Are you getting excited to participate in the upcoming IPOs? You are ready to invest money in your favorite IPO. But, you application to buy shares in an IPO is not a guarantee to receive shares in the issue.
What makes the IPO share allotment process a complicated task? There are several key things to know about IPO stock allocation process.
Buying shares in an IPO is not as simple & quickly as purchasing shares of an already registered company. You are not certain whether you will get requested lots of shares or not even a single lot.
According to a post published in Fidelity, every IPO is different & market conditions can play a critical role in how shares are allocated.
Sometimes, your brokerage firm can also impact your chances to receive shares. Your own long-term relationship with brokerage firm can increase the possibility of receiving shares. Here are 10 critical things to determine share distribution process in IPO:
(1) IPO Is A Limited Offering & Enrollment Is On First-Come, First-Served Basis
Every IPO is known to have limited or predetermined number of shares only in an issue. All retail investors or traders need to apply for allotment of shares as early as possible.
It should be done within stipulated time period i.e. before due date & time. Generally, retail investors or traders apply for allotments by responding to media advertisements by company.
Your application will enroll you in the IPO launching process depending on first-come first-serve basis. However, your enrollment in a typical IPO is not a guarantee that IPO shares will get assigned to you.
Share distribution in a typical IPO is usually done depending on the availability of shares. You may receive less than the requested amount of shares.
However, if the issue is oversubscribed, you may not receive even the minimum number of shares. In oversubscribed issue, share allotment is usually done on a random basis through a computerized lottery system.
Finally, investment bankers & company will allocate shares to randomly selected IPO investors.