As Robinhood sets its sights on a public debut, the no-fee app plans to build a platform that allows its traders to buy into new IPOs at the offering price, unnamed sources told Reuters.
The move would be striking because it provides Robinhood users with a unique opportunity to buy shares of new listings alongside Wall Street funds. Retail investors typically purchase shares of IPOs on their opening day in a rush that sometimes drive up the stock price by more than 30%.
Robinhood itself said earlier it is mulling selling a significant number of its shares directly to users if it opts to go through with an initial public offering. Yesterday, the Silicon Valley startup has confidentially submitted a draft registration statement on Form S-1 with the Securities and Exchange Commission.
However, the discount broker did not officially hint at setting aside some shares for its own users, or how much stock it might sell. No final decision has been made on how it will allocate a chunk of shares or if it will proceed with the plan.
However, such dual-class listings may require a greenlight from the regulators to approve this structure that let founders keep control over allocations to investors even after an IPO.
Robinhood, which was valued at $40 billion in secondary markets, argues that it has more than 13 million accounts on its platform, which offers a major pool of liquidity and investor demand.
Some brokers already offer customers the so-called grey market, in which they can make bets via CFDs ahead of a float. The company typically begins operating a grey market one trading day before the debut.
Investors who choose the right direction can profit from a rise, or a drop if they go short, in a company’s share price following an IPO. But, the lack of major IPOs in recent years makes it more difficult for retail traders to draw conclusions about trends. This means that instead of judging how a company may perform by looking at how its rivals have fared, traders must make their decisions based on other factors.