Robinhood seeks to democratize IPOs ahead of its own stock debut

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Robinhood wants to give amateur investors access to initial public offering shares ahead of its own planned IPO.

The popular no-fee trading app that’s become synonymous with the Reddit rally unveiled IPO Access on Thursday, giving users the ability to buy shares at their listing price before they begin trading on stock exchanges.

IPO shares are normally only offered to large investors of Wall Street brokerage firms.

It’s unclear if the new product will give Robinhood traders access to Robinhood’s own planned IPO, which is expected for June. If it does, the product stands to help buoy the startup’s stock debut by expanding demand from Wall Street to Main Street.

The new feature lets users explore upcoming IPOs and request to purchase shares ahead of time with no account minimum. The product will be gradually rolled out over the next few weeks, the company said.

At the end of the blogpost unveiling their new product, Robinhood added this disclaimer: “IPOs can be risky and speculative investments, and may not be appropriate for every investor.”

The coda appears to be a nod to rampant criticism that the company doesn’t adequately warn investors of the risk associated with trading stocks and cryptocurrencies.

Robinhood, which has been criticized for the “gamification” of trading, appears to be ramping up disclosures in general ahead of its IPO, which comes on the heels of a tumultuous year for the app.

Robinhood soared in popularity during the pandemic as stuck-at-home consumers looked for ways to spend their stimulus checks. But its decision to halt buying of Reddit rally favorite, Gamestop, earlier this year spawned a spate of congressional hearings.

Vlad Tenev, CEO of Robinhood Markets
Vlad Tenev, CEO of Robinhood Markets, testifying during an entirely virtual hearing of the U.S. House of Representatives Committee on Financial Services.
House Financial Services Committ

Robinhood was accused of a conflict of interest in banning Gamestop buys because the app makes money through order flow paid by Wall Street firms like Citadel, which had a vested financial interest in GameStop’s decline.

Robinhood CEO Vlad Tenev, who has denied the allegations, was forced to defend the company’s actions in front of top political figures earlier this year.

The controversy resulted in newly tapped SEC chief, Gary Gensler, vowing to look at Gamestop’s business model, cautioning investors in a hearing earlier this month that there’s no such thing as a free app. “There are costs. It’s like an iceberg: Most of the iceberg is below the surface,” Gensler said.  “The costs are below the surface.”

Source : Robinhood seeks to democratize IPOs ahead of its own stock debut