What's going on?
An initial public offering (IPO) is the process by which a private company makes its shares available to be publicly traded. On Friday, the biggest IPO so far this year occurred – and it could be just the beginning of an IPO wave.
What does this mean?
BATS Global Markets is an alternative stock exchange to the New York Stock Exchange (shares don’t have to be traded on the NYSE – you just hear about the NYSE the most) – and on Friday BATS’s shares became publicly tradable for the first time (and yes, they’re trading on the BATS exchange). They performed very well on their first day too as they gained more than 20% (meaning that investors who bought shares in the IPO are already up 20%).
Why should I care?
The bigger picture: The IPO market was dead quiet this year until this deal. Companies tend not to do an IPO when markets aren’t performing well. Unsurprisingly, they want to have good market conditions so that they can sell their stock at a relatively good price. There are a lot of IPOs in the pipeline and, especially since BATS was such a success, it probably won’t be long until we see more.
For you personally: Unless you’re a big dog, it’s difficult to participate in an IPO. Big institutional investors tend to drive the bus when it comes to IPOs. It’s possible to buy shares in an IPO as an individual but for most of us it’s quite difficult – and if a deal is “hot” then it becomes even more difficult (bigger clients tend to get favored when it comes to the allocation of shares). But if you own a fund that is managed by a professional firm, e.g. by Fidelity, it’s very likely that they are participating in IPOs on your behalf.