Depository Trust Company IPO Tracking System
What Is the Depository Trust Company IPO Tracking System?
As its name proposes, the Depository Trust Company IPO Tracking System is a system, administered by the Depository Trust Company, that is intended to monitor the purchase and sale of securities that have recently been issued through a initial public offering (IPO).
One of the principal uses of the system is to recognize cases were insiders have sold their shares not long after the IPO. This practice, casually known as "flipping", is frequently disapproved of by underwriters.
How the Depository Trust Company IPO Tracking System Works
In spite of the fact that underwriters depend on certain insiders selling their shares to make those shares accessible to retail investors, they likewise wish to stay away from a situation where insider selling puts descending pressure on the market price of the recently issued security.
To keep up with this balance, underwriters will frequently get commitments from their clients, who will pledge to not sell their shares inside a predetermined time span. Significantly, these insiders may not be required to follow through on this pledge by any laws or regulations. Consequently, the underwriter might have to depend on their clients' vows not to flip their shares following the IPO.
Lock-up Periods
Some IPO members — like the company's executives, early investors, and pioneers — might be subject to explicit lock-up periods, during which they are denied by law from selling their shares. As a binding legal obligation, this restriction makes priority over any casual pledges those investors might have made to their underwriters.
Fortunately, the Depository Trust Company IPO Tracking System gives a means to underwriters to confirm whether these commitments have as a matter of fact been kept. By monitoring all purchases and sales of securities that have been issued through a recent IPO, the tracking system permits underwriters to survey reports of IPO-related share developments, in this manner recognizing which investors decided to flip their shares.
On the off chance that an underwriter learns through the tracking system that a client broke their guarantee to not flip their shares, the underwriter might answer by not offering them a allotment to the next IPO. Consequently, clients who plan to flip their shares will typically let the underwriter know ahead of time, to not risk future business.
Real World Example of the Depository Trust Company IPO Tracking System
Situated in New York City, the Depository Trust Company IPO Tracking System is one of the world's biggest securities safes.
As well as giving safekeeping through electronic recordkeeping of securities balances, it likewise acts as a clearinghouse to process and settle trades in the corporate and municipal bond markets.
Features
- The system is likewise utilized a clearinghouse in different markets, for example, corporate and municipal bonds.
- Depository Trust Company IPO Tracking System gives data on the purchase and sale of recently-recorded securities.
- Accommodating for underwriters wish to monitor and answer unauthorized flipping of IPO shares.
