IOU (I Owe You)

An IOU (I Owe You) is an informal written agreement between two parties in which one party commits in writing to owe something to the other party at a later time. In the stock market, the term IOU is sometimes used to refer to a stock that is held or owned by another party but is not physically present.

This can occur, for example, when a market maker or broker sells a stock to a customer before owning it themselves. In this case, the market maker must acquire the stock within a certain period of time in order to deliver it to the customer. Until they actually acquire the stock, they owe the customer an IOU or a written promise that they owe them the stock.

IOUs can also occur when a company wants to buy back shares of its stock but those shares are still owned by investors. In this case, the company may offer the investors an IOU stating that the company will buy back the shares at a later time at a certain price.

It is important to note that IOUs are not official trading instruments and are not traded on public exchanges. They are simply informal agreements between two parties and may therefore be associated with higher risks.