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In Finance, what is an Indication of Interest?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 08 September 2016
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Also known simply as an IOI, an indication of interest is a term that is used in financial circles to indicate the level of interest that a buyer has in making a purchase. The term is most commonly utilized in reference to the purchase of securities, but may also be used in regard to investments such as real estate. While helpful in gauging the degree of interest that a stock offering or other investment strategy is generating, it is important to note that an indication of interest is not considered legally binding. For this reason, it should not be considered as a commitment on the part of the investor to actually make a purchase.

When used in reference to stock options, an indication of interest is often associated with an IPO or initial public offering of new shares of stock. The interest may be expressed at any point in the preparatory process for the launch of the offering, even during whatever registration process must be completed with a governmental regulatory agency before the shares can actually be offered. This does not present a conflict of any type, since the IOI is not a formal bid or offer to purchase. The indication of interest alerts the issuer of the new shares that the investor is interested in considering the investment opportunity, when and if it is eventually approved and the offering does take place.

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When the investor does extend an indication of interest, the broker who is working on the IPO can provide the investor with the preliminary prospectus related to the impending offering. The prospectus will contain all the background and general information that the investor will need to determine if he or she wishes to be notified when the registration process is complete and the offering is scheduled for launch. This allows the investor to make arrangements to participate in the purchase process once the shares are available, and thus stand a better chance of securing the number of shares desired.

The use of an indication of interest in regard to real estate works in much the same manner. An investor will make it known that he or she has an interest in a given property that is anticipated to be on the market in the near future. The owner of the property can provide the investor with data related to the condition and status of the property, including information on the current status of taxed owed, and the condition of the wiring, plumbing, and foundation. If the investor is still interested after going over these preliminary documents, he or she can request to be notified when the property is actually placed on the market.

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