To understand the IPO process, it is always a good idea to speak the language used.

Allocation This is the amount of stock made available in an initial public offering (IPO) by the underwriter to an investor. The allocations are given out usually to preferred clients of the underwriting based on past investment trading and commission volume.

Aftermarket Trading in the IPO after its initial offering is called the aftermarket.

Aftermarket Performance Used to describe how the stock of a newly public company has performed relative to its offering price as the typical benchmark. However, some investors judge performance from the first day close to obtain a better benchmark of IPO aftermarket performance.

American Depository Receipts (ADRs)/American Depository Shares (ADSs) Non-U.S. companies wishing to list on a U.S. exchange are obliged to adhere to the regulatory and reporting standards of the Securities and Exchange Commission. They are called "receipts" because they represent a certain number of a company's regular shares.

All or none An offering which can be canceled by the lead underwriter if it is not completely subscribed. Most best-effort deals are all or none.

Beauty Contest A company who is considering doing an IPO, will typically interview a number of investment banks to determine which ones would do the best job of underwriting the offering. This parading of investment bankers through a company's offices is known as the beauty contest.

Best effort An arrangement with the underwriters who only agree to do their best to sell shares to the public. As opposed to a firm commitment to sell all the shares.

Blue Sky These are state securities laws that are designed to protect individual investors.

Book This is a list of all buy and sell orders put together by the lead underwriter.

Book Running Manager The underwriter who controls the offering is referred to the book running manger. The name of the book runner manager appears on the top left at the bottom of the cover page of the prospectus.

Bought Deal An underwriter's commitment to buy all the shares from a company and becomes
financially responsible for selling them. Also called firm commitment.

Broken IPOs or Break Issue When an IPO trades under its IPO price in the aftermarket, it is said to be a broken IPO.

Calendar This refers to upcoming IPOs and secondary offerings.

Completion An IPO is not a done deal until it has been completed and all trades have been declared official. Usually happens about five days after a stock starts trading.

Co-Manager In most initial public offerings and secondary offerings there is more than one underwriter. The manager controlling the offering is called the lead manager and the other underwriters are co-managers. The names of the co-managers appear on the bottom of the front page of the prospectus, and the lead manager appears on the top left.

Comparables To determine the price of an IPO the investment bankers will study the price of similar public companies. These other companies are called comparables.

Day To Day (DTD) An IPO that is listed as day-to-day on the offering calendar, means that the lead underwriter does not have sufficient orders for the initial purchase of the stock offering. These IPOs will likely be postponed.

Direct Public Offering (DPO) This is an offering in which a company sells its shares directly to the public without the help of underwriters. Liquidity of these offerings are very limited.

Due Diligence This term describes the process of the investment bankers and lawyers for the underwriters conducting an in-depth examination of the proposed IPO including the company's prospects, strategy, and financial statements. All relevant and material information of the company's prospects must be disclosed in the prospectus.

Fallen Angel This is a term that refers to a high quality company whose share price has fallen below its initial offering price.

Final Prospectus Once the IPO has been priced, the company prints a final updated prospectus and distributes it to buyers of its IPO. The final prospectus contains all of the information presented to the public in the preliminary prospectus, which was printed before the offering.

First Day Close This refers to the closing price of the first day of public trading of the IPO.

Flipping When an investor buys an IPO at the offering price and then sells the stock soon after it starts trading on the open market. The underwriters try to discourage flipping by initialing placing stock in the hands of long term investors, particularly ones that have promised aftermarket orders.

Float The total number of shares in circulation which are held by the general public is called the float as opposed to the total number of shares. The float consists of the company's shares held by the general public.

Green Shoe  Part of the underwriting agreement which allows the underwriters to buy up to an additional 15% of shares at the offering price for a period of several weeks after the offering.

Gross Spread This is the difference between the public offering price and what the issuing company receives. The investor pays no commission when he or she buys an IPO at the offer price and as such the underwriter makes its profit by charging the issuing company this gross spread.

Hot Issue An IPO is said to be a hot issue when there is significantly more demand than supply.

Indication of Interest A lead underwriter will gauge investor demand for an IPO so as to set its offering price.

Initial Public Offering This refers to a company's first selling of its shares to the public.

Lead Manager or Underwriter This is the underwriter who has ultimate control of the offering and whose name appears in the upper left-hand corner of the front page of the prospectus. The other underwriters are called co-managers whose names appear on the bottom of the front page of the prospectus.

