Need advice of the OT financial experts: buying stock...

[freegeeks]

here's the deal

I work for the Belgian telco company Belgacom

Belgacom is going public at the end of this month. It's the largest IPO in Europe in years ($11nb - $15bn).
We have the opportunity to buy stock through the company stock-for-employee plan

-we get a one time 16,66% discount on the initial launch price
-Belgacom pays for the costs when we buy through the program (no taxes or other costs ...)
-when we buy stock through the program we have to keep them for at least 2 years and then we are free to sell or whatever

I'm not an expert in this kind of stuff so please advice, I have to decide one of the coming days

some links to the Belgacom IPO

financial times

another one

Belgacom balance sheet

 

[Mill]

Having to hold it that long sucks. I'd certainly buy into it though.

 

[freegeeks]

Originally posted by: Mill
Having to hold it that long sucks. I'd certainly buy into it though.

the 2 year thing is not really a problem for me, I have some cash to dump into it

I just want to know if the people here think that it's a smart move to buy
I personally see any investment as a mid to long term thing. I never speculate short term gains

 

[Mill]

Originally posted by: freegeeks

Originally posted by: Mill
Having to hold it that long sucks. I'd certainly buy into it though.

the 2 year thing is not really a problem for me, I have some cash to dump into it

I just want to know if the people here think that it's a smart move to buy
I personally see any investment as a mid to long term thing. I never speculate on the short term

Yeah but it being an IPO most likely means it will explode and then die down.

 

[freegeeks]

Originally posted by: Mill

Originally posted by: freegeeks

Originally posted by: Mill
Having to hold it that long sucks. I'd certainly buy into it though.

the 2 year thing is not really a problem for me, I have some cash to dump into it

I just want to know if the people here think that it's a smart move to buy
I personally see any investment as a mid to long term thing. I never speculate on the short term

Yeah but it being an IPO most likely means it will explode and then die down.

yeah I know

I do think that in the long term we are going to be prey for a larger telco because some time in the future the Belgian govt. will sell its 51% stake

 

[sygyzy]

Just make sure that it doesn't make up a sizeable amount of your portfolio. That is the mistake that Enron (and other) employees made. They believe in their company so much that they have 100% of their investments in it. Then the company goes belly up and you what are you left with? 16.66% discount is decent, but it depends what the price is. You can expect the price to skyrocket at IPO, then probably significantly drop after 2 years. So you might not even make that much. But hey, money is money.

 

[StageLeft]

I would let the market decide its worth, since it has more experience in it than you, and given that fact yes I'd buy in a good bit of this at the 16% discount.

 

[freegeeks]

Originally posted by: sygyzy
Just make sure that it doesn't make up a sizeable amount of your portfolio. That is the mistake that Enron (and other) employees made. They believe in their company so much that they have 100% of their investments in it. Then the company goes belly up and you what are you left with? 16.66% discount is decent, but it depends what the price is. You can expect the price to skyrocket at IPO, then probably significantly drop after 2 years. So you might not even make that much. But hey, money is money.

I forgot to mention that there are safeguards for that

you can buy a maximum of 10% of your gross yearly paycheck (if you make 60.000 euro/year you can buy 6000 euro of stock).

 

[thebeigebeast]

Originally posted by: freegeeks
here's the deal

I work for the Belgian telco company Belgacom

Belgacom is going public at the end of this month. It's the largest IPO in Europe in years ($11nb - $15bn).
We have the opportunity to buy stock through the company stock-for-employee plan

-we get a one time 16,66% discount on the initial launch price
-Belgacom pays for the costs when we buy through the program (no taxes or other costs ...)
-when we buy stock through the program we have to keep them for at least 2 years and then we are free to sell or whatever

I'm not an expert in this kind of stuff so please advice, I have to decide one of the coming days

some links to the Belgacom IPO

financial times

another one

Belgacom balance sheet

go and speak to a broker at a LARGE brokerage and ak them to consider structuring you a trade. tell the you want to

BUY the 16.66% discounted stock,

and SELL SHORT an equal number of borrowed shares.

