What is IPO spinning?
Spinning is a controversial financial manoeuvre that provides a "kickback" from investment banks in exchange for future business. Potential banking customers are offered low cost shares in initial public offerings (IPOs) of companies that are expected to do well on the stock market.
Where have you heard about IPO spinning?
IPO spinning frequently appears in the news. It works on a quid pro quo basis, and as such it has been open to much criticism from financiers, investors and economists who deem the manoeuvre unethical.
What you need to know about IPO spinning.
Investment banks often see the practice of spinning as a legitimate way of securing new business. Executives of third party firms are offered stocks in companies that are deemed to potentially be "the next big thing" at lower rates than their intrinsic value. This happens during a company's IPO.
In exchange for these stocks, these third party firms are expected to channel their company's future banking business to the investment bank that offered the preferred stock options.
The practise is not illegal, but is considered controversial.