U.S.-based boutique IPOX Schuster is rolling out the first tradable index of initial public offerings in the U.S. and plans to extend similar products to the European and Asian markets. The product is expected to enhance the liquidity of IPOs as well as facilitate the creation of new derivatives-based structures.
Josef Schuster, founder of IPOX in Chicago, said decreasing correlation of IPO performance with other equity indexes, such as the Nasdaq, has led to the conclusion that IPOs should be traded as a standalone asset class. The global pickup in IPO issuance combined with higher quality listing standards for IPOs in the aftermath of Sarbanes-Oxley has also encouraged its creation, he added.
Keith Styrcula, co-chair of the Structured Products Association in New York, noted that the indexes would be attractive to derivatives structurers and predicted that as much as USD1 billion could be structured on the index within 18-months. The indexes could have broad-based appeal to the retail market and could assist in stabilizing the aftermarket performance of IPOs, which is often volatile.
The IPOX 1000 All-Share Price Index, which provides an average exposure to U.S. IPOs, will be the first to be rolled out. The reference IPOs are selected by committee for addition within their first seven trading days and are retained in the index for up to 1000 trading days after coming to market, said Schuster. Firms with market capitalizations greater than USD50 million may be selected, with the IPOX1000 currently comprising 378 stocks with a total market capitalization of around USD440 billion.
In addition to the cash IPO indexes, IPOX plans to offer listed options and exchange traded funds, said Schuster. Schuster and Abhijeet Singh, co-founder of the firm, are both graduates of the London School of Economics.