This way before you consider borowing costs and transaction costs you make a risk free 16.66%.

Easy - if you are allowed to do it.

 

[freegeeks]

Originally posted by: thebeigebeast

Originally posted by: freegeeks
here's the deal

I work for the Belgian telco company Belgacom

Belgacom is going public at the end of this month. It's the largest IPO in Europe in years ($11nb - $15bn).
We have the opportunity to buy stock through the company stock-for-employee plan

-we get a one time 16,66% discount on the initial launch price
-Belgacom pays for the costs when we buy through the program (no taxes or other costs ...)
-when we buy stock through the program we have to keep them for at least 2 years and then we are free to sell or whatever

I'm not an expert in this kind of stuff so please advice, I have to decide one of the coming days

some links to the Belgacom IPO

financial times

another one

Belgacom balance sheet

go and speak to a broker at a LARGE brokerage and ak them to consider structuring you a trade. tell the you want to

BUY the 16.66% discounted stock,

and SELL SHORT an equal number of borrowed shares.

This way before you consider borowing costs and transaction costs you make a risk free 16.66%.

Easy - if you are allowed to do it.

I have no friggin idea what you are talking about but I'm going to look into it

keep it coming, I appreciate it

 

[thebeigebeast]

basically you buy the stock now and sell soembody elses that you have borrowed at the same price, at the same time, this locks in the profit. hehe.

the only problem is the trade isnt cancelled out for 2 years, due to the lock in period.


your contract or whatever on the share purchase may specify you cant do this, but its your risk if it does. also if other people are not taking their section of the allocation, buy it off them...

 

[Hector13]

Originally posted by: thebeigebeast

Originally posted by: freegeeks
here's the deal

I work for the Belgian telco company Belgacom

Belgacom is going public at the end of this month. It's the largest IPO in Europe in years ($11nb - $15bn).
We have the opportunity to buy stock through the company stock-for-employee plan

-we get a one time 16,66% discount on the initial launch price
-Belgacom pays for the costs when we buy through the program (no taxes or other costs ...)
-when we buy stock through the program we have to keep them for at least 2 years and then we are free to sell or whatever

I'm not an expert in this kind of stuff so please advice, I have to decide one of the coming days

some links to the Belgacom IPO

financial times

another one

Belgacom balance sheet

go and speak to a broker at a LARGE brokerage and ak them to consider structuring you a trade. tell the you want to

BUY the 16.66% discounted stock,

and SELL SHORT an equal number of borrowed shares.

This way before you consider borowing costs and transaction costs you make a risk free 16.66%.

Easy - if you are allowed to do it.

I was going to suggest something similar... but peraphs with buying put options instead of selling short. If you sell short, you are at the mercy of the party you are borrowing from. 2 years is a very long time to keep a short position open for (where I work, we generally have to re-"locate" our shorts once a month, and that is for a sizeable hedgefund -- for a retail investor you might have trouble finding shorts at all). Also, since this is an IPO, there are probably no (or very few) shares to borrow available. With shorting, you also have to pay borrowing fees to the person/firm who owns the stocks that you are shorting. Over 2 years, that could be a sizeable amount.

Buying puts will also cost you some money, but probably less than your short borrowing cost would be (espcially over 2 years). Also, with puts, you don't limit your upside potential as you would be with shorting.

Be very careful with this though -- I would be shocked if your company even allowed you to do this (with either options or with shorts). You may be able to pull it off if your company is not aware of your brokerage accounts, but it is still very likely to be against some established rules at your firm.

 

[Doggiedog]

You can also sell calls to implement your income too along with buying puts.

 

[Hector13]

Originally posted by: Doggiedog
You can also sell calls to implement your income too along with buying puts.

but this would be almost equivalent to just shorting the stock in the first place. You will lose almost all upside (and downside) potential.

