Robinhood May Sell Shares To Its Own Clients In Upcoming IPO

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As this financial bubble - which according to most rational market participants and, recently, Jeremy Grantham, is the biggest ever - gets bigger by the day, we are observing things which are more and more absurd by the day and make the GFC's CDO-squared monstrosities seem like amateur hour for Madoff wannabees.

Case in point - the latest news out of that venue that has unlocked the full insanity of the stock market to 13-year-olds, Robinhood, which ahead of its upcoming IPO, which will value the company around $20 billion (it was valued $11.7BN in a September funding round), is planning on selling shares to its own clients.

Having been clearly inspired by the relentless bullishness of its own millennial and Gen-Z clients, which at last count were just over 13 million, Bloomberg reports that the Menlo Park-based company is weighing allocating a significant minority of the shares it will list to clients. It's unclear if Robinhood would also sell the details of how many shares it allotted to any given client to the highest bidding HFT firm.

Needless to say, this is a striking development as typically retail investors don’t get to buy into new listings at the offering price as those shares are saved for preferred institutional clients of a given underwriter. Instead, retail typically has to invest on the first day of trading in a rush that can drive up the stock price but can also lead to massive losses. Last November, unprecedented demand for new technology listings sent DoorDash and Airbnb soaring when they debuted last month, raising questions about whether the market has become overheated, and sparking a modest Nasdaq correction.

There is, of course, a reason why retail investors aren't usually invited to participate as anchor investors in major IPOs - besides merely kickbacks to major institutions who usually end up acquiring shares well below market prices - and that is that whereas institutions tend to be long-term holders, retail investors have a nasty habit of puking their holdings as soon as the shares dips aggressively. Enough retail sellers and the IPO could quickly turn into a disaster. Robinhood's management and board know this, yet the fact that they are willing to gamble with allocating a sizable chunk of shares to their own teenage clients shows just how much confidence they have that nothing can possibly spoil the market party or - in the immortal words of Chuck Prince - bring the dancing to an abrupt halt.

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Disclaimer: This is not investment advice. 

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