- Who is W.R. Hambrecht & Co.?
- Example of how the auction works:
- How do I know what price to bid? Can I bid above the filing range?
- Can I enter multiple bids on a specific IPO?
- Can I change the quantity or limit price of my bid?
- How is pro-ration determined?
- Can I purchase shares of an initial public offering offered through the OpenIPO process on margin?
- How does participating in the OpenIPO auction differ from participation in a traditional IPO?
- When can I sell my shares?
Who is W.R. Hambrecht & Co.?
W.R. Hambrecht & Co. (WRH & Co.) is an investment banking firm formed in February 1998. In addition to operating OpenIPO, the firm is engaged in the business of public and private equity investing, financial advisory services, research, and market making. WRH & Co.'s founder, William R. Hambrecht, has 40 years of experience in the securities industry and was also the founder, chairman, and CEO of Hambrecht & Quist.
The venture capital affiliates of Fidelity Investments hold an equity investment of less than 5% in W.R. Hambrecht.
How does the OpenIPO auction work?
The OpenIPO auction is based on a model similar to that used to auction US Treasury bills, notes, and bonds. Bids are entered with a limit price, representing the maximum price each investor is willing to pay per share.
Shortly after the SEC declares the issuer's registration statement effective, the auction will close and the underwriter will establish the clearing price. The clearing price is established by tallying all the bids received, ranking them from highest price to lowest price, and beginning with the highest price, identifying the price level at which all of the shares can be sold.
Once the clearing price is determined, the underwriter and issuer will establish the public offering price, ie, the price per share customers will pay for securities. In any particular offering under the auction process, the clearing price and the public offering price may be different. Based on negotiations between the underwriter and the issuer, the public offering price may be lower, but will not be higher, than the clearing price. Keep in mind that the allocation of shares will be determined by the public offering price, not the clearing price.
Once the offering price is set, the customer's bids can be accepted. The allocation of shares through the OpenIPO process will be determined by the limit price submitted with the customer's bid. All customers who submitted bids at or above the public offering price will be allocated either a pro-rated number of shares rounded to the nearest 100 or all of indicated shares. If the customer's limit price is below the offering price of the issue, the customer will not be allocated shares.
In certain circumstances, you may be required to confirm your bid. If this occurs, we will send an email to the email account you registered when you signed up for Fidelity Alerts. If you fail to confirm your bid when requested, your bid will no longer be valid and you will not receive an allocation of shares. Please note that submitting a bid does not guarantee that you will be allocated any shares in the offering.
Please Note - unless we notify you to the contrary - a confirmation of your bid is not required, and if you do not withdraw or revoke your bid, your bid may be accepted in whole, in part, or not at all by the underwriters soon after the offering is declared effective.
For more information, please see the Plan of Distribution section of the applicable prospectus and the Frequently Asked Questions about OpenIPOs
How do I know what price to bid? Can I bid above the filing range?
The anticipated price range that is contained in the preliminary prospectus is the price at which the issuer expects to sell its stock. This price range is determined by the issuer and underwriter. This price range is an estimate and is only a guide.
You should avoid bidding a higher price than you wish to pay or bidding for more shares than you wish to purchase in the belief that the offering price and/or your pro-rata allocation will be at a price you are willing to pay and/or in an amount you are willing to purchase.
In the event that the expected price range is changed prior to effectiveness, you will be notified of the new range. Under these circumstances, the issuer and underwriter will amend the registration statement and provide investors a prospectus which will reflect, among other things, the new expected price range. If the deal is priced outside of the expected range by a material amount (material amount percentage is defined in the plan of distribution section of the preliminary prospectus), you will be required to confirm your bid in order to remain eligible to purchase shares in the offering. At the time of confirmation, and anytime up until the close of the auction you will have the opportunity to change or cancel your limit price or reduce the amount of shares of your bid.
Once the clearing price has been determined, the offering price will be set and all customers who have entered a bid with a limit price at or above the offering price will receive a prorated allocation rounded to the nearest 100 at the offering price regardless of what their limit price was.
