IPO Allocation

Allocation is the underwriters' decision about which investors receive shares at the offer price, and how many. It is discretionary. It is not pro-rata, it is not first-come, and asking for more does not reliably get you more.

This is the step that determines who captures the difference between the offer price and the opening price, which on an active deal is the largest single transfer of value the offering produces.

Who decides the allocation?

The lead underwriters, in consultation with the company.

The company can express preferences and in practice does — it may want particular long-term funds on the register, or want employees and customers included — but the mechanics sit with the banks, which hold the book and know each investor's history.

Allocations go out overnight after pricing. An investor learns what they received hours before trading begins, and their indication of interest is not an entitlement to any of it.

See IPO bookbuilding · How is an IPO priced?.

What do underwriters optimise for?

A shareholder base that holds, and a deal that trades well on day one. Those two goals shape every decision in the book.

Investors expected to hold are favoured over those expected to sell into the open. Shares sold immediately by allocated investors add supply at exactly the moment the price is forming.

Investors who supplied information during bookbuilding are rewarded. An investor who submitted a price-limited order early told the underwriters something useful about valuation; one who entered an at-market order on the final afternoon did not.

Investors who participate consistently across many offerings, including the unattractive ones, are favoured over those who appear only for the deals expected to pop.

The company's stated preferences are accommodated where they do not conflict with the above.

None of this is disclosed deal by deal. Allocation decisions are not public, which is why the ratios investors report are anecdotal rather than measurable.

Do institutions get more than retail?

Yes, substantially, and by design rather than by accident.

Institutional investors dominate the book because the offering is built to place a large block of stock quickly with buyers who can absorb it and are expected to hold. Retail participation generally arrives through an intermediary: a brokerage receives an allocation from the syndicate and distributes it to its own clients under its own eligibility rules.

Those rules vary widely between brokerages, and eligibility for the pool does not mean shares. On an oversubscribed deal, a brokerage's own clients are frequently cut back to a token number of shares or none at all.

See How to buy an IPO.

A block of shares the company sets aside at the offer price for people connected to the business — employees, directors, customers, suppliers, or others the company names.

The programme is disclosed in the prospectus, including the number of shares reserved, and is administered by one of the underwriters rather than by the company. Shares taken through it usually carry the same lock-up as insider stock, or a separate restriction disclosed alongside it.

It is the most reliable route for a non-institutional investor to buy at the offer price, and it requires an existing relationship with the company.

See Employees and IPOs · IPO lock-up period.

What are cornerstone and anchor investors?

Investors who commit to a stated amount early, anchoring the book before the rest of it forms.

In markets where the practice is formalised, cornerstone investors sign binding agreements, accept a lock-up, and are named in the prospectus. US deals use less standardised arrangements to the same end — Medline disclosed roughly $2.35 billion of cornerstone commitments in its December 2025 offering, and Nvidia took an anchor position in CoreWeave's 2025 IPO.

A cornerstone allocation is effectively decided before the general allocation process begins, and reduces what remains for everyone else.

Who is prohibited from receiving an allocation?

Certain categories of people are barred outright under FINRA rules, regardless of demand.

Restricted persons under FINRA Rule 5130 may not buy new issues. The category covers broker-dealers, their personnel and immediate family, people who work in the securities industry in a position to influence allocations, portfolio managers with respect to accounts they manage, and owners of broker-dealers. The rule exists to stop the people running the allocation from allocating to themselves.

FINRA Rule 5131 addresses conflicts on the other side of the transaction. It restricts spinning — allocating new issue shares to executive officers and directors of companies in a position to direct investment banking business to the underwriter — and prohibits quid pro quo allocations tied to excessive compensation on other business.

See FINRA Rule 5121.

What happens when a deal is heavily oversubscribed?

Everyone is cut back, and not proportionally.

A book covered twenty times over does not mean every investor receives five percent of what they asked for. The underwriters allocate to the investors they want on the register at close to full size, and cut the rest disproportionately or to zero. Scaling everyone equally would defeat the point of having discretion at all.

This is why "I asked for 10,000 shares and got 200" and "I asked for 10,000 shares and got 10,000" can both be true on the same deal.

Why does allocation matter so much?

Because the allocated investor buys at the offer price and everyone else buys at whatever the opening auction produces.

Figma priced at $33 in July 2025 and opened at $85. An allocated investor's position was worth roughly two and a half times its cost before the first public trade. A buyer at the open paid $85 for the same share. Both participated in the same IPO; only one of them participated at the IPO price.

Coverage that describes a debut's return is almost always describing the allocated investor's outcome.

See Offer price vs. opening price · Why do IPOs pop?.

Quick answers

Is allocation pro-rata? No. It is discretionary, and cutbacks are deliberately uneven.

Does asking for more shares get me more? Underwriters expect inflated requests and discount them. It is not a reliable strategy.

Is my allocation guaranteed once I indicate interest? No. Indications are non-binding on both sides until allocations are accepted.

Can I sell immediately? Legally yes, absent a lock-up, though some brokerages penalise clients who flip by reducing future access.

Is allocation disclosed anywhere? No. Individual allocations are not public.

Do I need a specific broker? Access varies by brokerage, and none guarantees shares on an oversubscribed deal.

How to buy an IPO · IPO bookbuilding · How is an IPO priced? · Offer price vs. opening price · Why do IPOs pop? · IPO underwriters

Sources

FINRA Rule 5130 — restrictions on the purchase and sale of initial equity public offerings
FINRA Rule 5131 — new issue allocations and distributions
NYSE IPO Guide
Issuer final prospectuses on EDGAR, including directed share programme disclosure
The IPO Radar filing and pricing database — Methodology