How Book Building Affects IPO Prices?

Published : 8 May 2023

In contrast to a fixed-price IPO, a book-built IPO uses price discovery as the primary method of determining an IPO's price. Investors may place bids for the lots of shares at their discretion within the price band, which has a floor price and a cap price. 

What is Book building in IPO? 

Steps in book building process 

Step 1: Appointment of underwriter

An underwriter is chosen to act as a middleman between the issuing company and potential investors in a book-built initial public offering (IPO).

Step 2: Bidding by the investors

Investors examine the company's prospectus before deciding whether or not to participate in the initial public offering (IPO) and how many lots to purchase.

Step 3: Determining the share price

Building the book is the process used to determine the share price. Interested parties submit bids for the number of shares they want to buy at a specific price during this process.

Step 4: Allotment and settlement process

The shares will be distributed to successful bidders after the final price has been established. A refund of the bid amount is given to investors who are not allocated any shares in the IPO. According to SEBI, the shares are settled using a T+2 basis, which means they are settled two days after the trade date.