Investment in IPO's

[bzorc]

A 401(k) Plan has a brokerage option available to participants. One of the participants has asked if they could invest in an IPO (I guess Facebook is coming out this week) and they were told that they could not. Is there something in the IRC or regs that prohibit an investment in an IPO? Thanks for any replies!

[PensionPro]

Whether it is advisable is another question, but there is nothing I am aware of in the regs that prohibits investment in IPOs. Also need to check plan's IPS.

[masteff]

It might be informative to explore the question "does the brokerage firm offer IPOs to any of its account holders?" Not all trading firms offer access to the primary market (ie, IPOs). The broker in question may only offer the secondary market (ie, the exchanges). Alternatively, some firms restrict primary market access to account holders with assets above a certain minimum.

[GBurns]

You did not say who told the participant that they could not, nor why they could not.

It could be that the participant could not meet the qualification threshold set by the brokerage or otherwise, and has nothing to do with the plan.

[mbozek]

As I undertand it the FBook IPO is limited to institutional investors who are favored clients of the underwriting firms. Very few shares will be available for brokers whose clients are accredited investors. Its business not regulatory issues preventing plan participants from buying into the IPO.

[bzorc]

As I undertand it the FBook IPO is limited to institutional investors who are favored clients of the underwriting firms. Very few shares will be available for brokers whose clients are accredited investors. Its business not regulatory issues preventing plan participants from buying into the IPO.

This is the reason why the participant cannot invest in the Facebook IPO. Thanks for the replies!

[david rigby]

This is the reason why the participant cannot invest in the Facebook IPO. Thanks for the replies!

... and there are probably many reasons why the participant should not invest in that IPO.

[mbozek]

This is the reason why the participant cannot invest in the Facebook IPO. Thanks for the replies!

... and there are probably many reasons why the participant should not invest in that IPO.

Since FB closed on 5/18 with a gain of only 23 cents above its opening price of 38 (up 0.6%), only the insiders have any gains on the stock.

[david rigby]

... FB closed on 5/18 with a gain of only 23 cents above its opening price of 38 (up 0.6%)...

If FaceBook share price gains 23 cents per day for the rest of 2012, that will be a 12/31/2012 price that is ~90% higher than the opening price of $38. Not bad.

[BG5150]

... FB closed on 5/18 with a gain of only 23 cents above its opening price of 38 (up 0.6%)...

If FaceBook share price gains 23 cents per day for the rest of 2012, that will be a 12/31/2012 price that is ~90% higher than the opening price of $38. Not bad.

I think you have to caveat the $0.23 gain with "past results do not guarantee future performance."

[mbozek]

As I undertand it the FBook IPO is limited to institutional investors who are favored clients of the underwriting firms. Very few shares will be available for brokers whose clients are accredited investors. Its business not regulatory issues preventing plan participants from buying into the IPO.

According to various news reports as much as 25% of the FB IPO were allocated to retail investors. Usually its about 10%. Many investors did not know haw many shares they were allocated until Friday.