The biggest surprise about SpaceX going public: retail investors may get up to a quarter of the shares.

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SpaceX is about to set a record for the highest retail investor allocation in the history of major IPOs, as Elon Musk is placing retail investors at the center of this $75 billion listing.

According to a report by the Financial Times on Friday, people familiar with the matter revealed that Musk wants to reserve up to a quarter of SpaceX IPO shares for retail investors, far exceeding the usual 5% to 10% allocation in large IPOs.

Reuters previously reported that the retail allocation could be as high as 30%. Sources say the final percentage is yet to be determined and will depend partly on market demand.

This arrangement has sparked sharply different reactions on Wall Street. Some institutional investors see the high retail allocation as a sign that Musk is excessively relying on his personal fanbase to prop up the offering; others plan to subscribe to SpaceX shares and cash out once the stock is included in major indices, taking advantage of passive fund buying.

Unprecedented Scale of Retail Allocation

The retail allocation arrangement for SpaceX’s IPO is rare in many respects. The company directly names five online brokers responsible for distributing shares in its prospectus, including SoFi, Robinhood, E*Trade, Schwab, and Fidelity, an unusual move in itself. SpaceX has also launched a dedicated IPO website, characterizing retail participation as an “important” matter and guiding investors to subscribe through these platforms.

The company has added a risk disclosure clause in its prospectus, warning that large-scale retail participation could cause sharp price fluctuations. The five online platforms will aggregate daily subscription demand from ordinary investors and report back to SpaceX’s underwriters, with Bank of America overseeing the US retail investor portion.

In terms of scale, absorbing $20 billion or more in SpaceX stock should be manageable for these five digital brokers—their platforms collectively hold over $10 trillion in self-managed client assets.

Musk’s “Retail Philosophy”

Musk’s preference for retail investors is longstanding. In 2020, he promised on social media that once SpaceX went public, he would ensure retail investors “got top priority.” At Tesla, he is the only major tech CEO who rearranged earnings call agendas to prioritize retail investor questions.

“Musk’s philosophy is broad-based participation, which is why he wants to include retail investors,” said a source.

The strategy has already borne fruit at Tesla. According to S&P Capital IQ, retail investors hold about 42% of Tesla’s float, far higher than Apple’s 34%—the second highest among the “Magnificent Seven” tech giants. Continuous retail buying has also supported Tesla’s price-to-earnings ratio at 382x, even as the company’s growth has noticeably slowed.

Musk has 240 million followers on X, and the Starship launches have made SpaceX one of the world’s most prominent private companies. “The lack of retail participation in the past was not due to insufficient demand but insufficient supply from the issuer,” said SoFi CEO Anthony Noto. “Retail investors have been reflexively excluded because they fundamentally had no channel.”

Retail Enthusiasm and Institutional Doubts Coexist

On Reddit’s WallStreetBets forum, retail traders’ sentiment swings between extremes: some worry about “being left holding the bag” after SpaceX insiders cash out, others fear missing out on the offering.

Institutional attitudes are likewise divided. “Retail is treated as trash in the market; people assume they’ll buy at any price,” commented a small hedge fund manager. Still, this manager plans to buy SpaceX shares and sell when passive index funds drive up the stock after its inclusion in major indices.

Scott Rubner, Head of Equity and Equity Derivatives Strategy at Citadel Securities, wrote this week: “Retail traders have become the market’s new price setters.” In recent years, with the S&P 500 and Nasdaq Composite repeatedly hitting new highs, retail investors have become increasingly active, pouring into meme stocks, super-short-term options, and leveraged ETFs.

Anthony Noto believes that issuers are increasingly recognizing that retail investors deserve more than “symbolic allocations” in IPOs since they are an “important source of demand and capital.”

Risk Disclaimer and Exemption ClauseThe market carries risks and investing should be done cautiously. This article does not constitute personalized investment advice, nor does it account for the specific investment objectives, financial circumstances, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article suit their particular situation. Investing based on this article is at your own risk. ```