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 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.
Other
questions:
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.