Robinhood to give retail investors access to IPO stocks, a long-standing realm on Wall Street
The Robinhood app on a smartphone.
Bloomberg | Bloomberg | Getty Images
Robinhood is giving amateur investors access to shares from the initial public offering as part of its latest move to democratize retail investing.
IPO stocks have always been reserved for institutional Wall Street investors or high net worth individuals. Retail traders typically don’t have a vehicle to buy newly listed companies until those stocks start trading on the stock exchange, which often happens after the stock price has skyrocketed.
“We are starting to roll out IPO Access, a new product that will give you the ability to buy shares of companies at their IPO price, before trading on public exchanges. With IPO Access, you can now participate in upcoming IPOs without account minimums, ”Robinhood said in a blog post Thursday.
Robinhood will not be an underwriter for companies hitting the public markets but will obtain an allotment of shares by partnering with investment banks.
This move is Robinhood’s latest move to upset Wall Street. According to Dealogic, first-day IPOs averaged 36% in 2020, demonstrating individual investors’ thirst for some of these popular names that are not factored into IPO prices. These are gains the little guy misses.
The traditional IPO process has been criticized in recent years as being broken, with investment banks awarding the shares to big clients who reap the instant gains from day one. Going public through direct listing has fought off some of these criticisms.
Through IPO Access, Robinhood clients will be able to request to buy shares at their initial listing price range. When the final price is fixed, customers will be able to purchase, modify or cancel.
The medical scrub company Figs – which filed its paperwork to go public to the SEC on Thursday – will be the first company to offer its share on the Robinhood app.
“We currently anticipate that up to 1.0% of the Class A Common Shares offered hereby will, at our request, be offered to retail investors through Robinhood Financial, LLC, as a member of the selling group. , through its online brokerage platform, ”Figs said in its S1 filing document.
“This is the first initial public offering to be included on the Robinhood platform and there may be risks associated with using the Robinhood platform that we cannot predict, including risks associated with using the Robinhood platform. to the technology and operation of the platform, as well as to the advertising and use of social media by users of the platform which we cannot control, ”the company added.
It is not known whether Robinhood’s clients will be able to invest in the Robinhood IPO. The stock trading app is expected to go public in the first half of 2021, but has yet to file its S1 with the SEC.
IPO Access will be rolled out to all customers over the next few weeks.
Robinhood’s IPO product follows record levels of new, younger traders entering the stock market during the pandemic. This push continued into 2021, marked by frantic trading around so-called meme actions like GameStop.
Online finance startup SoFi took a similar move to Robinhood in March; however, Sofi will be an underwriter for the proposed IPOs.
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– with reporting from CNBC’s Kate Rooney.