Corporation do not necessarily have to
be listed on the exchange. The shares can also be held
by a small group of people (for example a family). This is described as a privately-owned public limited
company. A public limited company lists on the stock exchange by
and thereby becomes
a listed company.
When a company lists on the stock exchange this is known as an
Initial Public Offering (IPO).
A private company whose share capital was previously closely owned becomes a listed company
by listing on the stock exchange. The initial
public offering is usually conducted by one or more investment banks.
The secondary market is the market
for trading in securities on the stock exchange. Most share trading is carried out on
the secondary market. Primary trading relates to the period before the issue of shares.
The free float refers to
the proportion of
a company's total number of shares in issue which are not owned by long-term investors
(e.g. the founders, management and institutional investors). The free float is tradable
on the stock exchange at any time. Small shares held by private investors are counted as part of the
free float even though in theory they can also be held for the long term. For example, a minimum
free float of 20% is required for a company to be listed on the main segment
of the SIX Swiss Exchange. Blue
chips often have a much higher free float.
If demand for equities in an Initial Public Offering (IPO) is so strong that not
all applicants receive an allocation, a
greenshoe may be used. If demand is
significantly greater than the planned issue volume (number of shares issued), for example a free
float of 51% of the shares, the issuer can, if permitted by the
issue prospectus, issue additional shares of for example 2% on
the original terms, so that ultimately 53% of the shares are tradable on
the stock exchange.