For a long time now, the biggest knock on the IPO market is the lack of access average investors have had to the stocks before companies would begin trading on their respective stock exchanges.
Well, it looks like Robinhood is setting out the change that.
The company that, just this week, finally filed confidential paperwork to pursue an IPO now says it’s working on a platform to “democratize” initial public offerings moving forward, including its own. This would allow retail investors on the Robinhood app to grab shares of IPOs before their debuts, without running to their financial planners, as is the “easiest” avenue to do so nowadays.
Currently, Robinhood users and most other retail traders cannot buy stock in a newly listed company until its shares actually start trading. But by then, their prices often shoot much higher. According to data provider Dealogic, the average first-day trading pop on U.S. listings of businesses in 2020 was 36%. That’s a significant number, big enough to scare away plenty of prospective investors.
Of course, if the trading app is to let users directly buy into IPOs of other companies, it will surely need to negotiate agreements with those companies and their brokerages, as well as, get the blessing of U.S. regulators, the But it’s believed that Robinhood could have leverage in these negotiations by arguing it would be acting as a bridge between the IPO and a major pool of investor demand, which should be music to the ears of many of these IPOs.
And the icing on the cake for this new generation of “stick-it-to-the-man” investors is that with as many as 13 million active users on Robinhood, Wall Street may eventually start to lose its grip on stock market flotations if investors start diving into the IPO market in droves. That should be reason enough for everyone to be excited about this new venture.