What is allocation in an IPO

When a company goes public with an IPO, the demand for its shares often exceeds the supply. Allocation is the mechanism of distributing a limited number of shares among investors. Let’s explore how it works.

A Simple Example

The company issues 10 million shares in the IPO. Investors have submitted requests for 50 million shares. Demand exceeds supply by 5 times—this is "oversubscription."

The broker or underwriter cannot give everyone 100% of their requests. They allocate the shares proportionally or according to other rules.

Types of Allocation

Proportional. If oversubscription is 5x, each receives 20% of what was requested. You asked for 100 shares—received 20.

Firm (by lots). Everyone receives a minimum lot (for example, 10 shares), the remainder is distributed among large requests.

Priority. Institutions (funds, banks) go first, then retail investors.

Why Retail Investors Get Less

• Institutional Priority. They bring main capital and hold shares long-term.
• Size of Requests. Funds order millions, retail—thousands.
• Relationships with Underwriter. Large clients get more priority.

What Retail Investors Can Do

1. Submit a realistic request. Do not inflate—will get less anyway.

2. Use multiple brokers. If you have accounts with different brokers, participate through each.

3. Prepare for low allocation. Expect to receive 10-30% of your request.

4. Have a post-listing plan. If you got little, you can buy more on the secondary market.

Terms You Need to Know

Overallotment. Underwriter’s option to issue additional shares (usually 15%) if demand is high.

Oversubscription. Situation where demand exceeds supply.

Greenshoe. Same as overallotment—a mechanism to stabilize the price after listing.

Lock-up Period. 90-180 days post-IPO, insiders can’t sell shares.

Risks of Low Allocation

• Disappointment. You expected $10,000, got $2,000.
• FOMO. Buying impulsively at high prices on the secondary market.
• Underinvestment. Didn’t secure a position before the price rose.

Post-IPO Strategy

If you did not get the desired allocation:

• Wait 1-2 weeks post-listing—the price will stabilize.
• Do not buy at the peak on the first day.
• Review the company's initial financial results (first quarterly report).

How a Licensed Broker Participates

"Stock Broker" receives IPO quotas and distributes them among clients. The size of your allocation depends on the size of the request and the overall oversubscription.

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Advertisement. LLC “Stock Broker,” licenses of the Ministry of Finance of the Republic of Tajikistan №007/25, №008/25, №009/25, №010/25 dated 25.06.2025. Financial instruments involve risk. Income depends on the market value of assets. Not personal investment advice. Material is for informational purposes only.