How to Subscribe to an IPO with Less than P100,000

Did you know that you can invest in stocks — and also take part in a company’s initial public offering or IPO — with only P100,000 cash or even less?

Thanks to the Local Small Investors (LSI) Program of the Philippine Stock Exchange (PSE), this is now possible.

What is the Local Small Investors (LSI) Program?

The Local Small Investors (LSI) is an initiative of the PSE to encourage more individuals to become stock investors even if they don’t have millions or hundreds of thousands of pesos.

Previously, the PSE has placed a cap on LSI investments to a maximum of P25,000. Effective September 12, 2018, the cap has been raised and local small investors can now take part in an IPO for up to P100,000.

Aside from increasing the LSI subscription amount, the PSE also amended the following LSI rules:

the ten percent (10%) discount for LSIs has been removed;
in cases of large IPOs, that is exceeding P5 billion issue size, the 10% LSI allocation may be increased;
issuers are required to use appropriate distribution mechanism that can help facilitate greater participation of Filipino retail investors;
issuers are required to prioritize in the allocation LSIs with subscriptions lower than P100,000; and
“clawback” and “clawforward” provisions in shares allocation will now be implemented.

In cases of oversubscription, the PSE may allow IPO issuers a “clawback”, that is, an increase in the total number of shares allocated to retail stock investors at the expense of institutional investors.

Meanwhile, in cases of IPO undersubscription, a “clawforward” mechanism may be implemented, that is, reallocating more shares instead to institutional investors, away from retail or individual stock investors.

What is an IPO?

An IPO or Initial Public Offering is the sale of a private company’s stock to the public for the first time. In other words, it is the first offering (or sale) of shares of stocks of an originally privately-held company to the general public — hence, the term initial public offering.

An IPO is typically used by a company to raise cash, the proceeds of which may be used to pay off existing debt, expand operations, or sometimes just to enhance the price of the shares owned by the original stockholders (thus, providing an exit for original owners and for initial investors to cash out or to raise share prices to market level).

Once a company has concluded its IPO, its shares are then listed in a stock exchange and will start to be “publicly traded”.

How participate in the Local Small Investors (LSI) Program?

Under the PSE’s LSI program, a company conducting an Initial Public Offering (IPO) is required to allot 10% of its total IPO shares to “local small investors”.

A local small investor or LSI is defined as an investor “intending to subscribe to a minimum board lot or whose subscription does not exceed One Hundred Thousand Pesos (P100,000.00).”

This means even if you only have P10,000 or P25,000 or P50,000, you are qualified to become a local small investor and you can already take part in the IPO!

As an LSI, the PSE will prioritize in giving you IPO shares if your investment is P100,000 or less. Assuming you wish to take part in an IPO of a company offering stocks at P25.00 per share, you can be easily allocated up to 4,000 shares (That’s 4,000 x P25 = P100,000; but that doesn’t include stock fees and taxes yet).

Take note that if you plan on subscribing to more than P100,000 worth of IPO shares, you are not eligible to join as an LSI and you will have to buy shares via the regular IPO process.

What are the steps to become a Local Small Investor (LSI)?

First, you must have an existing account with any of the licensed stock brokerage companies (or stockbrokers) in the Philippines.

Next, secure the following forms from the broker and fill out completely:

four (4) copies of the LSI application form
two (2) signature cards to be verified by the broker receiving your application

Together with these forms, submit as well a photocopy of your two (2) valid government-issued IDs such as SSS, GSIS, Driver’s License, Passport, or PRC ID.

You may submit all requirements to your stockbroker or to any of the PSE’s Receiving Centers in PSE Ayala (Makati) or PSE Tektite (Ortigas, Pasig). Receiving hours are usually from 9:00 am to 5:00 pm during the offer period and from 9:00 am to 12:00 noon on the last day of the offer period.

Easy, right? Because of the PSE’s LSI program, you’re on your way to becoming a stock investor even with only P100,000 or less! Congrats!

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