Please note:If it appears that a bid is intended to manipulate the offering or may interfere with its completion, W.R. Hambrecht reserves the right to reject it. This includes extraordinarily high or unrealistic bids.
Customers should also keep in mind that they should bid for the amount of shares at a price they are willing to purchase the issue as there is the possibility that they receive a full allocation at that price and they would need to pay for these shares in full by settlement.
Can I enter multiple bids on a specific IPO?
Customers may enter only one bid per account per IPO, per offering.
Can I change the quantity or limit price of my bid?
You may modify, change or cancel your bid up until the auction closes. The auction will close as soon as one hour after the registration statement of the offering is declared effective. After the auction closes, you may not change your limit price or quantity of shares requested.
How is pro-ration determined?
The pro-rata percentage will be determined by dividing the number of shares available for sale by the number of shares bid for at the offering price and above. For example: if 4 million shares are being offered by the issuer and there are 5 million shares of demand at and above the offering price, then all bidders will receive 80% of the shares for which they bid rounded to the nearest 100.
Please note: The Underwriter reserves the right at its discretion to modify the allocation methodology at any time. For further information regarding the allocation methodology, please read the plan of distribution in the preliminary prospectus.
Can I purchase shares of an initial public offering offered through the OpenIPO process on margin?
Regulations governing IPOs state that new issues are not marginable for at least 30 days following pricing. Therefore, IPO shares must be paid for using cash or cash available to borrow.
Once pricing and allocation has been completed, you will be able to determine how much cash or cash available is needed to settle the purchase of the new offering. Settlement on a new issue varies by the issuer, but is typically trade date + 3 business days.
Fidelity, as part of our eligibility rules, does require $2,000 in any account which a bid is entered.
How does participating in the OpenIPO auction differ from participation in a traditional IPO?
As a Fidelity customer, there are four fundamental differences when participating in an OpenIPO from the traditional process to which you may be accustomed.
- The first difference is the terms used for a customer attempting to participate in the offering. For a traditional deal, customers submit indications of interest. For auction offerings, customers submit bids.
- The second difference is at the time you place your bid on an auction offering, you will be asked to enter a limit price, representing the price at which you are comfortable owning the securities.
- Your limit price will be used with all other customer limit prices to determine the highest price at which the issuer can distribute all shares offered.
- In the traditional model, the potential purchaser does not submit formal bids/limit prices, therefore such formal bids/limit prices are not considered in establishing the offering price.
- The third difference is how shares are allocated. As to the Open IPO process, the clearing price of the issue will be determined by the limit price you enter with your bid, along with all of the other customer limit prices, to determine the highest price the shares can be distributed. Once the clearing price is determined, the underwriter and the issuer will establish the public offering price after taking a number of economic and business factors into account in addition to the clearing price.
- If the limit price of your bid is at or above the offering price, you will receive a prorated number of the shares you requested rounded to the nearest 100 or all of the shares you requested at the offering price. If the limit price of your bid is less than the offering price, you will not receive any shares.
- In the traditional model, allocations are based on a number of factors including, the length and nature of the customer's relationship with Fidelity, the customer's trading history, and the type and size of the customer's account. Allocations under the traditional model are also impacted by the limited number of shares Fidelity receives from the lead underwriter, therefore customers who confirm their indication of interest may be subject to reduced quantities at the offering price or no shares at all depending on the demand for the offering.
- The fourth difference is that in the traditional model a customer must confirm their indication of interest after effectiveness for all offerings. In the OpenIPO model, a customer is not required to confirm their bid, unless a material event on the offering takes place such as the deal pricing out of the expected price range. If confirmation of a bid on the OpenIPO process is necessary you will be notified via the device you registered with Fidelity Alerts.
When can I sell my shares?
As with any investment, you are free to sell the securities obtained in an OpenIPO whenever you determine it is appropriate to you. However, if you sell within the first 15 calendar days from the start of trading in the secondary market, it will affect your ability to participate in new issue equity public offerings through Fidelity by not being considered eligible to participate (or place indications of interest or bids) in future offerings for a defined period of time. For more information on this policy, please refer to item 15 - "Holding Period" of the OpenIPO procedures.
