Oversubscription
One speaks of an oversubscription in the context of an IPO , a re- placement or the issue of new shares after a capital increase if the demand for the issued security is greater than the supply in a securities issue. If, on the other hand, only a part of the offered papers can be placed, one speaks of a signature .
backgrounds
In the event of oversubscription, the issuer and the credit institution accompanying the issue ( issuing bank ) determine the allocation rules, i.e. they decide which interested party will be allocated how many of the securities offered.
Example: In a stock issue, 1 million shares are offered, but there is demand for 2 million shares. Then there is a double oversubscription and the oversubscription factor is 2. If all interested parties are treated equally , an allocation quota of 2: 1 is now set, which means that each interested party receives half as many securities as desired.
The oversubscription factor is determined by the issuing bank and usually published together with the issue price of the securities. It is an indicator of the relationship between supply and demand during the subscription period . The issuer and the underwriting bank are interested in the highest possible allocation factor because many market participants see this as a sign of the value of the securities offered.
The oversubscription is not a sure indicator of the actual demand for a security. In the first half of 2006, for example, the reported oversubscription factors were regularly between approx. 2 and 40. Despite this apparently high demand, the price of some stocks collapsed as soon as they were first listed.