1. What is IPO subscription? How to participate?
A company’ going public, generally called initial public offering (IPO), it refers to its initial offering of shares to the public at an issue price within a preset range for financing purposes. So “IPO subscription” refers to investors participating in an IPO for an opportunity to buy in shares at the finalized issue price on the day of listing.
Unlike new shares subscription in A shares and HK stocks, conventional US stock IPOs are not subject to public subscription. As US stock market is dominated by institutional investors, the placement of past new share offerings was mainly open to institutional investors or high net worth individual investors who subscribe more than USD1 million or retail investors with high participation requirements.
US stock IPO subscription at Tiger Brokers, an innovative service for ordinary investors, refers to Tiger Brokers’ participation in the underwriting or distribution of new US stock IPOs, and then further allocate the quotas Tiger Brokers receives to our clients, which lowers the participation requirement for US stock IPO subscription. Investors may view new recently available US IPO subscription via tab [New Shares Purchase] on our Tiger Trade app.
2. Are there any capital requirements for IPO subscription?
In an US IPO, an issuing price range will be determined. At the time of investor subscriptions, Tiger Brokers will freeze the capital as per the 120% of upper limit of issu price range and the quantity of subscribed shares (i.e., conditional offer to buy). Therefore, in general, a subscriber may express its intent of subscription when available funds in its account take up around 120% of the amount of subscription.
When the finalized issue price of the new stock does not exceed ±20% of the issue price range, the subscriber’s subscription application remains effective; and when such finalized issue price exceeds ±20% of the issue price range, the subscriber shall reconfirm its own subscription application.
For example, when a subscriber subscribes 100 shares of PDD, the offering price range is USD16-19 per share and the frozen capital is USD2,280 (i.e., 19*120%*100).
It should be noted that the margin for new shares subscription in the subscriber’s account shall be frozen until the confirmation of subscription, the purpose is to ensure that there are sufficient funds for settlement of new shares for new shares allocation. Freezing funds does not mean deduction (or advance payment) but that these funds cannot be used for other purposes temporarily, that is, frozen funds can be used neither to purchase shares, nor to participate in subscribing other shares that are available for public subscription at the same time. If the ballot is lost, those funds will be automatically unfrozen.
3. What is a ballot? How does the ballot mechanism work?
New US stock IPOs are not offered to public subscription. The underwriters, or the securities dealers qualified for distribution and allocation quotas, will decide at discretion how to conduct the allocation to the investors participating in the subscription, not subject to unified rules for allocation. Meanwhile, US regulators do not require the securities dealers to announce the allocation rules and all allocation results.
In order to better deal with each investor, Tiger Brokers adopts the Generalized System of Preferences + the Principle of Subscription Quantity Priority as its new stock allocation rules:
1) By using the Generalized System of Preferences as the first principle, we hope as many investors participating in IPO subscription as possible to get an opportunity to win the ballot;
2) By implementing the Principle of Subscription Quantity Priority, we allocate more shares to investors with a larger subscription quantity by means of comprehensive weight.
For example, in case of TIGR IPO subscription, we will first ensure a minimum quantity of 300 shares available for each participating user, and then based on this, allocate the remaining shares in light of comprehensive weight relative to each user’s subscription quantity.
Wining ballot refers to a subscriber’s successful buying in all or part of subscribed shares at an issue price on the data of listing. During IPO subscription, a subscriber may be provided with either all or part or even any quantity of subscribed shares.
It should be particularly noted that due to many uncertainties in the process of US stock IPO subscription, the allocation mechanism for each US stock may be changed. When there is a larger quantity of subscribers and a smaller quantity of relevant allocable quotas, the ballot winning rate for some users may be zero and that for investors is not always 100%.
For example, in case of PDD’s IPO subscription, there are too many subscribers, just 26% of whom win the ballot finally.
In rare cases, the possibility of zero winner out of all subscribers cannot be ruled out.
4. Date of announcement of ballot results
For new US stocks, an issue price may be determined on the day before the listing, and the underwriting team often determines the quotas to be finally acquired and start to allocate them on the day of listing. Therefore, subscribers will know the ballot results on the day of listing.
For new US stocks allocation at Tiger Brokers, the underwriter will first allocate the quotas to Tiger Broker’s clearing brokers, who will announce the ballot results the first time around and allocate the quotas to subscribers in accordance with relevant rules after acquiring the quotas.
Since the provision of US stock IPO subscription channel services by Tiger Brokers, the clearing brokers of Tiger Brokers have often acquired the allocation quotas in US EST 9:00 – 10:00 a.m. (i.e. Beijing DST 21:00 – 22:00 p.m.) of the day of listing, and started allocation upon receipt of them. The allocation time is determined by the underwriter. Tiger Brokers cannot ensure that the new share allocation is certainly completed before official listing of the listed company, because it may be delayed for a few hours after such official listing.
Users participating in new shares subscription may check their own subscription status, which will be updated into “winner” or “loser” after disclosure of ballot results, via [New Shares Purchase] on our Tiger Trade app.
5. What are the differences between the planned issue size, offering price range and final issue size and finalized issue price of IPO?
The issue size of US stock IPO is often a guiding volume provided based on market demand, company scale and other comprehensive indicators by the underwriter and the listed company after negotiation. Before official listing for trading of new shares, the issuer may adjust the issue size in light of market conditions. As such, the final issue size may either increase up to 120% or reduce to 80% of the planned issue size.
The issue price range of US stocks is usually a guiding range provided based on corporate valuation and market factors by the underwriter. In general, the company will determine the final issue price, often within the offering price range, on the day before official listing. According to the market conditions, the finalized issue price may either increase to 120% of upper limit of the issue price range or reduce to 80% of the lower limit of the issue price range.
For example, TIGR was listed at NASDAQ on March 20, 2019, with a finalized issue price of USD8/share, beyond the previous issue price range of USD5-7.
6. How about the quantity of subscription for new stocks?
In general, the minimum quantity of new US stock subscription is 100 shares, different from that of any IPO subscription. There is not any requirement that the quantity of subscription be an integral multiple of above minimum subscription quantity, that is, 105 shares, 120 shares, 150 shares, etc. all are allowed.
If the margin in a subscriber's account is not sufficient to subscribe the stated shares, it will automatically reduce to a quantity affordable by such margin. If available funds in the account are not sufficient to subscribe the minimum subscription quantity of shares, the subscription will be rejected.
7. Subscription opening and closing time
The subscription time of each new stock varies with its road show arrangements, thus the client shall timely keep an eye on relevant subscription information.
US stock subscription lasts for a short period, and based on historical public subscription periods, is often made public 3-5 days before listing of the new stock and ended 1-2 days before listing of the new stock. The period of subscription is 1 day at least or 3-4 days at most. In case of booming subscription or for other reasons, the underwriter may close the subscription channel ahead of time.
Q: How do I check the subscription application status?
A: You may check via the Tiger Trade app — Findings — Subscription of New Stocks — Intent of Subscription (if you win, it will be reflected in the position). After announcing the ballot results, Tiger Brokers usually informs the wining client via SMS.
Q: Which type of currencies can be used for US stock IPO subscription?
A: For a margin account, IPO subscription can be directly carried out if there are sufficient assets but not USD in the account. It should be noted that this is a financing behavior (i.e. borrowing USD from Tiger Brokers). If there is a failure to sell on the day of ballot winning, a certain interest expense may be incurred; and if there is a success in selling on the day of ballot winning or losing, any expense will not be incurred. For a cash account or limited margin account (with assets of less than USD2,000), the subscription can only be carried out in USD; and the client may exchange any other currencies for USD within the account in order to meet the minimum capital requirement.