Trader’s Narrative

So after all that breathless preamble… this?

Interactive Brokers (IBKR) faltered right out of the gate and kept stumbling.

Oh well.

It’s easy to be neutral when you don’t have any vested interest - I didn’t get allocated any shares. And I didn’t like the market action so I stood aside. Disappointing.

On the plus side, I narrowly skirted becoming a crystal ball gazing, tarot-card slash palm reader. IBKR didn’t open at $32 as I had predicted. It opened at $33. And it didn’t hit $35. It didn’t even hit $34. It just petered out.

Today I was also keeping an eye on another security: TSX Group Inc. (TSE:X) - the holding company for the Toronto Stock Exchange. Yesterday their share price was pounded by news that a consortium made up of all six Canadian banks (BMO Capital Markets (TSE:BMO), CIBC World Markets (TSE:CM), National Bank Financial (TSE:NA), RBC Capital Markets (TSE:RY), Scotia Capital (TSE:BNS) and TD Securities (TSE:TD)) plus Cannacord Capital (TSE:CCI) would set up their own ECN to compete with it.

The announcement was just that, an announcement. And to show how early they are in the project, they don’t even have a name picked out for the ECN and are using the code-name, “Alpha”. So obviously yesterday’s panic selling was a tad overdone. Today it gapped up and recovered all morning.

I’ll continue to watch both IBKR and TSX Group.

The Interactive Brokers (IBKR) Dutch auction closed today at 4:00pm. The IPO was priced at $30.01 per share.

Dang! I was off by $0.01

Now all we have to do is wait for it to start trading tomorrow sometime (probably late morning). If it starts trading at $32.01 I’m going to retire to a life of tarot card reading and palmistry.

Keep the ticker symbol: IBKR on your watchlist. Things could get interesting.

For those keeping track, my bid wasn’t high enough, so I wasn’t allocated any shares.

For fun, we’re betting on the final price of the Interactive Brokers (IBKR) final IPO price as well as the opening day price.

If my search stats are any indication, this one is a scorcher. I’ve gotten thousands of people arriving at my trading blog from searches on google for “interactive brokers ipo” and similar search strings.

Also, take a look at the IPOhome.com’s poll:

Right now, IBKR is the hottest IPO on offer!

A reinforcing feedback loop could develop where people are attracted to this IPO simply because it is “hot”. If that is the case - and it seems it might be happening already - then we could see it pop. Especially if the general market continues to be as hot as it has for the past few weeks. People on Wall Street are already becoming desperate and afraid that they are missing out.

How do you think this will play out? will it be a dud? or will it run in spite of its high pricing?

It is difficult to gauge the demand supply dynamic in a Dutch auction until it is over but there is such a strong demand for Interactive Brokers IPO (IBKR) that they raised not only the price band (from $23-$27 per share) to $27 to $31 per share but also increased the number of shares offered from 20 million to 34.5 million.

That’s a huge increase! In light of this, I think there’s a good chance that this IPO will actually run when it opens. I’ve already put in my order but being the stingy bastard that I am, I’m not going to chase this right now. I prefer to sit and wait till it comes out to see its price action in the market.

I’m not sure exactly when IBKR will open but chances are good it will be later this week. The first day could actually be tradeable!

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.