A B C D E-F G H I-J K-L M-N O P Q R S T U V-Z

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Beauty Contest
When a company is considering doing an IPO, the company's executives typically interview a number of investment banks to determine which ones would do the best job of managing the offering and provide ongoing research reports once the company is public. The parade of investment bankers through a company's offices is known as the beauty contest.

Blanked
When an investor places an indication of interest for shares in an IPO and receives no shares.

Blue Sky
These are state securities laws designed to protect individual investors. The phrase purportedly originated from a state judge who said that the securities of a particular company had all the value of a patch of blue sky. Both companies and mutual funds are affected by state blue sky laws. However, the SEC and Congress are in the process of superseding these rules, because the rules in some states are obsolete, arbitrary and poorly enforced.

Board of Directors
The composition of the Board of Directors is particularly critical for an IPO. Typically, a board is composed of inside and outside directors. Inside directors could be management, significant shareholders, venture capitalists, vendors and relatives. Outside directors have no underlying financial or personal relationship with the company that could create a conflict of interest and are on the board for their experience, business judgment and contacts. Outside directors may own stock, but are not large shareholders. Investors should look for a board that has at least two outside directors. Typically, IPOs add their first outside directors at or immediately after the offering.

Book Running Manager
The book running manger is the underwriter controlling the offering. This underwriter's name almost always appears on the top left at the bottom of the cover page of the prospectus. In some cases, however, the underwriter whose name appears in this position does not control the order book listing of buy orders from prospective investors. That role is taken by one of the other underwriters listed on the cover page. That is why investors ask, "Who is the book running manger?"

Broken IPOs
If an IPO trades under its IPO price in the aftermarket, it is said to be a broken IPO. This is not a good thing. Regardless of fundamentals, investors regard breaking issue price as a bad omen. In the old days of Wall Street, syndicates of underwriters would prop up the IPO price with a stabilizing bid, often for days. Due to profit considerations, the lead manager may disband the syndicate even if the IPO is cratering.

Broker
(1) An individual or a firm that charges a fee or commission for executing buy and sell orders submitted by another individual or firm. (2) The role of a brokerage firm when it acts as an agent for a customer and charges the customer for its services.

Broker Dealer
A securities firm that is acting as either a broker and/or a dealer. Most securities firms act in both capacities.

Boutique Brokerage
A small regional or individually owned securities firm

Bucket Shop
These are brokerage firms with dubious reputations. Many of these are fly-by-night operations, consisting of many brokers making cold calls to investors. These shops specialize in low priced "penny stocks", which they sell to one fool and then to a greater fool. The brokers may hop from shop to shop, just ahead of federal regulators.

 

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