Trade IPO Rights? A May Day Special
Trade my IPO Rights – A May Day Special!
Ganga Prasad G. Rao
http://myprofile.cos.com/gangar
I don't know about you, but I am a very frustrated man, what with only GAIL, NTPC and Cairn to show for my participation in 20 IPOs over the past 4 years. I have tried every trick in the book: reading the prospectus, going to the company website, applying early on the first day, adopting a 'pick and choose' strategy, applying sequentially in the hope my luck will cumulate, ....., hoping against hope, but none seems to work. Perhaps I am not 'IPO savvy'! I am so disheartened that nowadays I buy bargains elsewhere when (and if) markets go down during the IPO period.
Then, this thought struck me as I was plodding through the gender equality paper. Why not issue IPO Participation (IPOP) Points to IPO investors and permit those points to be traded on the condition that those with 25 (or an 'IPO-specific cut-off' number of) points are guaranteed an assignment? Here is the idea: Every retail IPO investor earns a point for participation. Those who agree to pay a non-refundable fee of 2.5% of their total IPO bid amount subject to a minimum of Rs200, earn a bonus point for every Rs10,000 they invest in the IPO. These points are issued (as online certificates) by the stock exchange in consultation with the book runner; they are bankable, valid indefinitely and tradeable online at prices negotiated among retail investors. An investor submits an IPO application along with the certified number of IPOP points (own earned points, plus any purchased online). The book runner adds up the demand and stacks the applicants in descending order of their participation points. He determines a cut-off and assigns shares equally to those at or above the cut-off number of participation points. (One could think of this as claiming a right to IPO assignment by buying off the cumulative 'disappointments' of those denied in previous IPOs). Investors outbid one another in the purchase of IPOP points, in the process bidding up its price. The listing gains that accrued solely to the (1 in 1000) successful investor is now broadly distributed among the thousands of disappointed IPO investors who sell their IPOP points at a premium. The stock exchange and the book-runner are compensated for record-keeping and issue of participation certificates. Regular participants garner the required points in an years time; those with less points may purchase them from their brethren at negotiated prices. That price will vary with the 'juiciness' of upcoming IPOs. (In fact, it'd be a harbinger of the quality of IPOs in the pipeline)
Now, there are various other means of apportioning shares but it is possible to factor in the participation points in to the allocation to improve equity in the allocation of IPO shares. This scheme of tradeable IPO participation rights ensures, on one hand, that established, entrenched, 'in the know' investors do not make a regular habit of making a killing of the listing gains as companies hatch in to the stock market, and on the other, that the not so lucky small investor shares, at least minimally, in the economic rents associated with IPO allotment.
Works? Yes!
(Do I hear a 'May Day' call from Dalal street-wise guys?)
Ganga Prasad G. Rao
http://myprofile.cos.com/gangar
I don't know about you, but I am a very frustrated man, what with only GAIL, NTPC and Cairn to show for my participation in 20 IPOs over the past 4 years. I have tried every trick in the book: reading the prospectus, going to the company website, applying early on the first day, adopting a 'pick and choose' strategy, applying sequentially in the hope my luck will cumulate, ....., hoping against hope, but none seems to work. Perhaps I am not 'IPO savvy'! I am so disheartened that nowadays I buy bargains elsewhere when (and if) markets go down during the IPO period.
Then, this thought struck me as I was plodding through the gender equality paper. Why not issue IPO Participation (IPOP) Points to IPO investors and permit those points to be traded on the condition that those with 25 (or an 'IPO-specific cut-off' number of) points are guaranteed an assignment? Here is the idea: Every retail IPO investor earns a point for participation. Those who agree to pay a non-refundable fee of 2.5% of their total IPO bid amount subject to a minimum of Rs200, earn a bonus point for every Rs10,000 they invest in the IPO. These points are issued (as online certificates) by the stock exchange in consultation with the book runner; they are bankable, valid indefinitely and tradeable online at prices negotiated among retail investors. An investor submits an IPO application along with the certified number of IPOP points (own earned points, plus any purchased online). The book runner adds up the demand and stacks the applicants in descending order of their participation points. He determines a cut-off and assigns shares equally to those at or above the cut-off number of participation points. (One could think of this as claiming a right to IPO assignment by buying off the cumulative 'disappointments' of those denied in previous IPOs). Investors outbid one another in the purchase of IPOP points, in the process bidding up its price. The listing gains that accrued solely to the (1 in 1000) successful investor is now broadly distributed among the thousands of disappointed IPO investors who sell their IPOP points at a premium. The stock exchange and the book-runner are compensated for record-keeping and issue of participation certificates. Regular participants garner the required points in an years time; those with less points may purchase them from their brethren at negotiated prices. That price will vary with the 'juiciness' of upcoming IPOs. (In fact, it'd be a harbinger of the quality of IPOs in the pipeline)
Now, there are various other means of apportioning shares but it is possible to factor in the participation points in to the allocation to improve equity in the allocation of IPO shares. This scheme of tradeable IPO participation rights ensures, on one hand, that established, entrenched, 'in the know' investors do not make a regular habit of making a killing of the listing gains as companies hatch in to the stock market, and on the other, that the not so lucky small investor shares, at least minimally, in the economic rents associated with IPO allotment.
Works? Yes!
(Do I hear a 'May Day' call from Dalal street-wise guys?)
Comments
Post a Comment
Email us at director@altkuznetsadvisors.com