Initial Public Offerings:
Eligibility To Get Shares at Broker-Dealers
No brokerage firm can guarantee you will be able to purchase shares in an Initial
Public Offering (IPO).
While
it can be difficult for individual investors to buy IPO shares, more firms,
including several online brokers, offer IPOs. Because these firms often have a
small allotment of shares to sell to the public, your ability to buy these
shares – especially "hot" IPOs – may be limited no matter which firm
you do business with.
By its
nature, investing in an IPO is a risky and speculative investment. Brokerage
firms must consider if the IPO is appropriate for you in light of your income
and net worth, investment objectives, other securities holdings, risk
tolerance, and other factors. A firm may not sell to you IPO shares unless it
has determined the investment is suitable for you.
Brokerage
firms also may sell shares in the IPO only to selected clients. For example,
some firms limit sales of shares in an IPO to those customers who have certain cash
balances in their accounts, are active traders with the firm, or subscribe to
one of their more expensive "premium" services. In addition, some
firms impose restrictions on investors who "flip" or sell their IPO
shares soon after trading in the shares begins to make a quick profit. If you
flip your IPO shares, your firm may refuse to sell you any other IPOs or
prevent you from buying an IPO for several months. Brokerage firms often list
these restrictions on the firm's website.
You
can also read about why investors have difficulty getting shares in
an IPO and the differences between the IPO price and the price when
the IPO shares start trading. In addition, we have
information on IPO's
and Lockup Agreements.
