Robinhood banks on its traders' allegiance in IPO like no other

Robinhood will reserve up to 35% of shares for its app users at the pre-trading range of $38 to $42 apiece

For any company on the brink of going public, the final days before its trading debut can feel like a big balancing act.

Even by those standards, Robinhood Markets is walking a uniquely fine line.

The company behind the trading app that starred in this year’s meme stock run-up is carving out an unusually large role for those very same novice investors. On Thursday, when its shares are expected to begin trading after they price late Wednesday, the wisdom of that strategy will be put to the test.

The interests of bankers, founders and employees may not always align, but they all typically cross their fingers for a company’s stock price to “pop” much higher once it begins trading after an initial public offering. That boost is important because it tends to indicate strong demand among individual investors who couldn’t get their hands on shares before they hit the exchange.

That’s not the case for Robinhood, which has said it will reserve up to 35 per cent of shares for its app users at the pre-trading range of $38 to $42 apiece. Chief Executive Officer Vlad Tenev said in a live-streamed roadshow on Saturday that it will likely be one of the largest such allocations to retail investors ever.

While that decision fits with Robinhood’s self-described mission of “democratising finance,” it also sets the company up for a make-or-break moment when its shares begin trading on the Nasdaq Stock Market under the symbol HOOD.

For one, Robinhood warned in a filing ahead of the offering that unconventionally high retail allocation could lead to volatility in the shares. That could make it something of a meme stock itself — though it stopped short of referencing companies like GameStop that experienced a wild surge in share price earlier this year, on soaring demand from individual investors. Regulators are still piecing through what happened.