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Desk
Equity Capital Markets
Selling shares — a company's first sale to the public, its next one, and the days somebody places a large block of an existing holding.
The desk at a glance
Equity capital markets is the business of selling shares to investors in one organised transaction. Sometimes the shares are new and the money goes to the company; sometimes they already exist and the money goes to whoever owned them. That single distinction — primary or secondary — changes what the transaction means more than any other fact about it, and it is the first thing to look for in any announcement.
The desk sits between two parties who want opposite things at the same moment. The issuer wants the highest price it can get; the investors want a discount for taking a position that has no trading history and cannot be sold back the next morning without moving the price. The transaction is an agreement about how large that discount should be, negotiated in the open over about ten days.
What makes it unlike an auction, and what surprises everybody the first time: the highest bidder does not automatically win. The issuer chooses who gets shares, deliberately favouring investors it expects to hold rather than sell into the first strong day. Allocation is a judgement about future behaviour, and it is where most of the desk's actual skill sits.
Who does what
The global coordinator runs the transaction, owns the timetable, and is accountable for the price. On a large deal there are two or three, which is a governance arrangement as much as a distribution one.
The bookrunners take orders from investors and build the book. Whose orders count, and how they are read, is the raw material of the pricing decision — see the IPO.
The syndicate — everybody else in the underwriting group. They distribute, they take a share of the fee, and they take a share of the risk if the deal is underwritten rather than best-efforts.
The stabilising manager — one named bank permitted, for a defined period and within published limits, to buy in the market after listing. Disclosed, time-limited and regulated: it is not a rescue. See the greenshoe.
The reporting accountants produce the historical financial information and the comfort letters the banks rely on. Most of the months before a listing are their work, not the bankers'.
The regulator approves the prospectus. It checks disclosure, not merit: approval says the document says enough, never that the shares are worth the price.
What decides whether this desk is busy
Six mechanisms, each with the direction it pushes in and the thing to watch. None of them is a forecast, and none is a number that goes out of date.
What
Which way it pushes
What to watch
The volatility index, more than the level of the market
High volatility shuts the window regardless of how high prices are
A bookbuild prices off a market that has to stand still for the few days the book is open. Investors will not commit to a price range that a moving market makes stale, so issuance stops in turbulence even when the index is near a high.
How the last few deals traded after listing
Two broken deals close the window for everybody
Investors price a new issue against their experience of the previous ones. A sequence that traded below its issue price makes the next book harder to build at any discount, which is why issuers care about aftermarket performance they no longer economically own.
Free float and index inclusion
A larger float can mean a lower price and a much larger buyer
Index funds must buy what enters the index and cannot buy what does not. Whether a listing qualifies — float size, domicile, share class — changes the identity of the natural holder, which changes the price the book will bear.
Lock-up expiry
A known, dated increase in supply
Insiders agree not to sell for a period after listing. The expiry is public, it is in the prospectus, and the shares frequently weaken into it — a supply event on a calendar, which is as close to predictable as equity flows get.
The reporting blackout
Removes whole weeks from the year
A company cannot market its shares while it holds results the market does not. The effect is a calendar with a small number of open windows, and a queue of issuers competing for the same ones.
Whether the seller is the company or a shareholder
Primary money funds the business; secondary money leaves with the seller
The same transaction mechanically has opposite meanings depending on who receives the proceeds. Investors read a large secondary component as an owner reducing exposure, and price it that way.
The calendar this business keeps
Every desk has a rhythm its regulars plan around and a newcomer discovers by being surprised by it.
When
What happens
Why it matters
The kick-off, months before anything is public
Auditors, lawyers and banks begin the work that produces a prospectus
Almost all of an equity issue is preparation nobody sees: restating accounts, writing risk factors, resolving what has to be disclosed. The visible part — the roadshow — is the last two weeks.
Intention to float, roughly a month before pricing
The company announces publicly that it intends to list
This is the point at which the transaction becomes real and reversible only at a cost. Everything after it is a public process with a regulator watching how the company speaks.
The bookbuild, a week to ten days
Investors place orders at prices within a published range
The book is not an auction and the highest bid does not win: the issuer chooses an allocation, deliberately favouring investors it expects to hold. Who gets shares matters as much as the price.
Pricing night
One price is struck for everybody in the book
The range narrows, the size is fixed and allocations go out overnight. A deal priced at the top of the range and a deal priced below it are the same document and completely different signals.
Stabilisation, the weeks after listing
The stabilising manager may buy in the market, within published limits
This is disclosed, time-limited and regulated — not a rescue. When it ends, the shares meet the market without it, which is why the second month of a listing is more informative than the first.
How this desk reaches the rest of the site
The deals and the instruments are one subject. These are the corridors — each one a mechanism, not a resemblance.
A listing of a fund or a property vehicle is an equity deal over an asset pool, and both desks are in the room.