Lock Up Period This is the time period after the IPO during which the insiders of the issuing company are required by the lead underwriter to not sell their shares. Normally a 180 days.

New Issue Another term for an IPO.

Offering Price This is the price at which the IPO is first sold to the public.

Offering Range This is the initial price range within which a company expects to sell stock. The offering range appears on the front page of the preliminary prospectus. However, the ultimate IPO price may be above, below or within the range, depending on demand and market conditions.

Opening Price The price at which a new stock starts trading. Also called the first trade price. Underwriters hope that the opening price is above the offering price, giving investors in the IPO a premium.

Order Book This refers to the listing of investors who have subscribed for IPO shares. IPO's can be oversubscribed when demand for the IPO is strong.

Oversubscribed When investors apply for more IPO shares than are available. This is usually an indication that the IPO is a hot issue and will trade initially at a higher price than the initial price offering.

Penalty bid To discourage individual investors from quickly selling IPOs, some brokerage firms levy a penalty fee on a broker if his or her client sells an IPO within a certain period of time. This is meant to discourage flipping.

Pinks This refers to a preliminary prospectus containing no price range or number of shares. Pinks are sometimes used by foreign companies doing an IPO in the US. The actual offering price and number of shares is eventually set out in the final prospectus.

Pipeline It is a stage in the IPO process when a company files its registration statement (or S-1) with the SEC and is waiting to go public. Once the registration is filed, it takes about eight weeks for the company's shares to begin trading publicly.

Preliminary Prospectus This is the offering document printed by the company containing a description of the business, discussion of strategy, presentation of historical financial statements, explanation of recent financial results, management and their backgrounds and ownership. The preliminary prospectus has red lettering down the left hand side of the front cover of the prospectus and is called the "red herring." It is the company's principal marketing document. Management, when touring on the road show, is limited to discussing only the information contained in the prospectus.

Postponed This is what happens when an IPO fails to attract sufficient buyers. Sometimes the lead manager will lower the price to entice buyers.

Premium The difference between the IPO price and its opening price is called the premium. Also called an IPO's pop.

Price Range The price range of what the company expects to price its offering must be stipulated in the prospectus. This range can may be adjusted up or down depending on market conditions and investor reaction to the proposed price.

Proceeds Money raised by the company by its IPO is referred to as proceeds. Investors should refer to the
Use of Proceeds section in a prospectus to determine what the company plans to use the money for.

Prospectus This document is attached to a company's S-1 registration statement explaining all aspects of a company's business, including financial results, growth strategy, and risk factors. The preliminary prospectus is also called a Red Herring because of the red ink used on the front page, which indicates that some information -- such as the price and share amounts -- is subject to change.

Quiet Filing When a company wants to get its SEC review underway but it knows it has some has unresolved issues such as a choice of underwriter or number of shares to be offered and if it feels that it will be subject to a long SEC review then it will make a quiet filing of its registration statement. The registration statement will lack the information unresolved but is used to get the SEC review underway.

Quiet Period After the IPO is priced, the underwriters are restricted for a period of up to 25 days after the stock starts trading from stating publicly any information not contained in the prospectus. This 25 day period is called the quiet period.

Recapitalization In the context of IPO's, recapitalization refers to the company restructuring its debt by using the proceeds of an IPO to pay off some of its debt.

Red Herring This refers to the preliminary prospectus because of the printed red disclaimer on the left side of the prospectus.

Registration Statement As part of the IPO process the company must file a registration statement with the SEC. This document describes the company, its management and its financials. The IPO process cannot proceed until the SEC is satisfied with the registration statement.

Road Show A tour taken by a company preparing for an IPO to attract interest in the offering. Usually the presentation is done in front of institutional investors and analysts.

S-1 This is the registration statement that is filed with the Securities and Exchange Commission announcing a company's intent to go public. Included with the registration statement is the prospectus.

Selling Group This terms refers to the group of underwriters formed to underwrite an IPO.

Selling Shareholders These are the shareholders of the IPO who are selling shares at the time of the offering. It is not a good sign where the shareholders are selling large amounts of stock.

Spinning The practice by investment banks of distributing shares to certain banks in hopes of getting their future investment banking business in the future.

Spin-off This refers to a company selling a portion or all of a division to the public by way an IPO.

Stabilization This refers to the process of the lead manager ensuring that members of the syndicate support the stock price after the IPO begins trading to ensure that the IPO doesn't fall below its offer price.

Syndicate This is the group of underwriters formed to underwrite an IPO.

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