A Fairer Way for IPOs
In light of the IPOs returning on Friday, I was looking to write about them in next week’s magazine. Long story short, I’ve spent a lot of time thinking about how IPOs could be made fairer, given the bots that inevitably seem to still be involved and the seeming ‘luck of the draw’ of getting in at that split second cheaper. So I wanted to hear everyone’s thoughts on this:
A week before a new batch of IPOs are released, everyone is emailed. Each player has their lowest price that FI offer. They then give you 72 hours to respond to the email indicating your interest in each player, and the maximum price you would be willing to pay. (Cannot be below the minimum price FI set.) You can also select the quantity you would want to purchase, up to a maximum amount. (Say, 900.)
After this 72 hours, FI can calculate the average price of each player based on what everyone is willing to pay. Anyone who responded with a maximum price lower than this average will not be able to purchase shares until after release. Everyone who’s maximum price is higher than the average now has the opportunity to agree to buying these shares prior to release at the settled average price (therefore, likely lower than what they suggested as their maximum), at the quantity they originally stated.
On the release day, the price of the player automatically appears at this average price, with everyone who has been able to buy prior to release now having the shares appear in their portfolio. There would still be a temporary suspension on instant sell for a few days, but selling to the market would be open as normal, and anyone who either missed out on the opportunity to purchase, has changed their mind from their original decision, or has opened an account since the original email went out can now buy from the market as normal.
Example: Troy Parrott, who IPO’d this week at £0.60
FI email everyone with upcoming IPOs. Parrott is included, at their listed minimum price of £0.60.
In this example, imagine only 10 traders respond stating their interest in buying him:
Person A: Maximum price: £0.65. No of shares: 900
Person B: Maximum price: £0.70. No of shares: 100
Person C: Maximum price: £0.90. No of shares: 200
Person D: Maximum price: £1.00. No of shares: 500
Person E: Maximum price: £1.00. No of shares: 10
Person F: Maximum price: £1.10. No of shares: 50
Person G: Maximum price: £1.35. No of shares: 900
Person H: Maximum price: £1.60. No of shares: 400
Person I: Maximum price: £1.70. No of shares: 25
Person J: Maximum price: £2.00. No of shares: 100
The average price of these 10 maximum offers is £1.20. (No. of shares is irrelevant to this.)
Therefore, Persons A, B, C, D, E and F would not be offered the chance to buy Parrott prior to release date, as the average exceeds their maximum price.
Persons G, H, I and J are offered to buy 900, 400, 25 and 100 shares at a price of £1.20; below their maximum amounts.
On release date, Parrott appears at £1.20. Persons A, B, C, D, E and F – along with everyone else on the market – now has an opportunity to buy the player, should they wish to do so. Persons G, H, I and J have Parrott appear in their portfolios. They can purchase additional shares should they wish to do so.
The idea behind this is that the price should start at a relatively fair price, as it is an average across traders. This should largely negate any bots, as a) many traders have already gotten shares and b) the price is already at a higher price, with less immediate growth based on the mad rush. It may also help FI with issues of crashing, given there may be less user activity safe in the knowledge people have already secured themselves a certain quantity. Of course, there would still be market activity on these players – people regretting missing out, or those who buy in bigger quantities than 900 – but it could still make a difference to those who rue missing out in what seems quite an unfair luck of the draw.
I’d be really interested to hear everyone’s thoughts on this? There could be difficulties with this – perhaps even glaring errors that I’ve completely missed – but it feels a relatively fairer way to give people an opportunity to buy, whilst still allowing room for growth and avoiding crashing problems on the app/website.
What do you think? Does this sound viable, or have I completely missed something?
That might address problems with buying the IPOs, but it doesnt solve the issues around people selling them on for a quick profit (and subsequent drops), which FI utterly messed up this year by short changing everyone it seems.