What the client is actually paying for
The fee on an equity offering is a grossspread: a percentage of the money raised, deducted from the proceeds rather than invoiced. It is traditionally divided three ways, and the division says what the banks are actually being paid for:
The management fee — for running the transaction: structuring it, preparing the documents, deciding the timetable.
The underwriting fee — for the risk of being obliged to take shares nobody else wanted. On a firm-underwritten deal this is real; on a best-efforts one there is nothing to pay for.
The selling concession — the largest piece, paid to whoever actually placed the shares with an investor.
Increasingly a further slice is discretionary: the issuer decides after the event how much of the pool each bank receives. That is a genuine change in the incentive — it pays for aftermarket support and research rather than only for orders on the day — and, like the M&A step-up, it is a structure to look for rather than a judgement about anybody's conduct.
The fee is not the whole cost and it is usually not the largest part of it. The discount is. Shares sold below where they trade a week later are a transfer from the seller to the buyers, and it dwarfs the spread on almost every deal. Which is why "the deal traded up sharply" is not straightforwardly good news for the issuer.
Price decides 6 of the 10 — which is most of the desk. Financing decides exactly one of them, De-SPAC merger.
The documents, in the order they appear
The engagement letter — who is mandated, in what role, and how the pool is divided.
The prospectus or registration statement — the document. Business description, risk factors, historical financial information, use of proceeds, and the terms. The playbook reads one in the order that works.
The comfort letter — the accountants confirming to the banks that the numbers in the prospectus tie back to the accounts.
The intention-to-float announcement — the point at which the transaction becomes public and the company's speech becomes regulated.
The price range announcement — the range, the size, and the timetable. What the range implies about valuation is the most-read number of the whole process.
The underwriting agreement — signed at pricing, containing the conditions on which the banks may still walk away.
The pricing statement and allocation — one price for everybody in the book, and a list of who got what.
The stabilisation notice — published when the period ends, saying what was done.
Run the numbers
Interactive: where the IPO money actually goesEasy
Primary shares raise money for the company and dilute; secondary shares raise money for the seller and do not. Prospectuses print both as one offer size.
Gross raised
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Net to the company
—
Net to selling holders
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Market capitalisation at the offer
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Dilution to existing holders
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Free float
—
Reading
—
One fee rate on both legs, which is the usual arrangement but not the only one. Information and education only. Not advice, not a valuation, and not a quote for anything.
Interactive: the over-allotment, and how the short gets closedMedium
The bank sells more than the deal and is short from the first day. There are exactly two ways that short ends, and the market price picks which.
Over-allotment shares
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Total if exercised in full
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Extra proceeds on exercise
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What happens
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Stabilisation result
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Reading
—
Stabilisation is a regulated activity with its own disclosure and time limits in most markets. This computes the arithmetic, not the permission. Information and education only. Not advice, not a valuation, and not a quote for anything.
Interactive: what one right is worth, and the cost of ignoring itMedium
A rights issue offers new shares below the market price. Three things can happen to a holder, and only one of them is free.
Theoretical price after
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Value in each existing share
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Your entitlement
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Cash to take it up
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If you do nothing
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If you sell the rights
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Reading
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Theoretical throughout: the price after the issue is where arbitrage says it should be, not where it will be. Information and education only. Not advice, not a valuation, and not a quote for anything.
Interactive: the block discount against the cost of patienceEasy
A block is a discount paid for getting out at once. The only honest comparison is with how long the same size would take in the market.
Clearing price
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Proceeds
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Given up against the screen
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Days to do it in the market
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Size against a day's volume
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Reading
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The market alternative assumes the price does not move while you work the order, which is the assumption that makes patience look free. Information and education only. Not advice, not a valuation, and not a quote for anything.
How a deal dies here
The window shuts. Volatility rises, two comparable deals trade badly, and a book that would have filled last month does not fill this one. Nothing about the company changed.
The range is refused. Investors bid, but below the bottom of the range. The issuer can cut the price, cut the size, or pull the deal — and pulling it is a decision about the next attempt, not only this one.
The book is the wrong shape. Full, but of fast money that will sell on day one. A deal can be covered and still not be worth pricing.
Disclosure stops it. Something surfaces that has to go in the prospectus and cannot be settled in time.
The seller will not accept the discount a first sale requires, and waits — which is a legitimate answer and the most common one.
Concepts to master
Dilution is arithmetic, not opinion. New shares divide the same company into more pieces; whether that is good depends entirely on what the money does. See the rights issue, where the arithmetic is at its clearest.
Free float decides the buyer base. Index funds must buy what enters the index and cannot buy what does not, so float, domicile and share class change the identity of the natural holder.
A lock-up expiry is a dated supply event, published in the prospectus, and about as predictable as equity flows get.
The bookbuild is information, not just demand. Who bid, at what level, and how quickly is what the price is actually set from.
A convertible is an equity deal that documents like a bond and prices off volatility — the clearest place on the site where the two halves meet. See the issue and the instrument.