How to Participate in an Initial Public Offering (IPO)
What's an IPO?
An initial public offering (IPO) is the process of a company selling its shares to the public for the first time. IPOs are typically used by young companies to raise capital for future business expansion. These shares are initially issued in the primary market at an offering price determined by the lead underwriter (this is who organizes the syndicate of banks and brokers). The primary market consists of investment banks and broker dealers that the lead underwriter assembles. These banks and broker dealers allocate shares to institutional and individual investors. Being allocated shares at the offering price is referred to as "participating in the IPO." Participation in the IPO happens before the security is first traded on any of the stock markets.
What do I need to know?
First, you'll need to meet at least one of the following eligibility requirements for participating in an IPO:
- Either $100,000 or $500,000 in household assets (depending on the IPO; this amount excludes institutional or annuity assets, such as 401(k), 403(b), and annuity contracts),
- 36+ trades/year, or
- You're a Premium or Private Client Group customer.
If you meet the eligibility requirements, you need to sign up for Fidelity Alerts so we can keep you updated on the offering. Your next step is to read the offering’s prospectus (this document is from the issuer and it contains descriptions of the business and other pertinent details). You can access the prospectus from the Initial Public Offerings (IPOs) page. Under the Current Offerings Calendar, find the offering you want to participate in, and then select Prospectus and Download.
Note: In addition to the eligibility requirements, you'll also need to answer a series of qualifying questions before you can participate in the IPO. FINRA rules prohibit "restricted persons" (certain persons associated with the financial services industry) from participating in the purchase of new issue offerings.
If you decide to participate, next to the desired offering, select Participate. You'll see a page asking you to select the account you want to use; choose your account and then select Enter New Indication of Interest or Bid, and Submit. The Select Offering page appears, then next to the IPO, select Participate. Here’s where you'll need to complete the qualifying questions by answering yes or no. After you answer the questions, you'll be asked to enter an indication of interest (IOI). To complete your participation, review your selection and then Submit.
Note: You must have at least $2,000 in cash or fully paid securities in the account you use to enter an indication of interest. The indication of interest tells us the maximum number of shares you’re interested in purchasing. IOIs must be for a minimum of 100 shares. The IOI window is open for several days, so there is generally a delay between when the IOI is placed, when the final IPO price is determined, and finally, when allocations (the amount of stock distributed) are received.
What to expect
Here are the communications you'll receive, either through email or text depending on how you set up your IPO alerts:
- The notice of expected pricing and expected effective date is sent on the morning of confirmation asking you to confirm your indication of interest. Please call us at 800-544-5631 to complete the confirmation.
- The notice of pricing and effectiveness is sent when the pricing and effectiveness is known to give you the confirmation period details. You'll be reminded to confirm the indication of interest to be eligible for an allocation of shares. Please call us at 800-544-5631 to complete the confirmation.
- The notice of allocation is sent when the allocated shares reach the account.
- Any deal-specific updates (for example, pricing date change, price range change, or size change) are sent through the same alerts system.
When IPOs are registered, there is generally a price range announced by the company and the underwriters. However, this price range may change throughout the course of the deal, and it’s not made official until the deal is declared effective by the Securities and Exchange Commission (SEC). This happens the evening before the first day of trading.
You can view the status of your account's allocations on Fidelity.com or by using the Fidelity Automated Services Telephone (FAST®) as soon as your shares are allocated, typically the morning following pricing. After you've received your shares, you'll receive a final prospectus. This contains the same type of information that was in the preliminary prospectus but with certain amendments including, but not limited to, the exact number of shares offered, the net proceeds going to the issuer, and the concession being given to the underwriter.
Note: At times, not all customers who request to participate in an IPO may have the opportunity to do so. In IPO deals where the demand for the new issue exceeds the supply, we may use an allocation method that's based on a formula using a customer's assets, revenue, and tenure.
There are risks associated with investing in a public offering, including unproven management, and established companies that may have substantial debt. As such, they may not be appropriate for every investor. Customers should read the offering prospectus carefully, and make their own determination of whether an investment in the offering is consistent with their investment objectives, financial situation, and risk tolerance.