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Robinhood Introduces New Product To Give Retail Traders Direct Access To IPOs

Robinhood Introduces New Product To Give Retail Traders Direct Access To IPOs

A couple of months ago, we heard the first reports about Robinhood, SoFi and potentially other rival brokerages developing platforms to allow retail traders something that has, until now, been off-limits to mom and pop investors: access to IPO allocations of newly public companies.

It looks like Robinhood is winning the race: According to CNBC, Robinhood will soon roll out a new product called “IPO Access” that will do just that: give amateur investors access to IPO shares. It’s the latest move to help “democratize” finance, as Robinhood likes to argue. CNBC reported that the company aims to “antagonize” Wall Street by breaking down one more artificial barrier for retail traders.

Demand for IPO access among retail traders is high: IPO stock pops on the first day averaged 36% in 2020, according to Dealogic. Until now, these gains have been off-limits to retail traders.

Traditional IPOs have also been criticized for being broken, with investment banks allotting shares to the same big clients who reap instate first-day gains. But with IPO Access, Robinhood clients will be able to request to buy shares at their IPO price range, and when the final price is set, clients will be able to follow through with the purchase, change their order, or cancel.

The product will be rolled out over the coming weeks, and medical scrubs company Figs will be the first company to go public with some of its allocation delivered through Robinhood Access.

Medical scrubs 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 shares of Class A common stock offered hereby will, at our request, be offered to retail investors through Robinhood Financial, LLC, as a selling group member, via 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 the use of the Robinhood platform that we cannot foresee, including risks related to the technology and operation of the platform, and the publicity and the use of social media by users of the platform that we cannot control,” the company added.

To be clear: Robinhood won’t be underwriting deals; instead, it plans to partner with investment banks to gain access to the share allocation.

SoFi announced similar plans to offer IPO allocations to retail traders, but unlike Robinhood, SoFi plans to act as an underwriter.

Robinhood’s launch of Robinhood Access also raises questions about whether Robinhood customers will be able to purchase shares of the brokerage’s hotly anticipated IPO via the platform.

If trading on Robinhood’s IPO day goes poorly, the company can just pull the plug.

Tyler Durden
Thu, 05/20/2021 – 18:20

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