If you look at the ones that did launch, most (Kubo, parrot and Everton aside) are pretty close to their launch price really, so FI probably have the costing of the IPOs about right I'd say - If they launched them all 50p cheaper, they'd still have broadly have levelled off where they are now i'd guess, just people would have bought more.
It makes the IPO price irrelevant as we’d be setting our own price, essentially an order book system. I think a fairer way is to offer no price increase per shares sold for the first 48hrs so if a player IPO’s at 60p anyone who buys in the first 48 hours sees no immediate increase and would get that player for a guaranteed 60p IPO price this would make bots pointless and would mean only those who really wanted that player would buy as any growth would be reliant on ability within FI.
It would make IPO’s less interesting but an awful lot fairer
@Leighton Surely people selling them on for a quick profit would be vastly reduced though? Parrott IPO'd at 60p and settled at £1.45 (give or take), meaning there's a huge margin there for profit. If an average price is created from the emails (in the example, £1.20), it is a far fairer reflection of what the market is willing to pay. Therefore, yes, people could still attempt a quick flip, and his price could still rise to £1.45 - but from a starting price of £1.20, that's a lot less margin for profit off a quick flip?
For other players that you say are still close to their IPO price, this should remain too in this idea as, again, the emails should reflect this as the average would be a heck of a lot closer to the price initially set by FI. If this all makes sense!
@Black-wolf I guess yes, that is essentially the case. I know it's been mentioned as being worked on, so maybe that will be incorporated in to IPOs too.
As for the 48hour postponement, surely this could just delay the carnage? Yes, a lot of people may buy during that 48 hours and not purchase any more but, if the price is still considered low in comparison to the rest of the market, it would surely just go mad after 48 hours too when it suddenly starts to jump?
@FI_WeeklyMag why. Surely anyone who wanted the player would buy in the first 48hrs or what ever the time frame is why would you buy after at potentially a higher price. I would imagine prices for these IPO’s wouldnt move much at all until said players start earning divs looking desireable on the tv or through word of mouth
@Black-wolf I'm just thinking in comparison to other players. It could be the same illusion as the share split? Even if you've loaded up on a few hundred, or even thousand shares in, for example again, Parrott at 60p, people would surely be tempted to spend more even after 48 hours? I know he's Irish meaning it's not quite the same but compared to the likes of Greenwood, Brewster, etc, 60p still looks ridiculously appealing regardless of how many have already been sold? We've seen how a lot of players jump in price with the share split, even though they're essentially paying exactly the same as they would've done pre-split price?
I'm not completely disagreeing with you by the way, I'm just trying to think of different viewpoints!
If they then choose to buy more futures after that its back to the dog eat dog scenario we saw yesterday but at least the FI general public have had a fair chance to compete with some bot wielding FI oligarch.
After 48 hours the ensuing madness probably will cause a rise and fall in IPO players but for example yesterday before my interest in IPO's was crushed, by the time I found kubo he was about £1.79. If I'd bought in at that point I'd be very exposed to profit taking, but that wouldn't have been the case if I'd had the opportunity black wolf describes.
If I then choose to be greedy and beat the rush even after being given this opportunity then that's entirely upto me.
I particularly like the point he made about purchases being based on actual FI suitability of players. Anyone who got in early yesterday was safe in the knowledge the prices would rocket ensuring a profitable trade with no need whatsoever to assess a players potential to yeild dividends, inevitably creating something akin to a mega pump and dump scenario.
Not everyone chases divs but at least in general if you're just chasing cap app you have to work out where money will go in future. Yesterdays scenario massively rewarded the lucky, not the savvy, which feels all wrong
@FI_WeeklyMag yeah i know and thats fine if the price starts to climb after but it means atleast players have been offered to the market at a guaranteed ‘initial purchase offer’or IPO. I know FI an IPO is different as its a ‘initial player offer’ but i do think this would be the easiest and least complicated way off introducing players to the market. But it will never happen because it would encourage long term holding and make IPO commissions virtually zero
@MickTurbo Duh, do you know what, that went completely over my head. Yes, completely get that point from @Black-wolf, and essentially part of the point I made in my original post about there still be an opportunity for a mad rush. The only concern would be there is still that mad rush which I guess could be avoided if the price was put slightly higher? But I guess yes, it gives people a chance to at least buy in and get a quantity they are happy with.
