OpenIPO: Pro-Rata Allocation

Here’s a quick example:

IronBit.com offers 1 million shares at a projected price range of $8–$13. Mr. Smith wants IronBit.com shares, so he bids for 300 shares at $12 per share.

After collecting all bids, WR Hambrecht + Co conducts the OpenIPO auction. Working from the highest bid toward the lowest, the auction finds that at $12, 1 million IronBit.com shares are bid for. So $12 becomes the “clearing price” because investors wanted at least 1 million shares at $12. This amount also represents the maximum public offering price for IronBit.com shares. So Mr. Smith receives shares of IronBit.com – but how many?

Because investors wanted exactly 1 million shares at $12, everyone bidding at least $12 receives the number of shares they bid for, as follows:

At an offering price of...	IronBit.com received bids at or above the offering price for...	And successful bidders receive...	So, of the 300 shares Mr. Smith bid for, he receives...
$12/share	1 million shares	100% of their bid	300 shares

If the number of shares bid for exceeds the number of shares in the offering, WR Hambrecht + Co allocates on a pro-rata basis. Under these circumstances, allocations will be rounded to multiples of 100 or 1,000 shares, depending on the size of the bid.

If IronBit.com chooses to reduce the offering price below the clearing price, the following would happen:

At an offering price of...	IronBit.com received bids at or above the offering price for...	And successful bidders receive approximately...	So, of the 300 shares Mr. Smith bid for, he likely receives...
$11/share	1.25 million shares	80% of their bid (1 million ÷ 1.25 million = 0.80)	200 shares
$10/share	1.50 million shares	67% of their bid	100 shares
$9/share	1.75 million shares	57% of their bid	100 shares
$8/share	2 million shares	50% of their bid	100 shares

For additional information about pro-rata allocation and rounding, please refer to the Plan of Distribution in the applicable prospectus.

 

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WRH+Co reserves the right to reject bids that it deems manipulative or disruptive in order to facilitate the orderly completion of an offering, and it reserves the right, in exceptional circumstances, to alter the method of allocation as it deems necessary to ensure a fair and orderly distribution of the issuing company’s shares. For example, large orders may be reduced to ensure a public distribution, and bids may be rejected or reduced based on eligibility or creditworthiness criteria. In addition, WRH+Co may reject or reduce a bid by a prospective investor who has engaged in practices that could have a manipulative, disruptive or otherwise adverse effect on an offering.