Facebook’s IPO is Now Available For E-Trade Retail Investors

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Giant online discount brokerage E-Trade has begun offering its retail clients a slice of Facebook‘s highly-anticipated IPO, making good on Mark Zuckerberg‘s desire to give casual investors the chance to participate in the red-hot stock offering. E-Trade customers can now place a conditional order for Facebook shares at the company’s IPO Center, but the actual amount of stock they stand to receive will depend on the size of E-Trade’s overall allocation, and the number of clients who express interest. E-Trade declined to comment on the offering.

Last week, Facebook quietly added E-Trade as the 33rd underwriter for its IPO, which aims to raise as much as $10.6 billion at a valuation of $77 billion to $96 billion. If all goes as planned, the company could be worth over $100 billion by the end of the first day’s trading. The inclusion of E-Trade on such a high-profile IPO is unusual, although the discount brokerage has participated in IPOs in the past. The bulge-bracket Wall Street banks that underwrite most IPOs typically dole out shares to preferred clients, such as huge institutional investors like pension funds and endowments, hedge funds, and wealthy individuals. Small, individual investors rarely get a crack at such offerings. Morgan Stanley, JPMorgan Chase and Goldman Sachs are the lead bookrunners for the offering.

“The only reason E-Trade is in on this is because Zuckerberg wants broad, retail distribution, which is admirable,” says Scott Sweet, senior managing partner at IPO Boutique, which tracks new stock offerings. Sweet said that E-Trade will likely receive a relatively small allocation of shares, which means that depending on its retail client demand, individual investors aren’t going to be able to pick up massive quantities of Facebook shares. And the brokerage cautions that even placing a conditional order “will not guarantee an allocation of shares.”

Demand for Facebook shares is intense, if the scrum outside the company’s roadshow meeting yesterday is any indication. E-Trade serves over 2.5 million retail brokerage account-holders, according to Yahoo Finance. E-Trade declined to comment on the offering, but described its typical IPO process to CNNMoney:

Those who have a brokerage account with E*Trade can participate in a company’s IPO, in this case Facebook, through the firm’s IPO center. Users can place a so-called conditional offer by indicating how many shares of Facebook they would want to buy, and the maximum price per share they are willing to pay.

Once Facebook’s final price for its initial public offering is set, which is likely to be on May 17, E*Trade would then divvy up its portion of the IPO shares to the clients who said they were willing to pay at least that much. An E*Trade customer will need to have sufficient available funds in their accounts to support the offer.

The company also clarified that customers will need to a complete a user profile that aims to gauge whether those who are interested are suitable investors for IPOs by asking questions about annual income, investable assets, and investment goals. However, there are no publicly defined requirements.

Facebook estimates its shares will open at between $28 and $35 per share. The offering will be the largest technology IPO in history and will turn the company’s 28-year-old CEO Mark Zuckerberg into one of the world’s richest men, worth about $25 billion. Individual investors contemplating participating in Facebook’s IPO should read the company’s S-1 registration statement and watch the company’s IPO roadshow video. They should also speak to their financial adviser if they have one. IPO investing is among the most risky kinds of stock trading, and it’s not for everyone, including, it turns out, America’s most famous investor, Warren Buffet. Caveat emptor.

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