Indication of Interest (IOI)
Candlefocus EditorThe IOI process is not without risks. While expressing interest in an IOI does not provide any guarantee of being able to acquire the desired security or stock after it reaches the IPO, it nevertheless constitutes a serious inquiry and commitment to acquire on behalf of the investors. This commitment should be taken seriously, as failure to acquire after expressing interest can carry negative implications.
Some investors need to be aware that the IOI process is not always notification to the company issuing the stock or security. Only the receiving broker knows of the order. Thus, the issuer may not be aware of the interest expressed.
Moreover, if the investors think they have a competitive advantage by submitting an IOI, they should be aware that the issuing broker has the responsibility to ensure that all potential investors have access to the stock and that there is no unfair advantage given to any particular investor. In other words, the investors will not be the first to receive notifications of the stock availability.
IOIs may also be seen as a way to gauge the interest in a particular security in the market. Brokerage firms may use IOIs to gauge the demand for a particular stock upon its regulation-compliant release on the public market. This is done by tracking the number of IOIs that were accepted by the issuing broker.
In conclusion, while Indication of Interests are nonbinding, they still represent serious inquiries into a certain security or stock and should be taken seriously. Investors should use the process wisely if they wish to acquire an IPO, as it requires a commitment to buy once the security becomes available.