Submitted by nsscadmin on
There’s been a lot of talk about initial public offerings (IPOs) lately following some high profile, and exceptionally high value, IPOs. This has led many investors, especially DIY investors, to become more interested in investing during an IPO. One popular online broker has recently added access to IPO investing to its platform. That makes it an opportune time to take a closer look at how investors can invest in a company during its IPO.
For those looking for information on the basics behind the IPO process itself, take a look at our previous “What’s an IPO?” post. If you’re looking to buy securities in an IPO in Canada there are two ways to do so. The first is to apply to purchase shares at the offering price before they reach the public market. The second is to purchase them on the secondary market once trading begins.
Let’s examine option one first - applying to purchase shares at the offering price before they reach the public market. Retail investors in Canada can sometimes get shares at the initial IPO price, but access to these shares is often limited and conditional. The first thing you need to do to have chance at this early access is to open an account with a brokerage that supports access to IPOs. Not all brokerages do, so do your research to ensure you’re not signing up for a brokerage that does not offer it.
Step two is to submit an indication of interest (IOI). Your online brokerage’s platform should have a section for IPOs, or new issues. Here you can find the IPOs that are open to retail investors. If the IPO you are interested in is available, you can place an expression of interest for the number of shares you wish to purchase. Some brokerages may have a minimum requirement you must meet when placing your expression of interest. There may be other terms and conditions you must also agree to when placing your expression of interest, such as minimum amount of time you must hold the shares after the IPO.
Now you must wait for the allocation of shares during the IPO. Just because you request a certain number of shares in your expression of interest does not mean you will get them all, or any. IPOs usually draw overwhelming interest from investors, which leads to heavy rationing of shares. Due to this rationing, you may receive only part of your request, or none at all.
This leaves option two. Most Canadian investors are limited to buying IPO stocks after they are listed on a stock exchange, from the secondary market. Once the stock officially begins trading through your brokerage you can place buy orders to purchase the stock. Following an IPO the price of a stock can be very volatile, so make sure you’re comfortable with this type of volatility and the risk before investing.