Comment Re:General public trading (Score 1) 134
Underwriters of a new offering, (e.g., the investment banks like Goldman Sachs) "make a market" for the shares, that is, they do the following:
a) buy the shares that the company wants to issue
b) sells the shares to the public
Consequently, the underwriters have a great deal of incentive to underprice the offering. Insiders inherently have the same conflict of interest.
Auctions, of course, provide a more efficient way of matching buyers and sellers. At least one investment bank is now offering IPO on an auction basis. If not for the conflict of interest of insiders, this method would become the preferred method of issuing new stock.
a) buy the shares that the company wants to issue
b) sells the shares to the public
Consequently, the underwriters have a great deal of incentive to underprice the offering. Insiders inherently have the same conflict of interest.
Auctions, of course, provide a more efficient way of matching buyers and sellers. At least one investment bank is now offering IPO on an auction basis. If not for the conflict of interest of insiders, this method would become the preferred method of issuing new stock.
