Detecting Underwriters Stabilisation Trades: A Clinical Study

In this study, we examine the stabilisation trades of United Rusal Company IPO’s shares listed on the Hong Kong Stock Exchange (HKEx) and of its Global Depository Shares (GDS) that were simultaneously listed on Euronext Paris. Using both Thomson Reuters Tick History data and the HKEx rules and regulation relating to stabilisation, we identify and analyse the trades that were very likely to have been executed by the stabilisation manager (Credit Suisse) on both markets. We identify nearly 95% of the stabilisation trades on the Euronext Paris, with somewhat less accurate results for Hong Kong. Our results show that the stabilisation trades generated a profit equivalent to about 2.72% of the gross proceeds for the two lead underwriters, a profit which is bigger than their total underwriting commission of 2.31%.

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