Millions of Spaniards have got to know the ins and outs of the Stock market thanks to the IPO (Initial Public Offering) fever of the late 90s. The privatisation of state owned companies and the hunt for financing on the markets encouraged many large companies seek listing on the stock exchange.

In the wake of elaborate advertising campaigns, companies presented their flotation on the Stock Market as if they were offering the opportunity of a lifetime, and investors flocked to the sale. In the space of a few years, most of the population discovered in the Stock Market a hitherto unheard of alternative way to put their savings to work for them. The popularisation the markets is one of the most important economic and social phenomena of recent years.

In broad terms, there are two types of investors in IPOs. On the one hand there are many investors who use part of their savings to buy into a company, in the hope that the growth of the company will generate succulent profits for the shareholders. On the other hand, IPOs also tend to attract a type of investor who is only looking for quick profits. That is, they buy in with the aim of benefiting from the discount that IPO issues usually sell at, cashing the shares in the next day to turn a considerable profit for such a short investment period. This practice is known as flipping.

All IPOs have one thing in common: when they are launched on the trading floor they all look like impeccable and highly attractive investments. The expectations of profits is what makes stock go up in value. Conversely, bad news and rumours can cause the shares to tumble. But these are not the only factors involved. The value of a share is also influenced by dozens of factors, some of them unfathomable. It is perhaps for this reason that we still refer to buying and selling shares as playing the markets.

Protagonists of IPOs
A new stock market listing involves a series of players and other elements which perhaps we ought to take a look at. First of all there is the company making the placement. After that there are a number of entities including banks and stock brokers who intermediate between the private investor and the market.

The informative prospectus is another vital element of any IPO. The company to be listed is obliged to report objectively on a series of aspects concerning its financial situation, governance and outlook for the future, under the watchful eye of the CNMV (the Spanish Securities Commission).

The employees of the company going public usually enjoy special terms for acquiring shares and can buy under much better conditions than other investors, which tends to encourage a great many of the organisation�s staff to take up the share offer, simply to turn a quick profit on their investment in the following days.

Lastly the small investors are the final target of a financial operation in which, once the IPO is over, the investors receive their shares in return for payment. As of that moment, the holders of the shares own part of that particular listed company�s capital, and the value of the investment will fluctuate up and down from one second to the next. Of course, investors are at liberty to keep the shares or sell them as they see fit.

In recent years, the Spanish have witnessed stock market floatations of a very low percentage of the capital of the company involved (20%, for example), which generally rises in value very quickly. Once this first objective has been achieved, the company may then try to value the 80% of the shares which are still in their possession at the same price that the remaining 20% is trading at, a practice which distorts and artificially overvalues the company�s real worth.

Requirements for listing
For a company to be able to trade on the stock market, it has to comply with a series of relatively demanding conditions. The company must have shared out a certain level of dividends among its shareholders during the last three years; it must have a considerable number of shareholders, generally more than a hundred, with no one holding more than a certain percentage of the company�s capital; and it must fulfil other requirements as set out by the market�s supervisory body in Spain (the National Stock Market Commission (CNMV), the equivalent of the SEC in the United States).

Once the company intending to launch an IPO successfully complies with a series of technical requirements, the company�s board, with the approval of the general meeting of shareholders, can apply for the company�s listing on the local stock markets or on the continuous market (the SIBE).

Once the company has been presented to the investment community it will enter a new phase, as a public company with greater prestige and with market capitalisation. In exchange for these honours, the company has to place itself under the supervision of the regulating body (the CNMV, in Spain�s case); commit to reporting to all investors (at the same time) about any matter which might affect the value of the company, as well as present the annual accounts, memoranda and quarterly earnings reports.

Advantages for the companies.
Stock market listing gives companies access to much cheaper financing than they could aspire to via traditional methods (bank loans). There are various ways a listed company can raise finance, such as corporate promissory notes, the issue of convertible or exchangeable bonds, a capital increase, Public Share Offering. To enjoy these advantages, listed companies should respect the market and their shareholders, and govern themselves with the absolute honesty and transparency.