Traditionally limited to institutional investors and high-net-worth clients, J.P. Morgan is about to make it easier for retail investors to gain access at the IPO price. The bank is announcing today that it will partner with Motif Investing to give ordinary investors the option to purchase shares in IPOs that are managed by J.P. Morgan.
Motif will facilitate the transactions via its online brokerage platform, where it will take requests for commission-free orders, beginning at a minimum purchase price of $250. Motif will handle the order process and determine share allocations.
We want to “give as many people access as possible” to IPOs, said Hardeep Walia, CEO of Motif Investing. “Any individual investor, regardless of account size or length of relationship, now has the opportunity to participate in big-name IPO transactions.”
There is often a significant “pop” on a company’s first day of trading as a public company, with double-digit percentage gains in the share price. But the gains are based on the IPO price that gets determined the night before the first day of trading — the price where the stock opens is often much higher.
The new partnership “will broaden access to IPOs to more individual investors,” said Michael Millman, Co-Head of Americas Equity Capital Markets and Head of Technology Investment Banking at J.P. Morgan, in a statement. “Motif’s innovative and easy to use platform is a cutting-edge, differentiated way for issuers to reach investors.” J.P. Morgan will be encouraging its IPO companies to participate in the Motif program.
The partnership is just the latest effort to democratize the IPO process. A different online platform, Loyal 3, has been underwriting select IPO offerings, and granting access to “loyal” customers of consumer brands. Loyal 3 is participating in the upcoming Square IPO and has worked with GoPro and GoDaddy.
While mainstream investors are likely to celebrate the changes, proponents of the traditional IPO process will tell you that it has been done this way to prevent significant volatility in the first few weeks of trading. Institutional investors often hold long-term positions in stocks, whereas some retail investors are more inclined to react to day-to-day stock movements.
But advocates of IPO reform will tell you that loyal customers tend to hold onto the stocks of their favorite consumer brands.
Founded in 2010, Motif is an online broker that allows investors to trade baskets of stocks centered around particular themes or investing styles. The startup is backed by J.P. Morgan, Goldman Sachs, Renren and former SEC Chairman Arthur Levitt is on the board.