Indication of interest (IOI)
An indication of interest (IOI) is a non-binding expression by an investor that they may want to buy shares of a new securities offering before it is priced. It is not an order and creates no obligation for either side.
An indication of interest (IOI) is how an investor signals demand for a new issue — most commonly an IPO — while the offering is still in registration. During the cooling-off period, before the SEC declares a registration statement effective, no sales are allowed. Underwriters may, however, distribute the preliminary prospectus (red herring) and collect indications of interest from investors who read it.
The defining feature of an IOI is that it is non-binding in both directions. The investor is not obligated to buy when the offering becomes effective, and the underwriter is not obligated to allocate shares. An IOI is not an order, cannot be accepted as one, and involves no money or signed commitment — it is simply a gauge of demand.
IOIs serve a real pricing function. By tallying indications during the road show and cooling-off period, the underwriting syndicate learns how much demand exists at various price levels, which informs the final public offering price and the size of the deal. Heavy interest can push the price toward the top of the expected range; weak interest can shrink or delay the offering.
The IPO process — including what underwriters may and may not do with indications of interest — is tested on several securities exams. The Series 6 and Series 7 exams cover IOIs within the primary market and IPO process material, and the Series 65 exam touches the same concepts in its treatment of federal securities registration.
Key takeaways
- An IOI is a non-binding signal of possible interest in a new offering, collected during the cooling-off period.
- Neither the investor nor the underwriter is obligated by an indication of interest — it is not an order.
- Investors can give an IOI only after the preliminary prospectus (red herring) is available; no sales occur before the effective date.
- Underwriters use aggregate indications to help set the final offering price and deal size.
- The Series 6, Series 7, and Series 65 exams test IOIs as part of the IPO and registration process.