warning The value of investments can fall as well as rise and any income from them is not guaranteed and you may get back less than you invested. Past performance is not a guide to future performance.
About New Issues & IPOs
What is a New Issue?
A New Issue is a security that has been registered, issued and is being sold to the public for the first time. Securities that can be newly issued include equity and debt, so may refer to an equity (shares), a bond, Investment Trust or even a fund.
Initial Public Offerings (IPOs) and bonds are devices primarily used by companies to raise capital. An IPO is an offering of stock in a formerly privately-owned company to the general public by first offering it in a primary market and then listing it on an exchange. By purchasing a newly issued equity, an investor becomes an owner in a corporation and as a share holder they are entitled to voting rights and the right to share in future profits.
A newly issued bond is a debt investment which pays a fixed rate of interest, known as a coupon. An investor effectively loans money to the issuer, often a company (or the Government, in the case of a gilt) and gets paid a rate of interest in return. On maturity of the bond, the principle (loaned funds) is due to be returned.
By purchasing a bond, the investor becomes a creditor to the company (or Government) and as such has a higher claim on its assets than a shareholder. A debt investor (or bond holder) is only entitled to the principle plus interest and does not share in any future profits.
How does it work?
When a company decides to issue the new equity or debt they will usually engage an advisory service, such as a Corporate Bank, to help prepare for the launch. The advisory service assists in setting the offer price, typically quoting a price range, prepares the appropriate documentation and guides the issuer on drafting the Prospectus. They also manage the selection of underwriters, taking into account their research and distribution capabilities.
Once the process is underway, the chosen underwriters select distributors of the New Issue in the primary market. Distributors range from large investment banks to small retail brokers.
The New Issue will then be made available through the selected distributors for a set period of time. It will typically also attract comment in the financial press and, in some cases, may even be directly promoted. If during this period the offer is over-subscribed then applications will be scaled back or a proportional value of your application may be refunded. In the event that the New Issue is under-subscribed, the underwriter will purchase the remaining stock themselves.
How do I apply?
As a Selftrade customer, you can purchase any of the New Issues that we distribute through your Selftrade account. Some issues may not be eligible to be held in some account types- principally this affects shares to be listed on AIM and ICAP Securities & Derivatives Exchange Limited (ISDX) where you want to buy them into a Shares ISA, but some other restrictions can apply. For a detailed explanation of how to place an order, simply click through to the information page of the New Issue that you would like to purchase.
If you are not an existing customer of Selftrade, you can open an account and then place an order with us. Please be aware that we’ll need to verify your identity and your bank details as part of our regulatory requirements. This may cause a delay and mean that you are unable to place your order immediately, so we recommend that you plan ahead by opening an account before you see a New Issue that you would like to invest in.
What are the risks?
As many of the companies that first come to market are just starting out there is little historical data to go on. This can make it difficult for investors to analyse how the stock will initially fare in the markets, or to determine whether they are good picks for the longer term.
Another risk is that the offer may become over-subscribed. If an issue is more popular than the underwriter predicted, applications can be scaled back and you may not get the full allocation of shares that you requested. Details of how any scale-back would be handled will be found in the Prospectus.
You should also take into account the risks associated with investing in a New Issue as they can be rather volatile. Before investing in a New Issue you should always make sure that you read the Prospectus; this sets out the company’s business risks and opportunities, along with the proposed uses for the money raised by the New Issue.