EXPLAINER-From filing to first trade: Inside the US IPO process

By Manya Saini

April 1 (Reuters) - Elon Musk's SpaceX confidentially filed for what could be a record-breaking U.S. listing, a person familiar with the matter told Reuters on Wednesday, spotlighting the multi-step process IPO hopefuls typically must navigate before their shares start trading.

From the filing to market debut, the IPO timeline can range from three to six months, depending on the pace of regulatory review and market conditions.

The U.S. Securities and Exchange Commission (SEC) allows companies to file confidentially, allowing issuers the freedom to decide whether to submit the initial draft privately or make it public from the outset.

INITIAL FILING

In the months leading up to an IPO, companies hire a group of banks, called underwriters, to run the process, helping gauge demand and set expectations for the offering's potential size.

The companies then enter a quiet period when public communications are restricted to avoid influencing investor demand before pricing.

The banks prepare a prospectus, typically filed confidentially by high-profile issuers, allowing the SEC to review it privately for any concerns or gaps while keeping sensitive details such as financials, competition out of public view.

This is followed by the public filing of the registration statement, which includes the prospectus, a process that can take weeks to months, in a form known as an S-1 for U.S.-incorporated companies and an F-1 for foreign issuers seeking a U.S. listing.

It is at this stage that prospective investors get a detailed look at the company's business, risk factors, major backers and shareholders, as well as its chosen exchange and ticker.

ROADSHOW LAUNCH AND MARKETING

When the offering size is decided, an amended registration statement, known as an S-1/A or F-1/A, is filed disclosing the number of shares to be offered and an indicative price range.

A raise refers to the size of the offering and is calculated by multiplying the number of shares being offered by the company or its existing investors by the high end of the indicated price range. It is at this stage that a company's potential valuation in the IPO is revealed.

This is followed by a roadshow, where company executives and underwriters pitch investors and test demand.

If early demand is strong, some issuers file a second S-1/A or F-1/A to increase the number of shares on offer or raise the price range.

Conversely, if demand is weak, issuers may cut the number of shares or lower the price range.

PRICING AND MARKET DEBUT

Once underwriters close the books and set the final share price, the offering is considered priced, marking the end of the sale process.

Companies may adjust the size of the offering, selling more or fewer shares than initially planned and pricing above or below the indicated range, based on demand.

Underwriters then allocate shares to institutional investors based on demand and relationships, often favoring long-term holders after pricing.

They may also exercise the so-called greenshoe option, allowing them to sell additional shares to meet excess demand and support the stock in early trading.

Some offerings include cornerstone investors, typically large institutional buyers who commit to purchasing shares ahead of the listing, providing early demand and confidence in the issue.

Shares begin trading on an exchange the next day after the pricing, with the debut often judged by how the opening price compares with the IPO price, signaling the strength of investor demand.

IPO watchers closely track a stock's performance in the weeks following the debut, not just on the first day.

Company insiders are typically subject to a lock-up period, usually 90 days to 180 days, that restricts selling their shares.