Piggy Back Registration

Ok ok... so you know what piggyback rides are, right? Yep. A boon for back surgeons, chiropractors and acupuncturists, all in one goofy, stupid move. Well, piggyback securities registration works kinda the same way.

A given stock is about to be registered ahead of an initial public offering. Think: IPO. And the P there is not for “piggyback”, although it would be cool if it was.

A bunch of investors invested in the company while it was private. And employees received stock options as part of their compensation. Maybe some employees bought out those options. So there is an amalgam of different flavors of shares, more or less representing the same thing.

You have preferred stock purchased by investing investors which will all convert to common stock when the company officially floats, or goes public. And you have stock options that are bought out to be actual common shares owned by employees. But then you have the company selling newly printed shares to the public in this offering.

Like...whatever.com has 100 million shares in total now. It’s going to print 20 million new shares to sell to the public. So those 20 million will of course be registered because they’re being sold to the public and there are myriad rules and regulations about selling things to Ma and Pa Kettle.

But then what about the 100 million sitting outside of those 20? What happens to them?

Well they essentially piggyback on top of the 20 million shares being registered, so that they are treated as if they also were registered, and are freely and readily tradable when the proper windows open for them to be traded.

That is, in most cases, insiders can’t sell their shares on an open stock market under the rule 144a system for 6 months and change. But when they can, under piggyback registration rights, those shares would then be treated as if they too were just normal registered shares, and so the combined entity all looks about the same, to a, uh...bear market.