Trader’s Narrative

If you’re a client of Interactive Brokers and would like to participate in the IBKR IPO, then click, don’t run, to your Account Management screen. As of this morning (April 16th 2007) 9am EST you will be able to follow a link from there to a new option that will magically appear: Trading Access/IB IPO Auction

If you’re not clear exactly how a Dutch auction IPO offering works, let me offer a simple explanation:

People will bid by requesting a certain number of shares and the price at which they would like to buy those shares. These requests will be added together until all the shares (in IB’s example 20 million) are spoken for. But! Before the buyers are asked to make payment for their shares, the lowest price which allowed for the sale of all the shares will be applied to everyone.

Got that? Yeah, it’s kind of strange. But there you have it.

The auction ends, at the latest, on May 3rd 2007. But because of the nature of the Dutch auction system it could very well end much sooner. Theoretically in one hour! since in that time, all 20 million shares could be spoken for.

The neat thing is that you can strategize. For example, you can bid for 100 shares at $25 each, then bid again for 200 shares for $24 each and again for 1000 shares for $21. But if all your three bids make it in before the 20 million shares are satiated, you’ll have the clearing price applied to the total of your bids! So be careful.

If you are not an Interactive Brokers client (tsk, tsk) you have two choices:

1. Become a client of IB and then bid
2. Contact one of the following Participating Dealers:

Fidelity Capital Markets, LaSalle Street Securities, LPL Financial Services, Sharebuilder Securities Corporation, Wedbush Morgan Securities, Wells Fargo Securities, WR Hambrecht + Co and HSBC Securities (USA), Fox-Pitt, Kelton Inc, Sandler O’Neill + Partners, and E*Trade
Securities

(The rebel in me loves how the eccentric Thomas Petterfy has thumbed his nose at the establishment on Wall St (Goldman Sachs, CSFB, etc. are nowhere to be seen). Too funny.)

Remember: only bid or participate in the IPO unless after you read the prospectus and understand the idiosyncracies of such a Dutch auction system. For more information, see IB’s IPO page.

And in case you’re under the mistaken belief that Dutch auction IPO’s do not go on to have glorious price appreciation - since they don’t get the first day pop - remember that this is exactly what people said about Google (GOOG).

The chances of IBKR following in Google’s footsteps are very small. But I do think that IB’s IPO will be successful and it will do its investors proud.