Large institutional investors and funds have traditionally been the first in line for allocations on IPOs, as well as the investment banks that earn big money from arranging such offerings. That leaves most amateur traders with no option but to buy into stock of a newly listed company only after its shares start trading.
Since shares often trade higher when they debut, big funds that get allocations in the IPO have an advantage. The average first-day trading pop on U.S. listings of businesses in 2020 was 36%, according to data provider Dealogic.
Robinhood’s move, if adopted more widely in stock market listings, could further erode the grip of Wall Street’s biggest institutions on market flotations.
Sources told Reuters in March that Robinhood would set aside some of its own shares, expected to be floated in a blockbuster debut later this year, for sale on its own platform.
FIGS Inc, which makes medical scrubs, face masks and shields, on Thursday became the first company to offer shares to retail investors through Robinhood, reserving 1% of its IPO offering of 22.5 million shares for retail traders.
Robinhood said when the final price if an offering is set, users will be able to review, edit, or cancel requests for shares before they are allocated.
The company will gradually roll out the IPO platform to all users in the coming weeks, it said.
Online lending startup Social Finance Inc (SoFi) also said in March that it would allow retail investors to buy into IPOs.
