In this new series, we demystify investing terms for beginners.
Previously, we looked at what a stock is. Now, let’s get to the definition of “IPO”.
So, what is an IPO?
An IPO (initial public offering) is a process whereby a private company offers its shares to the public for the very first time and becomes a listed company. Once it is listed, its shares are traded on the stock market.
(Interesting fact: Research shows that the Dutch conducted the first modern IPO by offering shares of the Dutch East India Company to the public in 1602.)
An IPO is offered on the primary market directly to investors, and once the company becomes listed, it is traded on the secondary market, which is known as a stock exchange. The only stock exchange in Singapore is the Singapore Exchange (SGX), which is also a public company.
Companies go for an IPO mainly to raise capital from public investors.
Generally, when the stock market is on the rise, there’s an uptick in companies wanting to go public. On the flip side, there’s usually a dearth of IPOs during a stock market crash as sentiments surrounding shares would be weak.
To apply for an IPO in Singapore, you need to have a Direct Securities Account with The Central Depository (also known as a CDP Account), and a local bank account. To learn how to open a CDP account, you can find out here.