 

[thebeigebeast]

Originally posted by: Hector13

Originally posted by: thebeigebeast

Originally posted by: freegeeks
here's the deal

I work for the Belgian telco company Belgacom

Belgacom is going public at the end of this month. It's the largest IPO in Europe in years ($11nb - $15bn).
We have the opportunity to buy stock through the company stock-for-employee plan

-we get a one time 16,66% discount on the initial launch price
-Belgacom pays for the costs when we buy through the program (no taxes or other costs ...)
-when we buy stock through the program we have to keep them for at least 2 years and then we are free to sell or whatever

I'm not an expert in this kind of stuff so please advice, I have to decide one of the coming days

some links to the Belgacom IPO

financial times

another one

Belgacom balance sheet

go and speak to a broker at a LARGE brokerage and ak them to consider structuring you a trade. tell the you want to

BUY the 16.66% discounted stock,

and SELL SHORT an equal number of borrowed shares.

This way before you consider borowing costs and transaction costs you make a risk free 16.66%.

Easy - if you are allowed to do it.

I was going to suggest something similar... but peraphs with buying put options instead of selling short. If you sell short, you are at the mercy of the party you are borrowing from. 2 years is a very long time to keep a short position open for (where I work, we generally have to re-"locate" our shorts once a month, and that is for a sizeable hedgefund -- for a retail investor you might have trouble finding shorts at all). Also, since this is an IPO, there are probably no (or very few) shares to borrow available. With shorting, you also have to pay borrowing fees to the person/firm who owns the stocks that you are shorting. Over 2 years, that could be a sizeable amount.

Buying puts will also cost you some money, but probably less than your short borrowing cost would be (espcially over 2 years). Also, with puts, you don't limit your upside potential as you would be with shorting.

Be very careful with this though -- I would be shocked if your company even allowed you to do this (with either options or with shorts). You may be able to pull it off if your company is not aware of your brokerage accounts, but it is still very likely to be against some established rules at your firm.

well hecty you also get interest from the short sale, and your have to borrow less for the long.

1) mutual funds will dive into this like a sailor on shore leave, as it will be an index stock and these people auction their whole portfolios to IB's for lending, also basically all primebrokerage stock is rehypothecated, so is available to lend. finally if he has an account at a large brokerage they should have some llending operating going on anyway. how the prices work out compared with a series of options i dont know, but i would have assumed options to be more expensive.

2) the bottom line is if he can do the trade financially he will only have to put up 10-20% of the money on the long.

3) i did suggest he look through the legalese to see whether he iscontracted to not do this, however I dont see why they can prevent him from hedging his capital exposure. I also dont see how they can prove it, unless he tries the short through the same firm of brokers as who have been contracted to help the staff do this investment.


PS hecty, if your firm has a prime brokerage account at one of the banks, did you know that the positions are generally rehypothecated?

 

[Hector13]

Originally posted by: thebeigebeast

well hecty you also get interest from the short sale, and your have to borrow less for the long.

true, but you are still being charged for borrowing the shares from your prime broker.

1) mutual funds will dive into this like a sailor on shore leave, as it will be an index stock and these people auction their whole portfolios to IB's for lending,

IBs?

3) i did suggest he look through the legalese to see whether he iscontracted to not do this, however I dont see why they can prevent him from hedging his capital exposure. I also dont see how they can prove it, unless he tries the short through the same firm of brokers as who have been contracted to help the staff do this investment.

the firm can absolutely have rules against this. Talk to someone who works on wall st... I am not even allowed to have an account with any firm other than where I work. I need to get all equity trades pre-approved... I can't buy/sell anything that our desk trades within 5 days (which pretty much means any US and a ton of foreign stocks).... If I buy a stock (or fund), I can't sell it within 90 days!! So, yes, your company can prevent you from doing a lot of things.

