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IPO allocation

The discretionary decision about who receives shares at the offer price before trading begins, made by the bookrunner rather than by an open market.

Allocation is not first come, first served. Banks favour long-only institutions likely to hold, accounts that pay them commissions, and cornerstone-investor participants. Retail access, where it exists at all, is a small carve-out through a broker's participation in the syndicate.

This is why the offer price and the first traded price are different worlds. If you buy on the open you are buying from whoever was allocated, not from the company.

Example: a 15M share deal with 90M shares of demand fills orders at about 17%. A fund asking for 3M shares receives 500K; a flipper known to sell on day one receives none.

Related: ipo, book-building, underwriter, ipo-pop, cornerstone-investor

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