(Reuters) – Robinhood Markets Inc is building a platform to “democratize” initial public offerings (IPOs), including its own, that would allow users of its trading app to purchase shares alongside Wall Street funds, according to people familiar with The issue. .
The move could further erode Wall Street’s grip on stock prices. It would be easier to implement for Robinhood’s own IPO, given that companies and their investment bankers strictly control the allocations to investors in new lists.
Currently, Robinhood users and other hobbyist traders cannot buy shares in a newly listed company until its shares begin trading. Since stocks often trade higher when they debut, large funds that get allotments on the IPO have an advantage. The first day average listing on U.S. company listings in 2020 was 36%, according to data provider Dealogic.
Robinhood plans to split a portion of its offering shares in its IPO for its 13 million users and use the technology it is developing to manage this portion of the offering, the sources said.
While Robinhood’s technology would be new, the concept of reserving shares for users is not. Deliveroo Holdings Plc, the Amazon.com Inc-backed food delivery company that announced plans this month to go public in London, is doing this, although a third-party vendor is managing the process.
More novel are Robinhood’s ambitions to allow users to buy directly from other companies’ IPOs. It would need to negotiate deals with companies and their brokerages and get the blessing of US regulators, the sources said. Robinhood could influence these negotiations by arguing that it would act as a bridge between the IPO and a significant group of investor demand, the sources added.
It was unclear what kind of arrangements Robinhood would seek to implement, and there is no certainty that its ambition will come true, said the sources, who requested anonymity because the matter is confidential. Robinhood declined to comment.
Providing access to IPOs could increase Robinhood’s appeal among users, some of whom criticized it for restrictions it placed on trading very short “meme stocks,” such as GameStop Corp, following a buying frenzy fueled by Reddit earlier this year. Robinhood said his clearing house forced him to put the brakes on because he lacked sufficient capital to settle the transactions.
The move could also boost Robinhood’s valuation on its own IPO, as the offering would price additional demand for the shares that would normally have been presented only after the equity market debut.
On Tuesday, Robinhood announced that it had submitted confidential documentation to the US Securities and Exchange Commission for its IPO. While the company has yet to reveal details, the offering could happen in the next few weeks and value Robinhood at up to $ 50 billion, sources said.
Robinhood’s plans to allow hobbyist traders to buy into IPOs represent the latest attempt by Silicon Valley companies to disrupt traditional IPOs. Several companies, including Slack Technologies and Palantir Technologies Inc, have listed directly without resorting to investment bankers.
The move would antagonize Wall Street, which is used to getting large allotments in IPOs. Fund giants like BlackRock Inc and State Street Corp have argued that they are better business owners than day traders, because they stay with companies for the long term.
The Menlo Park, California-based company was founded in 2013 by Baiju Bhatt and Vladimir Tenev with the goal of “democratizing finance,” giving people access to markets normally dominated by professional investors.
Backed by investors such as Andreessen Horowitz, Ribbit Capital, and 9Yards Capital, its platform allows users to conduct unlimited, commission-free transactions in stocks, exchange-traded funds, options, and cryptocurrencies.
Reporting by David French in New York and Anirban Sen in Bangalore; Edited by David Gregorio