PS hecty, if your firm has a prime brokerage account at one of the banks, did you know that the positions are generally rehypothecated?

I am not sure you know what hypothecation means. It just means that the broker can use your shares for collateral. I think what you are thinking about is the lending agreement, in which case, yes our PBs can freely lend our shares to whoever they want. This is exactly the same way we get locates for names that we short.

Most of our assets are in custodial accounts (as opposed to PBs) and belong to our clients. When you reach a certain size, you can negotiate the lending of your stock by the custodian.

 

[thevigmaster]

Originally posted by: Hector13

Originally posted by: thebeigebeast

well hecty you also get interest from the short sale, and your have to borrow less for the long.

true, but you are still being charged for borrowing the shares from your prime broker.

1) mutual funds will dive into this like a sailor on shore leave, as it will be an index stock and these people auction their whole portfolios to IB's for lending,

IBs?

3) i did suggest he look through the legalese to see whether he iscontracted to not do this, however I dont see why they can prevent him from hedging his capital exposure. I also dont see how they can prove it, unless he tries the short through the same firm of brokers as who have been contracted to help the staff do this investment.

the firm can absolutely have rules against this. Talk to someone who works on wall st... I am not even allowed to have an account with any firm other than where I work. I need to get all equity trades pre-approved... I can't buy/sell anything that our desk trades within 5 days (which pretty much means any US and a ton of foreign stocks).... If I buy a stock (or fund), I can't sell it within 90 days!! So, yes, your company can prevent you from doing a lot of things.

PS hecty, if your firm has a prime brokerage account at one of the banks, did you know that the positions are generally rehypothecated?

I am not sure you know what hypothecation means. It just means that the broker can use your shares for collateral. I think what you are thinking about is the lending agreement, in which case, yes our PBs can freely lend our shares to whoever they want. This is exactly the same way we get locates for names that we short.

Most of our assets are in custodial accounts (as opposed to PBs) and belong to our clients. When you reach a certain size, you can negotiate the lending of your stock by the custodian.

IB's = Investment Banks

Rehypothecation = Process where Prime Brokers become unsecured borrowers from a client and rehypothecate legal ownership of securities into their name then use them for S. Lend. and Coll Mgmt. I.E. if the bank blows and your funds assets are rehypothecated, you are an unsecured lender, you dont get your securities back.

I think your restrictions are excessive.
I think a few days clearance for your own desk's trades and the same for the firm's public research and reseach paid for by specific mandates should be enough, also not having an account with another firms is excessive, you can just have your trades sent to compliance.

Obviously on small amounts of stock, stock loan fees could be excessive, but in bulk its 10 or 20 basis points per year, i think.

to minimise the cost of the put he could have a put with a strike price way in exceess of the current stock price.

 

[Hector13]

Originally posted by: thevigmaster

Originally posted by: Hector13

Originally posted by: thebeigebeast
1) mutual funds will dive into this like a sailor on shore leave, as it will be an index stock and these people auction their whole portfolios to IB's for lending,

IBs?

IB's = Investment Banks

I know what an investment bank is (since I work at one...); I am just not sure how they are related at all to security lending. I assume the OP ment PBs (as in a prime broker)[

Rehypothecation = Process where Prime Brokers become unsecured borrowers from a client and rehypothecate legal ownership of securities into their name then use them for S. Lend. and Coll Mgmt. I.E. if the bank blows and your funds assets are rehypothecated, you are an unsecured lender, you dont get your securities back.

when you open a PB account (or margin account) you usually sign a hypothecation agreement AND a lending agreement. The hypothecation is agreement just says that the PB can use your securities as collateral. When you buy on margin, your broke can re-hypothecate up to 140% (I think) of your debit balance. In any case, your broker should be beloved patriot insured, so even if they fold, you won't lose your securities (unless you have over 500k or whatever the beloved patriot limit is).

All this still has nothing to do with security lending, which is covered by the lending agreement.

