Many investors like investing in initial public offerings, or IPOs, because it’s an opportunity to put money into a relatively early-stage company that has plenty of room to grow over time. Some companies draw more investor interest than others.
One way to gauge the level of interest in a company is by looking at its IPO subscription status. Read on to learn more about what investors mean when they refer to “IPO subscription status.”
IPO Review
“IPO” is an acronym that stands for “initial public offering.” It represents the first time that a company offers shares for sale to members of the general public through a stock exchange. Prior to an IPO, you would not be able to find a company’s stock trading on an exchange such as the New York Stock Exchange, for example.
Prior to going through the IPO process, a company is private, and its investors usually include its founders, employees, and venture capitalists. A private company usually decides to go public to attract additional investment.
But it’s the tricky period before an IPO, when a company is still private, that many prospective investors look to make a move and get in early. This is when investors “subscribe” to an IPO, which means they’re agreeing or signaling their intent to buy a company’s stock prior to its IPO. When the IPO executes, those investors can then expect to own the number of shares to which they previously agreed. Typically, only certain investors can participate in IPO bidding and subscribe to an IPO.
IPO Subscription Status Defined
Just what is an IPO subscription status? It describes the position of a company’s IPO, as it relates to how many subscribers it has. For example, an IPO may be “fully subscribed,” “undersubscribed,” or “oversubscribed.”
In other words, an IPO subscription status refers to how many times investors have subscribed to a public issue. The goal of an IPO is to sell all of its shares — or, to reach an IPO subscription status of fully subscribed, and a valuation in line with its calculations for pricing its IPO.
In that event, all of a company’s shares are spoken for prior to hitting the exchanges, and any leftover shares won’t see their values reduced in order to attract buyers. Early investors looking to cash out after an IPO typically must wait for the lock-up period to expire before they can sell their shares.
Keep in mind that many IPO stocks in the U.S. are gobbled up by large, institutional investors involved with the IPO’s underwriter. Just as the average retail investor is not typically included in an IPO roadshow, they likely won’t have a chance to buy an IPO stock at its offering price, as they’ll need to wait until it goes public.
Some brokerages have programs that allow qualified investors to request IPO stocks at their offering price, but there’s no guarantee those investors will actually get the shares. And one last thing: Because IPO subscriptions tend to be out of reach for retail investors in the United States, they’re often discussed in relation to foreign IPOs, and even more specifically, those on Indian stock exchanges (more on that below).
Why IPO Subscription Status Matters
An IPO’s subscription status matters in that it can provide investors a sense of how an IPO stock may perform once it hits the exchanges. That’s pretty important, especially for traders or investors who are looking to earn a profit flipping IPO stocks.
Shows Demand of IPO Shares
Knowing an IPO’s subscription status can give investors an inkling as to how much demand there is for shares — if demand is high (an IPO is fully or oversubscribed), it’s a signal that an IPO stock may gain value after its market debut. But it’s not a guarantee.
Conversely, an undersubscribed IPO sends a signal that investors aren’t that interested. And when stocks do hit the exchanges, they may see a price reduction soon thereafter.
IPO Grey Market
The IPO grey market — an over-the-counter (OTC) market on which a group of investors trade — takes some cues from the subscription status. The grey market allows approved investors to swap IPO shares or applications before a company goes public, and an IPO’s subscription status may impact the values of those assets.
Checking Subscription Status for an IPO
The process of checking an IPO subscription status depends on the stock exchange on which a company is going public. And remember, most of this focuses on foreign exchanges, and those in India, in particular. There are two main exchanges in the mix here: The BSE and the NSE.
BSE
The Bombay Stock Exchange (BSE) is one of the largest stock exchanges in Asia, and also one of the continent’s oldest, dating back to 1875. To check a subscription status for an IPO on the BSE, you simply need to go to the exchange’s website and look up the specific IPO. You can find total bids and other information relating to the IPO’s status there.
NSE
The National Stock Exchange (NSE) is another Indian stock exchange. To check an IPO’s subscription status on the NSE, you need to go to the exchange’s website , and look for market data relating to IPOs. There, you’ll see the information relating to upcoming or recently concluded IPOs, and their respective statuses.
The Takeaway
While individual investors may not have access to IPO subscriptions in the United States, you can still participate in the IPO market. The key is doing your research to find the right companies to invest in as they go public.
One way to get started investing in IPOs is by opening a brokerage account with the SoFi Invest® investment platform. SoFi members can invest in IPOs via their phones before the companies appear on a public exchange.
FAQ
Here are a few quick answers to some outstanding questions you may still have about IPO subscriptions:
How many times can an IPO be oversubscribed?
IPOs get oversubscribed frequently, which means that more investors want to buy shares than a company has available to issue. There isn’t really a limit as to how many times it can be oversubscribed, but depending on the category of investor, it’s not uncommon for IPOs to be oversubscribed dozens or even hundreds of times.
How do I read an IPO subscription?
To read an IPO subscription, you’ll need to go to the related exchange’s website and corresponding IPO page. On that page, you should find a list of companies, along with the number of shares being offered by the company, and the number of bids for those shares — along with the investor category for which those shares are being bid.
It can be a bit of data-overload, but taking a few minutes to read through the data should help you figure out how in-demand a specific IPO stock is among investors.
What is an IPO subscription rate?
IPO subscription rates are an estimate of how many bids are received for each investor category, divided by the number of shares allotted for each category by the company. This helps determine the level of participation among investors in each category.
Photo credit: iStock/SeventyFour
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
[cd_ipos]
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SOIN1221518
