IPOs - Speak The Basics (Very Good Reading) (20)

Tell your broker


Then, it's just a matter of letting your broker know how much you would like to invest in the IPO.

Whether you're successful depends on many factors:

how many shares are being offered in the deal (the more, the merrier),

how large an allocation your broker's bank is getting (the lead underwriter will have the largest allotment),

how large your account is,

how much trading you do

how close your relationship is with your broker,

how well your broker knows the business, how successful your broker is, etc.


Many brokers, especially the greener ones, don't even realize they could get IPO allocations for clients.

Brokers get fat commissions for selling shares in new issues, so they're usually reserved for the best, most industrious salespeople.


If you want to invest in an IPO but don't have a relationship with one of the managing banks, you can also try to start an account,

making it a condition that you receive some shares in the new issue you're interested in, but you may not have much luck with this tactic.

IPO shares are saved to reward a firm's biggest, most active, and longest-standing customers.


With an electronic brokerage that's participating in an IPO, the allocation process is more objective, although no less difficult.

Some firms, such as DLJDirect, only give shares to customers with a certain account size; others allocate shares based on statistics such as trading frequency to reward their best and most profitable customers.



Wit Capital uses a quasi first-come, first-served system, allocating shares via a random lottery to all investors who respond to their solicitation e-mails within a certain time frame.



Of course, even investors able to get shares in an IPO will not be able to sell those shares right after the stock starts trading, a process called flipping that is often employed by institutional investors to boost returns.

Try to flip, and you'll probably never get an allocation in an IPO again, at least not from the same broker.


Electronic brokers are particularly harsh against quick sellers.

Wit Capital, for instance, says it puts those who sell their IPO shares in the first 60 days at the bottom of the priority list in upcoming deals, while E-Trade also punishes flippers by restricting allocations in the future.