Dawn Raid

What Is a Dawn Raid?

During a dawn raid, an investor obtains a substantial number of shares in a company first thing, just as the stock market is opening for business.

Understanding Dawn Raids

Like the dawn raid in war, the corporate dawn raid is done promptly in the morning, so when the target understands it's being gone after, it's too late — the investor has proactively gathered up a significant controlling interest position. Since the bidding company constructs a substantial stake in its target at the overarching stock market price, any takeover costs are probably going to be fundamentally lower than they would have been had the getting company made an announcement of expectation prior to gaining a position in a target.

Be that as it may, just a minority interest in a firm's shares can be bought along these lines, as a position greater than 5% requires formal documentation. In this way, after a fruitful dawn raid, the raiding firm is probably going to make a takeover bid to obtain the remainder of the target company.

In theory, a dawn raid ought to permit a target entity to be purchased at a discount before news breaks of an acquirer's interest in a takeover target. In practice, nonetheless, many developed markets partake in a level of market proficiency that makes it challenging to execute a dawn raid without pariahs knowing about it as of now. High-frequency trading and other calculation driven investment strategies further confound secrecy. In that capacity, empirical outcomes are mixed.

The growth and flexibility of financial instruments further distort the traditional definition of a dawn raid. For example, many instruments may be accessible in over-the-counter (OTC) or off-exchange markets. Futures and options can be purchased "pre-market."

Another consideration is the brokerage service level. Famous discount brokers don't "fill" market orders right away. On the off chance that speed of execution is required, more costly full-service brokers might be required.

Highlights

• A dawn raid alludes to the practice of buying up a large amount of shares right at the open of the day's trading.
• The goal of a dawn raid is to gather a large number of shares in a target company by one company to influence a possible takeover of the target.
• Due to the fast scattering of price data and exchange and securities regulations, it is quite hard to accomplish the purpose of a dawn raid in practice.