Robinhood Markets Inc. and Social Finance Inc. have recently launched new services that will let individuals start investing directly in initial public offerings, an inherently risky part of the U.S. equity markets known for day-one price pops that some retail investors have been clamoring to access.
Behind the two brokerages' IPO products is a question that has persisted across Wall Street and Washington, D.C. for years: Should retail investors — a constituency that, thanks to the coronavirus pandemic, has grown as a portion of U.S. stock trading — be able to invest in an IPO on day one at the opening price just as BlackRock Inc., T. Rowe Price Group Inc. and other Wall Street giants have been able to for decades?
Wealthy individuals with at least $100,000 or so in assets can already buy into IPOs through some retail brokerages like Fidelity Investments and The Charles Schwab Corp. Company insiders and their friends and families all have access to IPOs, with issuers commonly allocating shares for them through "directed share" programs. And some like Airbnb Inc. have rewarded their customers and gig workers by allocating them shares. But wider access to the IPO market for individuals has remained limited, until now.
"Companies are realizing in the post-pandemic environment that retail investors can drive significant performance in their stock prices," Rosenblatt Securities Managing Director Vikas Shah said in an interview. "In a way, if the company has the right business model, you cannot have bigger cheerleaders than your own customers."