Initial Public Offering Time in RegistrationThe following table shows the date of the initial filing of the S-1 and the date the offering was declared effective.
|S-1 first filed with SEC|
Average number of days in registration for these six companies was 154.
There are many reasons why a company might spend a long time in registration, including comments by the SEC, the company was waiting for a good market window, or many other factors.
Initial Public Offering Underwriter Commissions
The following table shows the gross commissions paid to the underwriters in the IPO in these six selected offerings. Please note, these commissions are gross revenues for the underwriters and are not profit figures.
|Offering price per share|
|Commissions as a percentage of offering price|
|Gross dollars of commissions (millions)|
Commissions paid to underwriters are ultimately regulated and limited by FINRA. Commissions are negotiated between the company and the underwriter. Generally, the smaller the offering, the larger the commission as a percentage of the funds raised.
A hot issue is the underwriter's dream. Everyone is asking him for stock and he makes friends when he gives them allocations. Friends are needed if one is to survive on Wall Street. The stock trades at a premium and his warrants are lucrative.
On the other hand, an issue that no one wants is a nightmare. The underwriter has to work very hard to get rid of it, he may feel that he owes favors to those who take it, he may be cursed – even sued – by those who buy it if the stock goes down, and the warrants are worthless.
Regulation of Underwriting Commissions
FINRA regulates maximum commissions on underwritings.
Under FINRA Rules 5110 and 5190, the underwriter must file the proposed compensation with FINRA. The compensation must be “fair and reasonable.” The SEC requires a declaration from FINRA that the compensation is fair and reasonable before the SEC will make the offering effective.
No FINRA underwriter may participate in an offering on terms that are not "fair and reasonable."
FINRA uses total compensation from an offering received by an "underwriter and its related persons." Conduct Rule 2720, specifies which individuals and entities are, conclusively or presumptively, related persons.
Underwriting compensation includes any "item of value" received by an underwriter or a related person in connection with the offering. A list specifies discounts and commissions, specified securities, and expense reimbursements; and it excludes expenses that the issuer ordinarily pays (such as printing costs and fees due to the SEC, the NASD, and accountants). Compensation of indeterminate value is 'unfair and unreasonable."
It is a rare deal that has enough bargaining power to drive a hard bargain with an underwriter, but in case you want to haggle with your underwriter, click here for the text of Rule 5110.