The SEC does not regulate the business decision of how IPO shares are allocated. While smaller or individual investors are finding it easier to buy IPO shares through online brokerage firms, they may still find it difficult to buy IPO shares for a number of reasons. Only a limited number of broker-dealers are invited into the syndicate as underwriters and some of them may not have individual investors as clients. Moreover, syndicate members themselves do not receive equal allocations of securities for sale to their clients. The underwriters in consultation with the company decide on the basic terms and structure of the offering well before trading starts, including the percentage of shares going to institutions and to individual investors.
Most underwriters target institutional or wealthy investors in IPO distributions.
Underwriters believe that institutional and wealthy investors are better able to buy large blocks of IPO shares, assume the financial risk, and hold the investment for the long term. They became enormously popular with investors in the early 1980s because of their high yields, relative safety, and high liquidity. Much of the money-market growth came at the expense of banks and thrift institutions. With the drop in interest rates in the late 1980s, many investors moved from money-market funds to stock mutual funds and other investments. Although you may save time and money trading online, it does not take the homework out of making investment decisions.