In recent years, the close parallel market (CPM) has become an essential factor in the initial public offering (IPO) process. Let’s explore the role of CPM in an IPO and discuss the benefits it brings to both issuers and investors.
To begin with, let’s look at what CPM is and how it works. CPM is a market where pre-IPO shares of companies are traded. It allows companies to raise money from private investors before their IPOs, which can help them reduce the amount of money they need to borrow from banks or other financial institutions. This is because CPM investors are usually willing to pay higher prices for pre-IPO shares than those during the IPO. On the other hand, interested investors can buy shares at pre-IPO prices before making them available to the public.
CPM also offers specific benefits to both issuers and investors. To start with, companies can use CPM to gauge investor interest in their planned IPOs. Issuers can decide whether or not to proceed with their IPOs based on how many orders they receive during their CPM listings. This information is helpful because it helps companies avoid wasting time and money preparing for an IPO if there is little demand from potential investors in the first place.
On the other hand, retail investors gain access to shares of promising companies before they make their debut on the public stock markets. This allows them to profit if the stock price increases after the IPO.
CPM provides companies with access to a broader pool of investors. This is because securities listed in CPM are typically traded by institutional investors, who have a larger pool of capital to deploy. CPM also offers companies a quicker way to go public. This is because there is no need to wait for the company to meet the listing requirements of a stock exchange. CPM offers companies more flexibility in deciding the number of shares to be issued.
Overall, the close parallel market plays a vital role in the IPO process and benefits issuers and investors. It allows companies to raise money from private investors before their IPOs, which can help them reduce the amount of money they need to borrow from banks or other financial institutions. It also offers interested investors an opportunity to buy shares at pre-IPO prices before making them available to the public.
Finally, it helps issuers gauge investor interest in their planned IPOs and decide whether or not to proceed with them. For investors, this provides an opportunity to profit if the stock price increases after the IPO. As such, CPM is an essential tool that should be considered by companies planning to go public.
However, there are also some drawbacks to using CPM. Firstly, CPM is not a regulated market and thus has no Minimum Public Shareholding (MPS) requirement. This means that companies may be required to reduce their shareholdings following listing or risk breaching regulations imposed by stock exchanges such as SGX and Bursa Malaysia.
Secondly, securities listed on CPM usually trade with very high spreads, making them unattractive investments. Thirdly, securities transferred from other markets may need to go through the local clearing and settlement system before trading starts to update investors’ ownership records. This can take several days, but only one day if the transfer occurs directly between stock exchanges.
Finally, CPM is not widely used by companies looking to go public. This is because SGX and Bursa Malaysia offer pre-IPO programmes which provide many of the same benefits as CPM but with lower costs and more protection for investors.
Close Parallel Market (CPM) provides some benefits over primary listings, but these benefits are outweighed by drawbacks such as lack of regulation and low liquidity. If you are a new investor, we suggest contacting a reputable online broker from Saxo Bank; this is their website.