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Initial Public Offerings: Eligibility To Get Shares at Broker-Dealers

Sept. 6, 2011

No brokerage firm can guarantee you will be able to purchase shares in an Initial Public Offering (IPO).

While it can be difficult for individual investors to buy IPO shares, more firms, including several online brokers, offer IPOs.  Because these firms often have a small allotment of shares to sell to the public, your ability to buy these shares – especially "hot" IPOs – may be limited no matter which firm you do business with.

By its nature, investing in an IPO is a risky and speculative investment.  Brokerage firms must consider if the IPO is appropriate for you in light of your income and net worth, investment objectives, other securities holdings, risk tolerance, and other factors.  A firm may not sell to you IPO shares unless it has determined the investment is suitable for you.

Brokerage firms also may sell shares in the IPO only to selected clients.  For example, some firms limit sales of shares in an IPO to those customers who have certain cash balances in their accounts, are active traders with the firm, or subscribe to one of their more expensive "premium" services.  In addition, some firms impose restrictions on investors who "flip" or sell their IPO shares soon after trading in the shares begins to make a quick profit.  If you flip your IPO shares, your firm may refuse to sell you any other IPOs or prevent you from buying an IPO for several months.  Brokerage firms often list these restrictions on the firm's website.

You can also read about why investors have difficulty getting shares in an IPO and the differences between the IPO price and the price when the IPO shares start trading. In addition, we have information on IPO's and Lockup Agreements.



We have provided this information as a service to investors.  It is neither a legal interpretation nor a statement of SEC policy.  If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.



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