How to Invest in IPO?

Over the past 5 years, PSE is averaging 3 – 5 new IPOs per year which means, you have 3 – 5 opportunities  to potentially profit in stocks per year via IPO.

Stock brokerages get an allocation of new IPO shares to sell on behalf of the offering company a few days before the initial public offering. At this point, the brokerage management then divides the allocation between management and brokers. The brokers then distribute this to their subscribers. Do note that this shares are of limited quantity hence they are usually raffled off, especially if it’s a hot IPO.

Interested in IPO but you haven’t started investing in the stocks market? Here’s a guide on how to start.

In the Philippines, there are 2 ways on how to subscribe to IPOs:

• Through your broker
• Through LSI

Subscribing through your Broker:

The availability of an IPO is posted and all clients receive an email stating the company initial expected trading range and a link to place an expression of interest (in purchasing shares from the IPO).

Who are eligible?

If you are a client of a particular broker, you may subscribe.

So, how do you subscribe?

1. Log in to your stock broker’s online portal.
On this example, I’ll use COL. When I logged in using my COL account, the notification is already available on their Home page. This notification is only available during the offer period.

2. Look for the IPO announcement and review the IPO details
Once you click the announcement, you will be directed to the IPO detail. On this page, you will see all the important information like the stock symbol, IPO price, offer period, payment period and more.

3. Decide how many shares you want to buy then submit

That’s it! Depending on the broker you have, you may be requested to send a signed form to confirm your subscription. Good job COL for making this paperless process!

If you’re using other brokers, you should expect the same information available in your account. Otherwise, call them and inquire how you can subscribe for the IPO. Contact details of different brokers are available here.

Subscribing through LSI:

Local Small Investor (LSI) is a program of PSE that gives us small time individual investors the opportunity to buy IPO shares. About 10% of the available IPO shares is allotted to LSI. An individual investor can buy depending on the board lot (usually as low as 5,000) and up to 25,000 worth of stock. Late last year (December 2016) PSE planned to increase the allotment for LSI from 25,000 to 100,000. I’m really hoping this bill gets approved.

Who are eligible:

Any person of legal age, duly organized and existing corporations, partnerships, or other corporate entities regardless of nationality subject to the restrictions on the ownership may hold and own offer shares under the LSI program. All applicants must have a broker account upon submission of the application.

How to subscribe:

1. Complete all documentary requirements
   1. 4 copies of Application to Purchase form. This form can be downloaded from the issuer’s website or your brokers’. 
   2. Filled up Signature Card
   3. Photocopy of 2 valid government-issued ID
   4. Proof of payment
      1. Personal Check
      2. Corporate check
      3. Cashiers/Manager’s Check
      4. Debit-Credit Instruction
2. Personally submit all the requirements to the receiving agent.
   1. PSE Ayala at Tower 1 and Exchange Plaza, Ayala Triangle, Ayala Ave. Makati
   2. PSE Tektite at PSE center, exchange road, Ortigas center, Pasig City

I normally download the form from my broker’s website , sign it, then go to my broker’s office for signature. The whole process might take around an hour, up to a day, depending on the number of investors subscribing.

Here’s how I subscribed to Shell IPO via LSI:

Few tips:

• Memorize your online account number. Your broker will definitely need this information.
• Bring a Pen.
• Make sure you have an authorization letter with a photocopy of your ID and the investor’s ID if you’re processing for someone
• Contact your broker first as they may have a new guideline on how they sign the forms
• Especially when there’s a lot of subscribers, do not wear earphones when queuing at the receiving agent. They will call your name 3 times and If you dont identify yourself in time, your paper will be recycled at the end of the pile and will have to wait for your name to be called again.
• Talk to people. Be friendly to everyone. Ask them how they find the IPO, etc. Who knows, they might end up your next trading buddy.

So there you go. Aside from buying stocks that are already listed in PSE, IPOs can be a good alternative to potentially earn a good profit.

I personally have participated in a number of IPOs in the past years where a few, are still in my portfolio. Since then, their prices have appreciated already and I’m now enjoying the profit. Please note, though IPO prices tend to rise, they may also fell off from their IPO price so any profit is still dependent on the company’s performance.

Are you planning on buying this year’s IPO?