IPOs - Speak The Basics (Very Good Reading) (9)

Let the games begin

Once the offering price has been agreed on -- and at least two days after potential investors receive the final prospectus -- an IPO is declared effective.

This is usually done after a market closes, with trading in the new stock starting the next day as the lead underwriter works to firm up its book of buy orders.

The lead underwriter is primarily responsible for ensuring smooth trading in a company's stock during those first few crucial days.

The underwriter is legally allowed to support the price of a newly issued stock by buying shares in the market or selling them short (which means selling shares it doesn't have in its account).

can also impose penalty bids on brokers to discourage flipping, which is selling shares in an IPO soon after the stock starts trading.

This ability to control the price of an IPO somewhat is one reason investors feel it's such a negative when a stock quickly falls below its offering price.

An IPO is not declared final until about seven days after the company's market debut.

On rare occasions, an IPO can be canceled even after a stock starts trading.

In such cases, all trading is negated and any money collected from investors is returned.