IPOs - Speak The Basics (Very Good Reading) (19)

The ground floor


Obviously, one of the best ways to invest in an IPO is to buy shares at the offering price from one of the banks managing the deal, before the stock starts trading.

New issues are usually reasonably priced by the lead underwriter, which typically hopes for a 15% premium above the offering price when the stock starts trading.


For your average retail investor, however, buying shares at the offering price before the stock starts trading is a difficult task.

But it's a bit easier now that banks have made an effort to reach out to the retail investor community through alliances and mergers.


To buy an IPO at the offering price, you'll need to have an account with a broker that has access to that deal, meaning one of the banks that is part of the selling syndicate.

These will be brokers that also have corporate finance divisions, such as Merrill Lynch, Wit Capital, or Salomon Smith Barney, or discount brokers that have signed a distribution alliance with a traditional investment bank, such as E-Trade or Schwab or DLJDirect.

The names of the banks on the syndicate for any given deal can be found by looking at the "Underwriting" section in a company's SEC registration.