Trading platform Robinhood has said it plans to roll out a platform to allow its users to buy into initial public offerings (IPOs) in a move aimed at democratizing finance.
To date users of the commission-free app, as well as other amateur traders, cannot not buy into stock of a newly listed company until its shares start trading.
The announcement means Robinhood users will be able to buy shares of companies at their offering price, with no mandatory account minimums.
The move may further damage Wall Street’s control of stock market flotations. It would be easier to implement for Robinhood’s own upcoming IPO, given that companies and their investment bankers tightly control allocations to investors in new listings.
Since shares often trade higher when they debut, big funds that get allocations in the IPO have an advantage. The average first-day trading pop on U.S. listings of businesses in 2020 was 36 per cent, according to data provider Dealogic.
The trading app, which saw its popularity surge following a retail trading frenzy during the pandemic, is reportedly preparing to publish filings for its own IPO next week as it gears up to go public next month.
The company is also facing regulatory scrutiny amid concerns it was encouraging the “gamification” of trading.
In January it came under fire over its decision to restrict trading of certain shares linked to the meme stock craze following a short squeeze that sparked billions of dollars in losses for hedge funds.
Robinhood has set aside $26.6m for a potential settlement around trading outages in March 2020, as well as its options trading policies. The company also raised $3.4 billion in emergency funds after its finances were strained due to the massive jump in retail trading