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 ?
At a recent CCR meeting, members of five subcommittees discussed how they conveyed industry's message on these hot issues to Congress and the FASB.
We are trying to take some of the contemporary, hot issues that we hear about every day in the press and have experts in those areas offer a thoughtful, reflection on what is the current, state-of-the-art understanding of these kinds of disorders and problems," said Thomas Plante, professor and chair of the department of psychology at SCU.
He had played a role in such hot issues as the controversial plea agreement involving prosecutor Larry Longo and Death Row Records owner Marion ``Suge'' Knight.
The issues are still very hot issues in Ireland today,'' he said.
To Message Board where users can add their voices to debate on hot issues of the day.
Nor would she express her views on hot issues such as abortion rights and capital punishment.
Understand key opinion leaders (KOL) views on hot issues in Parkinsons disease diagnosis, treatment, and unmet needs.
The new guidelines for the induction of labor and the management of pre-term labor were presented during the Third National Congress on Hot Issues in Obstetrics, held in Kunming, August 26-28, 2006.
The show features guest panelists and a live studio audience to engage in compelling discussions on topics ranging from Filipino cultural identity, interracial dating, battle of the sexes, war, and other hot issues.
The software helps organizations lower energy costs, reduce energy dependence, and cut CO2 emissions which contribute to global warming, and these are all hot issues for both governments and businesses.
The checklists highlight "deal" terms, flag risks and hot issues, and direct users, through cross-references, to alternative approaches and analysis.