Invest in the primary market: access IPOs, and share issues and placings

An initial public offering (IPO) is the process of a company listing its shares on a stock exchange for the first time. It’s the first opportunity for non-private investors to buy the company’s shares in what’s known as the primary market – a transaction between the original holder (the company) and an investor.

An underwriter – usually a bank – helps the company decide how many shares it wants to issue and at what price, and carries out the book building process, ie looking for investors to subscribe to the IPO. Any interested parties will receive a prospectus of information about the shares, where they’ll be listed as well as the potential opening price.

Previously for retail investors, there have been restrictions on IPOs that mean they can only participate fully in the secondary market – when shares are exchanged between investors. However, you can now invest in initial public offerings at the same time and price as institutional investors, thanks to our partnership with PrimaryBid.

Once the issue has been listed, the secondary market begins and share prices are governed by market forces, rather than the company’s prospectus. At this point, you can invest in shares directly through your share dealing account.

A share placing, or equity placing, is commonly used by companies – both public and private – to raise additional capital. They issue shares directly to the most suitable buyers – this doesn’t necessarily have to be existing shareholders.

Shares are offered to individuals, usually at a lower price than the current market level to encourage investment. The size of the discount would vary depending on how many shares are on offer. Equity placings are often offered directly to institutional investors rather than retail clients. However, our partnership with PrimaryBid enables you to invest in follow-on offerings.

An IPO subscription is an indication that you’re interested in buying shares once they’ve been listed. Subscription rates can have a direct impact on the initial share price. IPOs are often underpriced to ensure that the issue is fully subscribed or even oversubscribed by investors.

• Oversubscription means there’s more demand than the number of securities issued – the prices can be adjusted upwards, and you could be allocated fewer shares than you requested
• Undersubscription means that the supply of securities isn’t fully met by the demand, often because the security is overpriced

Whether an IPO is priced at a discount depends on how well it goes on to perform in the secondary market.

If the shares trade at a premium to the IPO price, then participating will have offered a good value investment and typically means it was priced correctly. However, if the shares go on to trade at a discount – despite the price support given by the underwriter – it usually means that the IPO was mispriced, probably because demand was overestimated.

Share placings are usually offered at a discount or at the previous closing price to encourage investment.

When you invest in IPOs and share placings with us, you’ll get the best price available – plus, you won’t be charged a commission for IPO and placings positions with our partner PrimaryBid.