The same week that it filed confidentially to go public, Robinhood announced a potential game-changer for the world of IPOs
Have you ever been super excited for a company’s IPO, set expectations of its valuation and what you’re willing to invest, only to have some faceless firm — *cough* BlackRock *cough* — swoop in and drive its price up before you ever get a chance to buy so much as a single share?
Well, those days could soon be over…
The dawn of a new investing age?
They may not be everyone’s favorite business right now, but Robinhood’s plans to “democratize” initial public offerings could go a long way to regaining public confidence — if they can pull it off.
According to sources familiar with the matter, the commission-free trading service is building a platform that would allow users of its app to snap up IPO shares alongside Wall Street funds.
If you’re unsure what this means, currently amateur traders cannot buy into the stock of a newly listed company until its shares start trading. Since shares often trade higher when they debut — 36% on average in 2020, according to Dealogic — big funds that get allocations in the IPO have an advantage. Big funds such as BlackRock or Berkshire Hathaway, with almost-bottomless pockets.
It is unclear how this revolutionary new system would work, but what better way for Robinhood to test it out than on its own IPO, which is expected some time in Q2. For other companies, Robinhood would need to negotiate agreements with the businesses and their brokerages and get the blessing of U.S. regulators, but it could leverage its own position as a bridge between the IPO and a major pool of investor demand in order to get its way.
Whatever about Robinhood’s actions of late, should it pull off such a move, it would turn traditional IPOs on their heads, and with any luck, it should level the playing field for retail investors who want a fairly priced slice of their favorite company.
A MyWallSt subscription gives you access to over 100 market-beating stock picks and the research to back them up. Our analyst team post daily insights, subscriber-only podcasts and the headlines that move the market. Get your free trial now!
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.