@Black-wolf Ah yes, that's another good point I guess, limiting the commission. It's a shame if that is the case though, of FI benefitting from a less than ideal situation where a lot of people can get burned but I guess that's the way it goes. Excellently valid points the whole way through.
Btw i dont mean the IPO price should only be offered to select people i meannit should be available to everyone. In this scenario i dont see why the price would rocket after 48hrs unless a lot of people were lacking the funds to buy within the 48hrs. Surely after the initial period anyone who really wanted the player would already have him so why keep buying unless something changes in the real world to affect his price
limit the number of shares per account on IPO day.
Only getting to buy 300 still gives a chance to make money but it gives more users a chance
@Munchie63 someone made the point yesterday that it only takes 150 people buying 300 each to move a price up 50p. Even with a £1 ipo which 8s high end, that's still a 50% rise. If half of them take profits the over whelming majority who are not amongst the first 150 are still susceptible to a 25p or roughly 17% drop
@MickTurbo you've made a point I tried to make on another thread, but you made it better! I think pretty much everyone here would have bought those players at their launch prices if they'd been lucky enough to get on in time. That said, I don't have a massive problem with that and, ignoring the potential impact of bots, everyone had the same chance. Sometimes it is just who reacts first. However, what I do think is unfair is that those lucky enough to buy at the low prices can then flip within minutes/hours and make profits before others have even had a chance to log on. I would therefore like to see some sort of restriction to stop this immediate selling. I suggested elsewhere no market selling for a month, but I know many won't like this. My logic was people can still sell, using IS, but FI retain control by setting a price equal to the initial offering. Anyone who doesn't want money tied up for a month will not get involved to begin with and those who actually want to make a proper bet will have a greater chance of doing so at a fair rate.
@MickTurbo Better 150 different users than a couple of BOTs ;)
@Parvez112333 cant argue with that 👍
I completely understand why people want the process changed as it is a complete farce the way it is, but first and foremost, it's the bots that are ruining the process, so this is where the issue needs addressing. FI should get rid of the bots. They've employed a UX guy and although I'm sure this falls outside of his remit, it shows that FI are committed to improving the user experience, of which bots are obviously a problem.
A CAPTCHA form on player purchases should prevent bots from being able to make a purchase. This to me seems the most blindingly obvious way of the problem being solved. It is a very easy win for FI as it'll show that they're taking the customer feedback seriously, and it's obviously a win for all us bot-less users as it gives the opportunity to get on IPOs at a fairer price.
If I remember correctly, FI also started introducing IPOs at a higher price to try and ward off the bots, so if they take them out the picture then they could introduce IPOs at lower prices which in turn would give them more commission as people sell more.
It just seems like the answer is right there and nobody is really talking about it.
From what I've seen though, it seems there is a perception that bots were not whirring away this way - whereas previously this seemed a real problem? There's the 900 shares that may have made it less obvious - but seems a lot fewer fingers pointed at botting this time (personally don't see much reason why they wouldn't have been used previously).
i didn't get involved yesterday due (but would have tried on a couple of players if I had been around), and also think it is an extremely flawed system.
But as much as I'd like them to come up with a better method - and they've apparently said they're 'working on it', I've not really seen yet a convincing, detailed alternative fleshed out.
I’ve talked about it before. A Dutch auction. You can start the price high say £2.50. They have a set number of shares to sell say 20,000 The price will drop 1p every 10mins when it’s at a price you like you can buy. Once all the shares are brought then that’s were the price opens at
It will stop the bots as they would end up paying the highest price. You might end up paying higher then the opening price, But you were happy at the price you payed for them.
It would definitely kill the bots and make it fairer for everyone.
Well that my 10p worth!