Robinhood looks to allow users to buy directly into IPOs, report says

Robinhood on cellphone


Robinhood is looking to allow its users to buy directly into initial public offerings, including its own, alongside institutional investors, Reuters first reported.

While the popular trading app – which confidentially filed IPO paperwork on March 23 – could easily implement this for its own debut, it remains to be seen how other companies will react to this move, knowing how limited allocations are to investors during new listings.

Further, Robinhood would still need to get the approval of US regulators and negotiate with companies and their brokerages, sources told Reuters.

Robinhood users and retail traders are currently not able to buy stocks of newly listed companies until they start trading, unlike Wall Street investors. If this initiative succeeds, it will be considered a win for retail traders as shares often trade higher when they debut in what is commonly known as a first-day pop.

The average pop on US listings in 2020 was 36%, according to data provider Dealogic as reported by Reuters.

Sources tell Reuters that the Menlo Park, California-based company plans to allocate a portion of shares on offer in its IPO for all of its 13 million users.

Read more: Cathie Wood says Tesla’s stock is going to $3,000 by 2025. 2 market experts break down whether that’s realistic and the catalysts that might lead the EV maker there.

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Robinhood has filed confidentially for a US IPO, new report says

Robinhood on cellphone

Robinhood Markets confidentially filed for an initial public offering with the US Securities and Exchange Commission, Bloomberg first reported on Tuesday.

Robinhood, the trading app popular among retail investors, selected Nasdaq as the venue for its listing, according to Bloomberg. Robinhood is also said to be keeping its listing plans open to change. It’s been eyeing an IPO since as early as 2018. The company had more than 13 million users at the end of 2020.

The app’s rapid rise to prominence peaked during the GameStop short-squeeze saga in late January as an army of Reddit day traders sparred with hedge funds to push shares of the video-game retailer to dizzying highs.

Robinhood achieved an $11.7 billion valuation in a funding round last year. It also raised financing this year that will convert to equity upon the completion of an IPO, Bloomberg reported in February. A first tranche will convert at the lower of a $30 billion valuation or a 30% discount to the IPO, with the second at the lower of the 30% IPO discount or a $33 billion valuation, according to Bloomberg.

Robinhood hired Goldman Sachs in December to lead its IPO.

Read more: Hedge funds are ramping up bets against Chamath Palihapitiya’s SPACs and have already taken home $40 million this year. Here’s a detailed look at the wagers they’re making.

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SEC chief Jay Clayton says he is nervously eyeing retail-driven euphoria in the stock market

FILE PHOTO: Jay Clayton, Chairman of the U.S. Securities and Exchange Commission, speaks at the Economic Club of New York luncheon in New York City, New York, U.S.,September 9, 2019. REUTERS/Shannon Stapleton
FILE PHOTO: Jay Clayton, Chairman of the U.S. Securities and Exchange Commission, speaks at the Economic Club of New York luncheon in New York City

  • Chairman of the Securities and Exchange Commission Jay Clayton told CNBC on Thursday he’s concerned about stock market euphoria stemming from retail investors. 
  •  “When stocks run away… we do get concerned because it is a situation where professional investors understand this, I do worry that retail investors do not understand that trees don’t grow to the sky,” Clayton added. 
  • His concerns come as all three major indexes hovered around record highs on Friday.
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Chairman of the Securities and Exchange Commission Jay Clayton told CNBC on Thursday he’s concerned about stock market euphoria that’s stemming from retail investors.

“We are in a situation where with mobile communications, access, and the like, there is a new paradigm. There are more retail investors participating in the market than ever before,” Clayton said.

“One thing we don’t regulate directly…is euphoria and we’re seeing some euphoria here,” he added. 

His concerns echo those of Goldman Sachs CEO David Solomon, who said earlier this week he’s also worried about retail investors driving the market to dizzying new heights. Both pointed to the hot IPO market. Airbnb, for example, leaped 115% on its first day of trading. On Friday, all three major indices hit all-time highs.

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“When stocks run away… we do get concerned because it is a situation where professional investors understand this. I do worry that retail investors do not understand that trees don’t grow to the sky,” Clayton added.

His interview comes as the SEC charged Robinhood with misleading customers on the revenue from trades resulting in a $65 million settlement, as well as a complaint from the Massachusetts securities regulator stating that the trading app encouraged inexperienced investors to execute frequent trades.  

 

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