flipping investment & finance definition
Purchasing
shares in an initial public offering (IPO) from the underwriter and then
immediately selling them to retail investors in the secondary market at much
higher prices. Institutional investors typi-cally flip IPO shares, but many
brokerage firms have policies that prevent retail customers from flipping. If
investors violate the policy, they will be prevented from participating in
future IPOs.
See flipping in Wall Street Words
The immediate selling of shares purchased in an initial public offering. Flipping is especially popular in a hot IPO market when newly issued shares can soar in price when they hit the secondary market. Investment banking firms underwriting new issues generally discourage flipping, in large part because it can depress a stock's price in the secondary market.
Case Study In late 2001 UBS PaineWebber issued a memo to its branch offices that the firm intended to fine its brokers whose customers engaged in flipping shares purchased in initial public offerings underwritten by the firm. According to the policy, brokers would be required to pay a fine equal to 200% of their original commission. Following complaints from the firm's brokers, PaineWebber withdrew the proposal but indicated it would monitor the investment activity of clients who participated in new issues and adjust future allocations of shares in subsequent IPOs. Investment banking firms dislike flipping because it tends to destabilize trading and depress the stock's price, both of which are likely to anger management of the issuing company.
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