E*Trade in talks to lead SpaceX IPO share sale to small U.S. investors

Morgan Stanley’s E*Trade is in talks with SpaceX to take the lead in selling the rocket maker’s shares to everyday U.S. investors in its highly anticipated IPO later this year, giving it an edge over rival brokerages Robinhood Markets and SoFi, according to two people familiar with the matter.

The SpaceX IPO is shaping up to be the biggest in history, but two of Wall Street’s biggest brokerages may not get a piece of it. Robinhood and SoFi have both pitched for roles on the deal but SpaceX is considering cutting them out altogether, the people said, asking not to be identified because the talks are private. It’s an unusual omission for platforms that have become fixtures in marquee listings, including the $55 billion IPO for Arm Holdings and the $9.9 billion debut of Instacart in 2023, even as underwriters are expected to funnel retail demand through their own channels.

Morgan Stanley, which is a lead underwriter on the deal, is expected to route a significant portion of shares set aside for smaller-ticket U.S. retail investors through its own brokerage platform E*Trade, potentially crowding out rival brokerage firms Robinhood and SoFi, according to the two people familiar with the matter. The two firms, which aren’t tied to any of the banks underwriting the deal, remain in discussions to handle some of the sales, both people said. All three platforms primarily handle smaller-ticket retail orders.

The sources, who requested anonymity as the discussions are confidential, cautioned that the plans are not final and could change as SpaceX nears its IPO in a few months.

Mutual fund company Fidelity is also vying for a chance to distribute some of the shares on its trading platform, one of the people said.

Robinhood, Morgan Stanley, SoFi and Fidelity declined to comment. SpaceX did not respond to a request for comment.

A leading role in the SpaceX IPO would mark a significant victory for E*Trade, which has been locked in a battle for market share against top brokerages such as Robinhood, Charles Schwab, and Interactive Brokers in recent years. The brokerages have enjoyed heightened market volatility, which has driven up trading activity in recent months.

Morgan Stanley acquired E*Trade for $13 billion in 2020, making it one of the bank’s largest ever takeovers. Over the past decade, Morgan Stanley has made a major push to tap into the retail market as the Wall Street powerhouse has sought to reduce its reliance on wealth management and investment banking.

The approach would reflect Morgan Stanley’s playbook from some of its past deals, in which it has sought to capture a larger share of retail allocations through its in-house platform, one of the people said.

SpaceX is considering setting aside up to 30% of its shares for retail investors to cash in on founder Elon Musk’s rabid fan following.

A significant portion of that allocation is expected to go to private wealth and high-net-worth clients served by the underwriting banks, with part of the remainder — the smaller-ticket, self-directed retail slice — being the prize that E*Trade, Robinhood, and SoFi are competing for.

Retail investors typically account for only a small slice of orders — often around 5% to 10% — while bankers are largely focused on raising capital from larger institutional investors, such as asset managers and hedge funds, that place sizable orders.

Some SpaceX investors worry that they may not actually hold the company’s stock, which has been sold through the opaque secondary market for private company shares, Reuters reported earlier in March.