Understanding Allocation Methods

Introduction

When an IPO is oversubscribed — meaning more shares are demanded than available — the issuer must decide how to allocate shares among investors. Understanding these methods helps set realistic expectations.

Pro-Rata Allocation

In a pro-rata allocation, each investor receives a proportional share based on the size of their order relative to total demand. If an IPO is 3x oversubscribed, you would receive roughly one-third of the shares you requested.

This method is straightforward and perceived as fair, but can result in very small allocations in popular deals.

Ballot (Lottery) Allocation

Some IPOs use a random ballot system where investors are selected at random to receive their full requested allocation. This means you either get all the shares you asked for or none at all.

Ballots are common in highly oversubscribed retail offerings. They ensure that successful applicants receive a meaningful allocation rather than a tiny fraction.

Tiered Allocation

Tiered allocation sets different allocation rates based on order size. Smaller retail orders may receive a higher fill rate than larger institutional orders, helping to ensure broad participation.

• Small orders (under £1,000): May receive full allocation
• Medium orders (£1,000–£10,000): Pro-rata scaling applied
• Large orders (over £10,000): Scaled back more aggressively

What to Expect

The allocation method is disclosed in the offer documents before the deal closes. Review this carefully so you understand the likely outcome for your order size.

Any unallocated funds are returned to your account promptly after allocation is confirmed.