Robinhood Markets Inc. introduced a new platform on Thursday that will allow individual investors to acquire shares in initial public offers (IPOs), something that has previously only been available to Wall Street institutions.
Robinhood, which is planning to file for its IPO in the coming weeks, is gradually rolling out the investment platform to users of its trading app to democratize finance.
Robinhood alerted the public to this innovative move in a blog post yesterday stating “Today, we’re starting to roll out IPO Access, a new product that will allow you to buy shares of companies at their IPO price, before trading on public exchanges. With IPO Access, you can now participate in upcoming IPOs with no account minimums. Most IPO shares typically go to institutions or wealthier investors. With IPO Access, everyday investors at Robinhood will have the chance to get in at the IPO price.”
Traditionally, IPO shares have been reserved for Wall Street’s institutional investors or high-net-worth individuals. Retail traders usually don’t have a way to invest in freshly listed firms until their shares start trading on an exchange, which usually happens after the stock price has risen significantly.
This is Robinhood’s newest attempt to enrage Wall Street. As a result, most retail traders have little choice except to invest in a freshly listed company’s stock shortly after its shares begin trading, which often means paying a higher price. According to data provider, Dealogic, the average first-day trading pop on US firm listings in 2020 was 36%.
According to Dealogic, IPO stock price increases on the first day suggests that individual investor demand for some of these prominent brands is not factored into IPO pricing. These are benefits that the average person is missing out on.
According to reports, medical scrubs company, Figs, which filed its papers to go public with the SEC yesterday, will be the first firm to market its stock on the Robinhood app. It’ll be interesting to see how this IPO performs now that this new externality has been introduced.
However, it is unclear whether Robinhood customers will be able to participate in the company’s upcoming IPO. The stock trading app has filed confidentially with the SEC and is scheduled to go public in the first half of 2021. Over the following few weeks, all clients will have IPO access.