Hello and welcome. You are listening to Patrick Boyle on Finance, a podcast exploring ideas from quantitative finance, examining events occurring in markets right now and financial history to see what lessons can be taken away, including interviews with some of the most interesting people in the world of finance. To learn more about the podcast, visit onfinance.org.

Last week, Robin Hood Markets, the brokerage app that everyone loves to hate, announced that

they're beginning the rollout of IPO access, a new product that they say will give their customers

the opportunity to buy shares of companies at the IPO price before they trade on public

exchanges. With IPO access, Robin Hood claims that retail investors can now participate in

upcoming IPOs with no account minimums.

Today most IPO shares go to institutions or high net worth investors at the offer price.

Smaller institutions and retail investors have to wait till the shares are trading on the exchange,

where they often end up buying them

at a premium to the IPO price.

Let's use the recent Airbnb IPO as an example.

If you got an allocation, you would have bought Airbnb at $68 per share.

The first trade on the exchange was at $146 per share. That's a 115% premium above

the IPO price. The stock closed that day at $145. Although the news touted a 113% gain, investors

who bought at the opening price were actually down by the close of business.

At the time of this recording, Airbnb is trading at $143.

Robin Hood are saying that they will allow everyday investors the chance to get in at the

IPO price, so at the $68 level in that example, rather

than the $145 price. It's worth noting though that Robin Hood will not be an underwriter

for companies going public. They'll instead try to get an allocation of shares from the investment

banks and then pass those

on to their customers. The traditional IPO process has been criticized for a long time as being

...