Describe spinning and laddering in the IPO market. How do you think these actions influence the price of a newly issued stock? Who is adversely affected as a result of these actions?

Spinning and Laddering in the IPO market means or leads to issuing of the Initial public offer at a very low price to some or few preferred customers.

Spinning Means offering of the initial public offered shares to preferred clients or customers by the underwriter or the brokerage firm.

In Spinning the brokerage firm or the underwriter enters into a deal with the top management to issue the IPO to preferred client and to close members of the underwriters and brokerage firms and sometimes to the management of the company. By Spinning the brokers or the underwriters gain the loyalty of the top preferred clients and receive a huge brokerage commission also.

Spinning is unethical. The process of allocation of the IPO is not organised or carried according to the rules or regulations laid out. But are manipulated and issued to the preferred clients. It is Illegal.

Laddering Means issuing of the IPO by the brokerage firm or the underwriters at a low price initially to the investors or clients with an obligation to purchase the stock at higher price later. This practice is usually has an understanding between the underwriter and the initial investors, they have profit sharing basis. The Laddering process inflates the price of the Stock traded. and this on one part results in high commission for the underwriters. The process of laddering increases the prices of the stock at the expense of the regular genuine investors.

Generally the Prices are hiked or inflated due to these approaches of Spinning and laddering.

The genuine regular investors are affected as a result of these actions. Because they invest in these companies which are falsely inflated.