Vonage

hi,

how does an IPO trade down? Since they are unshortable (supposedly) the only ppl long would be ppl who got allocated. Does this price movement primarily happen from people who took the allocation to flip on the open?

It would seem the MM would be there and be able to support the security. Especially on its opening day.

I was just curious how IPOs trade down (generically speaking).

In short, where do the sellers come from on opening day?? (other than the MM)

(Im not long or short VG)
 
A great number of people including institutional investors and hedge funds are only there for the flip - they give enough commission to their brokers to ensure that they get good allocations at the issue price. And since they are good customers the lead manager will turn a blind eye to them repeatedly flipping at the open and thus depresing the price.

In the case of a good deal, a popular deal for which there is great demand, this does not matter too much for the lead manager. There are instances where institutional investors will want to keep the stock and buy more in the aftermarket. Google perhaps.

In the case of a bad deal, many, many people will flip their stock and thus the syndicate can not hold the bid at the issue price. If you look at the volume on the first day of a typical IPO you will see that it often exceeds the entire amount of stock issued.

In the case of Vonage, they were dumb enough to double the amount raised. They were also dumb enough to price it at the top of the range. In the case of a popular deal this often does not matter. In the case of Vonage there appeared article after article in the press damning the fundamentals of the company.

So, add all this together and you have the usual recipe for a crappy deal. I don't claim I always get it right but I did avoid this one. I may well be wrong on Master Card but I am avoiding that too. The markets have been too shaky for such a huge deal and the comments on the fundamentals have not been too sparkling.

I tend to veer on the side of caution. If you indicate 20,000 shares in 5 places on a huge deal which goes sour, it tends to hurt.
 
empee,

I could be wrong here but I believe the sellers are hedge funds. They sell stock that they borrow. They sell the stock on the ECN's which means the specialist on the NYSE is powerless to support the price. Their source for the stock is their prime broker. The prime broker gets the stock from a lender via an agent. There are several levels of confidentiality here so that the seller has no idea of who the lender (called the principal) is. Since he has no idea he has no reason to doubt the existence of the shares he is borrowing. The prime broker "relies" on the credit of the agent. Effectively, if the prime broker has put his "reliance" on the agent lender in the past then he is justified in placing his reliance on him now. The hedge fund must put up collateral for this borrowing against the day when it returns the stock to the principal.

Bidrec
 
What are you talking about Bidrec?
The stock is not shortable or borrowable by anybody, including PRIME BROKERS!

It is very simple, the stock was placed in the wrong hands and is being flipped.

The only market maker that will ever support an IPO is the underwriter and he won't buy all of it, The underwriter has the option of excercising the "green shoe", a predetermined number of shares at a predetermined price, back to The "Issuer".

http://www.thestreet.com/funds/deardagen/950782.html
 
Ebo,

I would like to believe you.

Your links (a link with another link) is almost six years old.

Modern securities lending has really grown recently.

There was enormous demand to borrow two other NYSE listed IPOs right at the time of their offering: NYX and THI. One of my favorite sites for following this stuff is experiencing difficulty. It is www.mws.com: click on download newsletter. Another site is www.dataexplorers.co.uk, click on performanceexplorer, click on SUMMARY STATISTICS, register for free.

Or--maybe you can help me here--NYX's IPO was March eighth. It made the SHO threshold list on the seventeenth. So, it went on sale the eighth, there are three days to settlement, inclusive, (t+3), that takes it to the tenth, which is a Friday. Settlement failures follow the next five settlement days and that is what puts it on the SHO list on the following Friday. As I understand it it had settlement problems from transactions on the first day of sale. So, by analogy, what I expect to see is heavy borrowing of VG as a directional bet (as opposed to a carve-out like THI where they go long WEN and short THI).

We'll see,

Bidrec
 
I follow every deal and in the US this year while there have been a good number of deals the opening premiums have been, on the whole, very disappointing.
 
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