Understanding New Issues
For this month's Featured article, we sat down with one of our senior traders, Craig, to talk about Qtrade Investor's New Issues service, which gives clients the opportunity to participate in a range of Initial Public Offerings (IPOs) as well as invest in preferred shares, debentures or common shares at a discounted price.
When an investor wants to take part in a New Issue, what's the process?
When a New Issue comes to market, underwriters like Desjardins and Fidelity facilitate the process by marketing it to brokerage firms like Qtrade. When they send us over the offerings, we in turn send them to our clients (assuming the issue meets our criteria). Clients signed up for New Issue notifications receive an email telling them about the Issue and the details around it. If the client is interested, they can sign in to Qtrade Investor to learn more about the Issue and review its Term Sheet.
How does an investor register their interest in an Issue?
After signing in to their account to learn more about the Issue, investors can express their interest by going to Trade > New Issues > Current Offerings > Express an interest. Qtrade will then communicate this interest to the Issue's underwriters, and await confirmation on any allocations we receive. Once the client has been confirmed on an allocation, their status will be updated in the New Issues section of their account. If and when Qtrade Investor gets any of the Issue (if it's a very popular issue, we may not get anything), we start contracting three days prior to the settlement date, giving clients enough time to deposit funds if needed.
Can investors get access to major Initial Public Offerings like that of Canada Goose or Snap through Qtrade Investor?
Most New Issues are secondary offerings that come to market by way of treasury offering or bought deals; they are commonly issued by companies to raise capital for certain operations, projects, etc. An Initial Public Offering (IPO) like Canada Goose or Snap, on the other hand, is usually underwritten by a major bank with the ability to bring a company to market.
Unfortunately, this process usually skips retail clientele altogether, as large institutional clients who have sway with the larger underwriters snap up large allocations, leaving little for everyone else. For retail clients, this usually means having to wait for the security to trade on the secondary marketplace — just like any other listed security.
What are some New Issues that have been especially popular through Qtrade Investor this year?
Some of the more recent popular New Issues include Kinder Morgan and BMO preferred shares.
Why would a company offer common shares at a discount?
To generate interest in a common share New Issue, the company selling it can offer shares at a discount to the market price, making it more appealing it investors. This also compensates investors for the additional risk of not being able to sell the security until the New Issue has been contracted to clients, which can take one to three weeks. That said, discounts can also affect the current market price of the shares that are already trading, effectively negating any discount.
How would an investor get access to newly issued bonds?
Unlike debentures, bond issuances are few and far between. The common practice for Qtrade Investor clients is to purchase bonds through the Fixed Income centre instead, which can be found under Trade.
Is there anything else investors should know about New Issues through Qtrade?
Investors should be aware that Expressions of Interest are firm. This means once they're expressed, the client can't back out. Expressions are not guaranteed, and popular New Issues are hard to come by, but we always do our best to fulfill clients' interests.
To receive New Issues notifications, select New Issues under the Trade tab from your Qtrade Investor account. Then click the New Issue Notification Emails link, input your email and Submit.
Have a question or topic you'd like explored by our traders in a future issue of Insights? Let us know by email — we're always happy to receive reader suggestions.