How to buy IPO (Initial Public Offering) shares
Many of you have seen the hype circle around Initial Public Offering widely known as IPO. These generally are highly marketed in roadshows against an 'Offer Price' - remember this is just the offer price! There is no guarantee that you will be able to purchase the shares at IPO offcer price. There are many complications that ultimately will determine whether you can buy it at the 'Offer Price'.
Most retail investors who have some money to purchase stocks or make an investment are in the lowest end of the food chain when it comes to purchasing IPO at the offer price.
Thanks to the JOBS Act of 2012 (Jumpstart Our Business Startups), many Americans now have a chance to participate in this money making hype cycle (read IPO).
A large company wanting to go public (get listed on the stock exchange), typically hires investment banks and banking institutions to steer through the process. The most important step is to determine the value of the company. There are many things that determine the financial value, most importantly it is measured against a future value and growth prospects. Investment banks have the muscle and expertise in this field to run the show. Large investors, institutional investors, 'Big Boys & Girls' with loads of money and inner circle tend to get the first share of the IPO at 'offer price' or 'pre-offer price'.
What about the general population (~ retail investors), Millenial investors & investors who have just opened their stock brokerage accounts at discount brokerage firms like Robinhood or WeBull? They are typically at the lowest end of the food chain, and may or may not get even an opportunity to partcipate in the 'offer price' stock sale. If the Company has some brokerage firms that participate in the IPO process, a very small percentage of shares are available to purchase through these brokerage firms. It's mostly Luck (~bid & wait).
Big brokerage firms like TD Ameritrade, Fidelity, E*TRADE may get some percentage of IPO shares depending upon their alliance with Investment Banks.
IPO Eligibility Requirements vary by Brokerage firms. Some brokerage firms require $100,000 to $500,000 in assets or some kind of subscription to high profile client group. For instance E*TRADE requires you to complete an eligibility profile questionnaire to determine whether you are eligible to purchase certain IPO. Likewise TD Ameritrade requires you to fill up a personal and financial profile and have an account value of atleast $250,000 (or few other conditions). Make sure to check with your brokerage firm way ahead of IPO opening so you understand the eligibility requirements. Not all brokerage firms participate in all IPOs - this generally depends on pre-IPO market demand by Investment Banks, Institutional Investors, Hedge Funds. A small percentage of stocks is later offered to brokerage firms. Depening upon your Brokerage firms' alliance with IPO Sponsors, it may or may not participate in IPO sale.
Investors should also familiarise themselves with FINRA 5130 rule - Restrictions on the Purchase and Sale of Initial Equity Public Offerings
Useful links:
TD Ameritrade - Investing in IPO
Fidelity - How to Participate in an IPO
Fideliity - Year to date New Issue Offerings
You can also read news and articles at the following financial institutions sites to stay up to date on who is participating in IPO offerings:
Credit Suisse
Goldman Sachs
Morgan Stanley
Jeffries
Kohlberg Kravis Roberts & Co. (KKR)
JP Morgan
Stifel
BofA Merrill Lynch
Citigroup
Evercore ISI
KeyBanc Capital Markets
Barclays
Wells Fargo
SVB Leerink
Guggenheim Securities
Disclaimer: This and all content in the website are for educational purposes only. No liability whatsoever is accepted by the website. Please do your due diligence and consult your financial advisor before investing. Investing in markets, stocks, IPOs are subject to huge risks and should only be done after consulting a qualified professional.