Finding it difficult to buy shares in an IPO?
Though Initial Public Offerings or the IPOs are considered to be as good investments in the market, you have to remember that this isn’t for everyone. Individual investors usually find it hard to get their own shares. And the reasons behind this are numerous.
One reason can be linked to who controls the whole process. When it comes to IPOs in the market, it is the underwriters and the company who delivers the shares and control and the process. The SEC isn’t involved in the process and it does not regulate the process and much more how the shares are allocated in the market. Yes you can still get your own piece of shares thru online brokerage firms, but expect that getting what you want is actually a tricky process. Another reason can be linked to the underwriting process known in the market. This is the group that agrees to purchase the shares from the company and then sell these shares to the investor. In effect they are the ones who get the biggest chunk of the shares. They are the ones as well who effectively decide on the terms and the structure of the offer even before the actual trading starts. Most of the time, they target first the wealthy and the institutional investors in the market. They have this belief that this set of buyers in the market has the capability to but large shares and has the capabilities to withstand the attendant risks. So this means that individual investors are placed at the end of the priority list.
Another factor is the ‘reputation’ of the company being made public. If the company is on a hot streak, then of course the underwriters have that option to limit the shares offered to others and they will usually offer their shares to the preferred clients. These are just some of the common reasons why the regular individual has trouble getting his own piece in the market.
September 3rd, 2008 at 6:46 am
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