Will Facebook’s 901 Million Users Get a Piece of the IPO?

As large investors gathered at a midtown Manhattan hotel Monday to hear Facebook management describe the details of the hottest IPO to hit the markets in years, a major question remained unanswered: would small investors also get a piece of the action?

A Facebook Inc. IPO announcement flag flies outside of JPMorgan Chase & Co. headquarters in New York.

It’s complicated, according to people involved in the deal. Facebook and its chief underwriters, Morgan Stanley and JP Morgan have expressed a desire in planning meetings to have a larger-than-usual retail investor share of the offering, say participants in those discussions — which could mean that 25 percent or more of the deal would go to individuals. (Twenty to 25 percent is standard for a large IPO, with 10 percent to 15 percent more common for a smaller one.)

No final decisions on retail shares will be made until late next week, these people add, when Facebook’s final price is expected to be set. But the reality, some of these people acknowledge, is that the vast majority of most large company shares are held by institutional investors, and that new issues like Facebook are often considered too risky for the average guy to hold.

Facebook and its main underwriters’ initial communications with some of the retail-oriented brokerages that have been added to the deal as of Friday would seem to reflect that, one of the participants in the discussions said: only 1 percent of the deal's underwriting responsibilities will be given to the 10 minority and woman-owned firms to split among them, meaning that if the deal is sized at, say, $11 billion, each of those firms would get only $11 million in shares to purchase and then redistribute to customers.

The woman-and-minority firms that have been added include Loop Capital Markets, Muriel Siebert & Co., and Lebenthal & Co.

E*Trade, the major online brokerage, was also added to the most recent filing as an underwriter, and will also receive some Facebook shares for small investors. The company will try to give Facebook shares to every qualified investor who asks, said someone familiar with the matter, and will parse out its allotted shares to those requestors on a pro rata basis. But that may be difficult to do, this person said, if the allocation E*Trade receives is simply too small.