Robinhood to offer retail traders with entry to IPO shares
The Robinhood application on a smartphone.
Bloomberg | Bloomberg | Getty Images
Robinhood provides amateur investors with access to IPO stocks to help democratize investing in retail investors.
IPO shares have historically been reserved for institutional investors or high net worth individuals on Wall Street. Retailers typically do not have a vehicle to buy into newly listed companies until those stocks are traded on an exchange, which is often after the stock price has risen.
“We’re starting with the launch of IPO Access, a new product that allows you to buy shares in companies at their IPO price before trading on public exchanges. With IPO Access you can now participate in upcoming IPOs without an account minimum”, Robinhood said in a blog post on Thursday.
Robinhood will not be an underwriter for companies operating in the public markets, but will receive an allotment of shares through partnership with investment banks.
This move is Robinhood’s most recent move to fight Wall Street. According to Dealogic, on the first day of 2020, IPO stocks burst an average of 36%. This shows the thirst of individual investors for some of these popular names that are not included in IPO pricing. These are wins that the little guy is missing out on.
The traditional IPO process has been criticized for being broken in recent years as investment banks give the shares to large clients who get the instant profits on day one. The IPO through direct listing countered some of these criticisms.
Fig IPO is said to be the first
With IPO Access, Robinhood clients can apply to buy shares in their initial listing price range. When the final price is set, customers can choose to purchase, change, or cancel.
Medical scrubs company Figs, which filed its IPO with the SEC on Thursday, will be the first to offer its stake in the Robinhood app.
“We currently anticipate that up to 1.0% of the Class A common stock being offered here will be offered at our request to retail investors through Robinhood Financial, LLC as a member of the sales group via the online brokerage platform,” Abb said in his S1 submission document.
“This is the first initial public offering on the Robinhood Platform. There may be risks associated with using the Robinhood Platform that we cannot foresee, including risks related to the technology and operation of the platform, advertising and the use of social media by users of the platform that we cannot control, “added the company.
The IPO date is not set, but companies typically go public one to months after filing their S1 prospectus with the SEC.
It’s unclear whether Robinhood clients can invest in Robinhood’s upcoming IPO. The stock trading app is expected to go public in the first half of 2021 and has been filed with the SEC in confidence.
IPO Access will be introduced for all customers in the next few weeks.
Robinhood’s IPO product follows record levels of new, younger traders going public during the pandemic. This surge has continued through 2021 and is characterized by frenzied trading in so-called meme stocks like GameStop.
Online finance start-up SoFi took a step similar to Robinhood in March. However, Sofi will be an underwriter for the IPOs on offer.
Become a smarter investor with CNBC Pro.
Get stock picks, analyst calls, exclusive interviews and access to CNBC TV.
Sign in to start a free trial today
– with reports from Kate Rooney of CNBC.