Quick Answer
Allocation splits the deal between retail demand, aggregated across syndicate member desks via free retention, and institutional demand, concentrated in the pot and allocated by the lead on quality of account, mandate fit, and prior IPO support. The pot is either a fixed pot (concession credit split per a schedule) or a jump-ball pot (the buyer designates the credited member).
The book gives the bookrunner the total demand. Allocation decides who gets what. The mechanics are split between retail flow and institutional flow, each with its own routing rules.
How Is Demand Split Before Allocation?
The bookrunner separates the book into two parallel pools before allocation.
- Retail demand: Aggregated across syndicate member retail desks (free-retention allocation)
- Institutional demand: Concentrated in the pot, allocated by the lead based on quality of account, mandate fit, and prior IPO support
Bankers track investor trading history before allocating. IPO flippers (accounts that sell day-one) are typically deprioritized; long-only holders get larger allocations than their IOI size alone would suggest.
Exam Tip: Gotchas
- Retail demand and institutional demand are allocated by different mechanics. Retail flows through free retention; institutional flows through the pot.
- Quality-of-account analysis can override IOI size. A long-only account asking for 1 million shares can outscore a hedge-fund account asking for 2 million shares at the same price.
How Do Fixed and Jump-Ball Pots Differ?
The institutional pot is the central pool of shares allocated by the bookrunner. The pot economics fall into one of two structures.
| Pot Type | Mechanism | Effect on Selling Concession |
|---|---|---|
| Fixed pot | Selling-concession credit on pot allocations is split among syndicate members per a predetermined schedule | Locked at deal launch; not influenced by buyer preferences |
| Jump-ball pot | Institutional buyer designates which syndicate member receives the selling-concession credit on its allocation | Buyer-directed; concentrates credit at the firm that covered the buyer best |
In a fixed pot, the split is set before the book opens. Each syndicate member knows in advance what share of pot economics it will earn regardless of which buyer ends up taking the allocation. The mechanic removes the buyer's leverage to reward one syndicate member over another.
In a jump-ball pot, the institutional buyer is asked which firm provided the best coverage (research, sales, relationship management) and that firm receives the selling-concession credit. This gives institutional accounts substantial leverage over coverage quality across the Street.
Think of it this way: in a fixed pot, the syndicate members are paid for being on the syndicate. In a jump-ball pot, the syndicate members are paid for being chosen by the buyer. The mechanic changes the incentive: jump-ball pots reward salespeople and analysts who cover specific institutions; fixed pots reward the firm's overall standing in the deal.
Exam Tip: Gotchas
- In a jump-ball pot the institutional buyer (not the lead) controls who gets the selling-concession credit. That gives big institutions leverage over coverage and service quality across the Street.
- Fixed pots lock the split up front and remove the buyer's leverage. Economics are predictable; relationship leverage is reduced.
What Are Free Retention and Designations?
Two more allocation channels sit alongside the pot.
- Free retention: Shares carved out to a syndicate member's own retail / institutional desk. That member keeps the full selling concession on the carve-out
- Designations: Buyer-directed credits within the pot, used by institutional accounts to reward research or service from specific syndicate members
Free retention is the member's own sales channel: shares the syndicate member sells through its retail or institutional desk without going through the pot. Designations are inside the pot but allow buyer choice over who gets the credit.
Exam Tip: Gotchas
- Free retention shares are sold through the member's own channels. The member keeps the full selling concession on those shares.
- Designations are buyer-directed credits inside the pot. A designation is a way for an institutional account to reward a syndicate member without affecting allocation size.
What Checks Run Before Allocation Locks?
Before allocation locks, the syndicate desk runs two final reconciliations.
- Verification of accuracy of customer orders: Tickets are reconciled against the order log, the account names match KYC records, and any duplicate or stale tickets are removed
- Communication with branch office managers or designees: For firms with retail branch networks, branch managers confirm allotments and designations across the firm's distribution network before the syndicate desk finalizes the allocation grid
Order verification catches input errors that would otherwise lock into the allocation. Branch confirmation ensures the retail allocations flow correctly down the firm's distribution chain so that on the trade date, customers in 200 branches receive the shares they ordered.
Exam Tip: Gotchas
- Order verification happens BEFORE allocation lock. Errors caught after lock require a manual unwind through compliance.
- Branch managers confirm allotments inside the firm's distribution network. For a wirehouse with thousands of advisers, the verification chain runs through branch leadership before allocations are firm.
What Should You Check on Exam Day?
- Can you distinguish free-retention allocation (retail) from pot allocation (institutional)?
- Do you know the difference between a fixed pot (predetermined concession split) and a jump-ball pot (buyer-designated concession)?
- Can you explain how designations differ from free retention as ways to route selling-concession credit?
- Do you know order verification and branch confirmation both happen before allocation lock, not after?
- Can you identify quality-of-account analysis (holding history, flip risk) as a factor that can override raw IOI size?