What happens on the day of an IPO?
Rebecca Cattlin June 10, 2021 10:45 PM
On the day of an IPO, there’s often a lot going on – especially if a company has over or undervalued its shares. Find out everything you need to know about how the day of an IPO works, including what an IPO price is and what time IPOs start trading.
What happens on the day of the IPO?
On the day of the IPO, anyone who has subscribed, or registered their interest, will receive their allotment before the market opens. This is what is known as the primary market, which takes place between the company and investors – via an underwriter, usually a bank. Traditionally, the process is only open to institutional investors, but it is starting to be opened up to retail investors too.
The share allotment happens, and the investors officially become shareholders. But, once the stock market opens, they are free to sell their holding to other market participants at a higher (or lower) price. This is called the secondary market.
From the first day of an IPO, the shares enter what is known as ‘conditional trading’. During this time, all purchases have deferred settlement and you won’t necessarily be guaranteed that the trade goes ahead. Conditional trading periods can last from a few days to a week. Once unconditional trading starts, the shares are said to be freely traded on the open market.
Find out more about what an IPO is and how the process works.
What is an IPO price?
The IPO price is the value that the underwriter and company will set for the stock to begin trading at on the market – this can be different to the target price that was given in the prospectus for the IPO. If the starting price is higher than the target price, it’s an indication that there was a lot of interest in the shares pre-IPO, and the company expects it can make more money.
But it’s a fine line. If the IPO price is too high, the shares will drop on opening. A recent example of this would be Deliveroo’s listing on the London Stock Exchange – its shares fell from an opening price of 390p to 284p at close.
What time do IPOs start trading?
The time IPOs start trading will vary depending on the stock exchange the listing is taking place on. In general, for the US and UK, a stock that has IPO’d will be available to retail traders and investors when the market opens – at 2:30pm and 8am (UCT) respectively. But due to a lot of administrative red tape, they can be delayed by a few hours.
For stocks listing on the London Stock Exchange, once an IPO price is set, it is usually revealed at 7am. Conditional trading will then begin at 8am (UCT) and will last for a few days.
In some other countries, newly-listed shares will start trading at specific times. For example, in India, IPO securities will start trading at 10am.
How to trade top stocksOnce an IPO has taken place, you can trade the shares with City Index in these easy steps:
- Open a City Index account, or log in if you’re already a customer
- Search for the company you want to trade in our award-winning platform
- Choose your position and size, and your stop and limit levels
- Place the trade
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