Page 160 - Initial Public Offering - An Introduction to IPO on Wall Street

8.5.2 OTC Markets
Securities are exchanged between dealers over computer networks or by telephone in the over-
the-counter (OTC) market instead of on the floor of an organized exchange. Although
exceptions exist, stocks traded on the OTC market are typically those of smaller (and
sometimes more risky) businesses. The most famous OTC securities market in the world in
NASDAQ. The listing requirements for both NYSE and NASDAQ have already been covered
in this book.

However, before you sign up to get your stock listed on any of these exchanges, make sure that
you have performed proper due diligence for the IPO. The due diligence process for IPO is
discussed next.

9. Due Diligence

Business owners should prepare for a thorough due diligence evaluation of their business when
thinking about making their company public; the due diligence evaluation is typically carried
out by the IPO lawyers and the underwriters as per the offering.

Understanding the due diligence process will help reduce the level of diligence-related work
required when the IPO process officially begins. Good-quality and accurate due diligence
mitigate the complicated risks associated with listing a business on any stock exchange.
9.1 What is Pre-IPO Due-Diligence?
Due diligence is often carried out in the event of a proposed initial public offering (IPO) by a
corporation to determine the business maturity of the IPO applicant. Barring a few exceptions,
a securities provider must issue a securities prospectus that provides investors with the required
details.

Before any business launches an IPO, any authorized financial institution should always
perform comprehensive and rigorous due diligence to evaluate its overall market maturity
(IPO). Additionally, they should review the human-resource, financial, environmental, tax,
operational, legal, IT, and commercial-related facts of the IPO nominee in detail.

Pre-IPO due diligence aims to evaluate the viability of the business model, the validity of
planning, and the firm's disbursement potential. The inquiries concentrate on business and
strategic analysis, as well as on identifying possible economic and legal risks and opportunities.

All data in the prospectus that is based on due diligence inquiries must be accurate and
complete. In the event of misleading information, the issuers and those promoting the offering
(banks) may be liable for any damages to the investors.

9.1.1 The Importance of IPO Due-Diligence
When a business is looking to go public, one of the most critical activities that need to be
performed is IPO-due diligence. Performing IPO due diligence before everything else involved
in the process of ‘going public’ is recommended.

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