The watch list is a compilation of information about various securities. Often a brokerage, stock exchange, or some sort of government regulatory agency maintains this list of securities. Securities are included on the watch list based on several different factors that cause the broker or exchange reason to believe that the issuing firm or entity should be monitored for some reason.
One of the reasons that a company and its stock may be placed on a watch list is due to the existence of circumstances that make the corporation ripe for a takeover. Brokers who have clients that currently own stock in the corporation will want to monitor for any signs that corporate raiders are attempting to buy up available shares of the stock, or employ other means of getting control of the company, such as a buyout. Placing the company on the watch list for the brokerage helps to ensure that the broker can alert investors to relevant events as they happen, and possibly protect their clients from realizing a loss on the investment.
Along with takeover bids, companies that are looking into the possibility of issuing new securities or stocks may also find their way onto a watch list or two. Regulatory agencies will monitor the activity closely, in order to ensure the issue is conducted according to applicable laws and regulations. Brokers will want to be aware of the status so they can advise their clients of the status of the new issue and perhaps receive orders to execute a purchase once the stock hits the market. A stock market may also be interested in the details of the release and the impact that the new securities could have on market conditions.
Irregular activity may also cause the stock of a company to be placed on a watch list. When the stock appears to be performing in a manner that is not in line with current market trends, brokers, exchanges and regulatory agencies will all want to monitor the activity closely in order to understand what is actually occurring. Often, the irregular performance of a given stock foreshadows some changes in the marketplace that may soon become widespread. When this is the case, brokers and exchanges that have watched the impact on one company’s stock will be in a better position to anticipate the effect that similar circumstances will have on other stocks and securities.
