Updated on March 19, 2023
There are two modes of determining the prices of securities in an IPO. That is, through the fixed price mode or the book building mode.
The book building process is a price discovery method where bids from each category of investors are pooled together and a price is determined based on the weighted average method.
How does book building work
A Book Building IPO involves the following stages:
1. Appointment of an underwriter
2. Adding process involves investors bidding for lots of shares within the price band
3. The bids are then aggregated and the weighted average method is used to determine the price. This process is known as price discovery and the price determined through this process is known as the cut-off price.
4. The information about the bidding and the process to determine the price is published on the stock exchanges to ensure adherance to transparency norms.
5. The final step is the allotment of shares to investors and the listing of shares on the stock markets.