In Finance, what is a New Issue?

Matt Brady

A new issue is any security that is publicly offered for the first time. The public commonly hears about new issues in the form of stocks that are packaged into initial public offerings (IPO). Stocks, however, are not the only type of security that can be offered as a new issue; bonds can also be newly issued. Newly-issued securities can also be allocated after an IPO as additional shares during secondary offerings.

Businessman with a briefcase
Businessman with a briefcase

New issues, although capable of delivering a healthy new stream of revenue to a company, can be fraught with difficulty and risk. In many countries, before a company is allowed to go public and offer a single new issue, they’re required to go through a stringent registration process. Companies have to meet requirements before being allowed to go public, and if allowed, have to fill out copious amounts of legal paperwork. These steps typically require hiring legal teams, underwriters, and other experts to aid the process. Such services can prove costly. For this reason, IPOs can actually destabilize a company's finances, and may decrease the chance of a successful opening public run. If, however, the company is set up properly to sustain the registration process, offering new issues can result in greater profits and financial possibilities.

New issues tend to be hot commodities, especially when in the form of company shares being offered during an IPO. IPOs can be risky though, and investing in them can be, like many other investments, a proceed-at-your-own-risk endeavor. IPO stocks can have high risk because they often represent new products being offered to the public for the first time. Add that to the fact that many newly public companies have little financial history available for public view, making it hard for investors to completely size up a company's worth. This is why some consider investing in IPOs to be a largely speculative endeavor.

The complexity of a new issue can spin off multiple investing scenarios. It's possible for a company's product to receive a lot of hype, only to ultimately fizzle out in the market. On the other hand, sometimes the hype is justified, and a company reaps huge returns for initial public investors. And, of course, there are also the cases in which a company's IPO is relatively overlooked, but proves a worthy investment for those who took the time to sniff it out.

IPOs aren't the only case where shares can be newly offered to the public. After going public, a successful company may decide to issue additional shares in order to raise extra capital. When this happens, it's called a secondary offering. Secondary offerings allow more investors to grab a slice of the pie, which in turn allows the company to increase its earnings.

Bonds can also be offered as new issues. These can be issued in the form of corporate bonds, municipal bonds and government bonds. Sometimes an issuer will issue new bonds, and then halt new issues for a period of time. During periods where there are no new issue bonds, investors can opt to purchase bonds on secondary or over-the-counter markets.

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