Using a Hypothetical IPO Performance Report to Gain Market Share

One of the pieces of information used by institutional salestrading and research sales to leverage more trading commissions from the buy-side was the profit and loss statement based on the performance of the bank's IPO's.  This was done by, at least, two banks and, probably, all of them.  The report was a scorecard of how much money the fund managers would have made (the hypothetical part of the exercise) if they would have held the IPO for 1 day, 30 days, 60 days, 90 days, 6 months and 1 year.  It was a relatively simple calculation.  For each of the intervals, the difference in that day's and the offering price was multiplied by the allocation received by the manager.  For example, a fund was given 1,000 shares, the offering price was $15 and the first day's closing price was $20.  The profit would be ($20 - 15) x 1,000 = $5,000.  The idea was to receive commissions equal to twice the hypothetical profit.  For a large investor involved in many deals, the report could become quite large.  During the technology bubble, some of the profit numbers were astronomical.  Of course, these numbers were quite theoretical as many funds sold parts of or the entire position before the timeframes used on the report.  It was the pursuit of the profit numbers that led to Credit Suisse $100 million settlement with the SEC in 2002.