I think your restrictions are excessive.
I think a few days clearance for your own desk's trades and the same for the firm's public research and reseach paid for by specific mandates should be enough, also not having an account with another firms is excessive, you can just have your trades sent to compliance.

I agree that they are VERY excessive. For example, I need to pre-clear the purchase of any SPYs in my account -- what poosible inside knowledge could I have that would affect the value of 500 of the biggest companies in the US?? My point was just that many firms can and do have restrictions on what you can buy/sell in your brokerage accounts. In this example, I think it would be in the OP's firm's best interest to make sure people aren't buying puts on their stock.

Obviously on small amounts of stock, stock loan fees could be excessive, but in bulk its 10 or 20 basis points per year, i think.

we pay on average around 25bps for US names, a bit higher for international names. In either case, there is defintely a cost associated with shorting a stock.

to minimise the cost of the put he could have a put with a strike price way in exceess of the current stock price.

I believe you mean a strike well below the current price.

 

[freegeeks]

I think it would be in the OP's firm's best interest to make sure people aren't buying puts on their stock.

on friday I received the prospectus and papers expaining the rules and policies concerning the IPO
it says nothing about options

it's pretty straightforward

-the discount (16,66%)
-you have to keep them a minimum of 2 years
-you can only buy 10% of your gross yearly salary (you can buy more if their are available shares)

edit: they also announced today that the launch price is going to between 23 and 26,5 euro
the papers I received also have a subtitle "confidential"

I don't see what has to be confidential, the IPO is all over the media and stock-for-employee plans are common
they say that the information in the brochure can not be shared with outsiders. They expect people to invest money without having some outside advice

 

[Hector13]

Originally posted by: freegeeks

I think it would be in the OP's firm's best interest to make sure people aren't buying puts on their stock.

on friday I received the prospectus and papers expaining the rules and policies concerning the IPO
it says nothing about options

it's pretty straightforward

-the discount (16,66%)
-you have to keep them a minimum of 2 years
-you can only buy 10% of your gross yearly salary (you can buy more if their are available shares)

edit: they also announced today that the launch price is going to between 23 and 26,5 euro
the papers I received also have a subtitle "confidential"

I don't see what has to be confidential, the IPO is all over the media and stock-from-employee plans are common
they say that the information in the brochure can not be shared with outsiders. They expect people to invest money without have some outside advice

you are a lucky guy then

I would start looking for some long-term put options after the company IPOs.

 

[mikejackass]

Originally posted by: Hector13

Originally posted by: freegeeks

I think it would be in the OP's firm's best interest to make sure people aren't buying puts on their stock.

on friday I received the prospectus and papers expaining the rules and policies concerning the IPO
it says nothing about options

it's pretty straightforward

-the discount (16,66%)
-you have to keep them a minimum of 2 years
-you can only buy 10% of your gross yearly salary (you can buy more if their are available shares)

edit: they also announced today that the launch price is going to between 23 and 26,5 euro
the papers I received also have a subtitle "confidential"

I don't see what has to be confidential, the IPO is all over the media and stock-from-employee plans are common
they say that the information in the brochure can not be shared with outsiders. They expect people to invest money without have some outside advice

you are a lucky guy then

I would start looking for some long-term put options after the company IPOs.

so hecty if he thinks the stock is going up, why bother with puts? just let the discount offer some insurance.

if he thinks the stock is going nowhere or down i bet short selling will be better.

 

[Hector13]

Originally posted by: mikejackass
so hecty if he thinks the stock is going up, why bother with puts? just let the discount offer some insurance.

if he thinks the stock is going nowhere or down i bet short selling will be better.

obviously no one knows if the stock will go up or down... if they did, they sure as hell wouldn't be posting here.

That is the whole point of the put option, it protects you on the downside, but gives you upside potential. With shorting, you are pretty much giving up any hope of an upside, and I still doubt it would cost you any less (after accounting for the cost of borrowing the stock).