Categorized | IPO

IPO Requirements for the Individual Investor


IPO Requirements can make obtaining shares very difficult

ipo requirements

Similar to the IPO requirements met by firms going public for the first time, individual investors must meet specific guidelines before being permitted to purchase them. Oftentimes before a firm trades publicly they sell their shares to underwriting firms who in turn sell the shares according to their own needs and allotments. It is difficult for individuals to buy IPO shares because of the restrictions placed on them in regards to income, net worth, trading patterns, and activity level as a trader with their trading company.

There are no governmental regulatory IPO requirements concerning the way a firm sells their IPO units. Consequently, underwriters will likely levy heavy considerations on the individual investor such as requiring that they have a minimum net worth and relevant investing goals, a substantial income, specific current securities holdings and other factors. Some trading houses have their own un-circulated IPO shares that they may offer to individual traders. These firms may require that the investor’s trading account be active and in good standing, have a minimum cash account balance, and become a member of a more expensive, or premium, account.

Meeting IPO Requirements

It is sometimes very difficult for the individual to obtain IPO shares due to the underwriting process. For one, investors with a history of ‘flipping’ or selling their acquired shares within the first day to make a profit will usually be refused. Individual investors should seek IPO shares from underwriting companies with a large percentage of individuals as clients. Most other firms will seek out the more wealthy investors or institutions because of their acknowledgement of risk and their long-term staying power. When demand is more than the available supply, initial public offerings are considered ‘hot’ and the underwriters will undoubtedly sell them to their most valued customers.

The general IPO requirements may seem oppressive because they were, by nature, designed to be that way. The individual investor can realistically obtain them because it is not possible for a brokerage house to guarantee the sail of IPO’s to anyone. As long as the specific conditions can be met, anyone may own initial public offerings.

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