Robinhood to give retail customers access to IPO shares, democratize retail investing

Robinhood Markets Inc., an online brokerage announced the launch of a platform that would give retail investors access to initial public offering (IPO) share alongside Wall Street funds, in the new effort to democratize retail investing. 

IPO shares have been reserved for Wall Street's institutional investors or high-net-worth individuals. Retail traders normally do not have a way to invest in newly listed companies until their shares begin trading on an exchange, which is usually when the share price has risen significantly.

Since shares always trade higher when they first exchange, large funds that receive allocations in the IPO have an advantage. According to data provider Dealogic, the average first-day trading pop on company listings in the United States in 2020 was 36%, Reuters reported. 

Robinhood's move if applied more broadly in stock market listings, could weaken Wall Street's biggest institutions' grasp on market flotations.

“We’re starting to roll out IPO Access, a new product that will give you the opportunity 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,” Robinhood said in a blog post on Thursday.

The online brokerage will not be an underwriter for businesses going public but will receive an allocation of equity by partnerships with investment banks.

Robinhood customers will be able to apply to buy shares at their original listing price range via IPO Access. When the final price is determined, users will be free to proceed with the purchase, make changes, or cancel.

Figs, a medical scrubs firm that filed its SEC papers to go public on Thursday — will be the first to offer its share on the Robinhood app.

The IPO platform will be steadily rolled out to all users in the coming weeks, the company said. 

Social Finance Inc., an online lending startup, also announced in March it would allow retail investors to buy into IPOs.