Hot Issue

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Hot Issue

An IPO for which demand heavily exceeds supply.

Hot Issue

A new issue that trades at a large premium to its original offer price. For example, suppose a company issues its IPO at $25 per share. If early trading on the secondary market is $50 per share, it is said to be a hot issue. These are relatively common during economic expansion or bubbles. They were especially associated with the dot-com bubbles in the late 1990s.

hot issue

A new security issue for which investor demand exceeds securities available in the issue. National Association of Securities Dealers rules forbid members from taking advantage of the likelihood that these securities will rise in price immediately after issue. See also Form FR-1, investment history, normal investment practice.
Case Study The stock market boom of the late 1990s produced some spectacular price gains, especially in new issues of dot-com companies. The quick and seemingly effortless road to riches of buying hot issues in the primary market and then quickly selling these same stocks in the secondary market resulted in substantial profits and was often accompanied by questionable dealings. In January 2002, following a ten-month investigation, NASD Regulation announced that it had censured and fined Credit Suisse First Boston (CSFB) $50 million for taking millions of dollars from customers in inflated commissions in exchange for allocations of "hot" IPOs. NASD claimed the inflated commissions amounted to an illegal profit-sharing arrangement with CSFB. The settlement also included CSFB paying an additional $50 million to the Securities and Exchange Commission. According to the charges CSFB instructed employees to give greater stock allocations to accounts that agreed to share their profits with CSFB. The profit sharing was disguised as inflated brokerage commissions on transactions unrelated to the IPOs. For example, in one instance a CSFB customer obtained an allocation of 13,500 shares in a VA Linux IPO. The customer subsequently sold two million shares of Compaq and paid CSFB 50¢ a share, or $1 million in brokerage commissions. The customer immediately repurchased the same Compaq shares at the normal commission rate of 6¢ per share. The customer's $880,000 in excess commissions paid to CSFB for the Compaq sale were more than offset when the VA Linux PIO shares were sold for a one-day profit of $3.3 million. In another instance, a CSFB customer paid a $650,000 commission to purchase one million shares of Disney shortly after receiving allocations of IPO shares of both VA Linux and FogDog. The 65¢ per share commission was substantially more than the client subsequently paid a different broker-dealer to immediately sell the Disney shares.

Hot issue.

If a newly issued security rises steeply in price after its initial public offering (IPO) because of intense investor demand, it is considered a hot issue.

References in periodicals archive ?
And reimbursement is a hot issue so we started a newsletter to provide an overview on the overall aspects of reimbursement," Jenkins said.
Outsourcing tax preparation to other countries is becoming a very hot issue in California and the nation.
OK, it's another red hot issue of Horizontal Action, the 'zine that combines the best in garage punk--The Deadly Snakes
According to Joan Punch-Fleming, RN, BSN, who is the director of community services for Senior Independence-Cincinnati, which administers the combined program, "Transportation is always a hot issue.
Energy policy became a hot issue when electricity prices skyrocketed and blackouts occurred in the West in 2000; then came the Enron debacle and concerns about national security after 9/11.
They also work on the hot issue of integration between Russians and Latvians, a legacy of the Soviet era when the Latvian language was only spoken at home and cultural traditions were not supported.
No matter what happens, estate tax reform will surely be a hot issue in the November elections.
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Either the successful artist's personality, money, connections, and so on become the hot issue or the artist's supposed ideological agenda becomes the hot issue.
He added that "subleasing has become a hot issue in New York's depressed co-op real estate market, because, while co-op boards want to be able to regulate occupancy to the legal extent possible, there are many co-op shareholders who want to sell their apartments and move out, but cannot get their price.
Its record is worth recalling, now that entertainment's influence on youth is a hot issue once again.