Series 79 practice questionmediumIPO Process
What is the most common method underwriters use to allocate IPO shares to institutional investors during book-building?
- ABased on indications of interest and investor quality (e.g., long-term holders, past relationships)✓ Correct answer
- BStrictly on a first-come, first-served basis
- CRandom lottery assignment among all interested investors
- DEqual distribution to all institutions regardless of order size
Explanation
Why A — Based on indications of interest and investor quality (e.g., long-term holders, past relationships)
Allocations are made based on investor demand and quality, not random or strictly chronological methods. The trap is assuming IPO allocations are a mechanical or random process rather than discretionary.
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