Page 19 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Security Analysis and Portfolio Management

Notes book for the IPO is open, bids are collected from investors at various prices, which are
above or equal to the floor price. The process aims at tapping both wholesale and retail
investors. The offer/issue price is then determined after the bid closing date based on
certain evaluation criteria.
Process:

(a) The issuer who is planning an IPO nominates a lead merchant banker as a 'book
runner'.
(b) The issuer specifies the number of securities to be issued and the price band for
orders.
(c) The issuer also appoints syndicate members with whom orders can be placed by the
investors.
(d) Investors place their order with a syndicate member who inputs the orders into the
'electronic book'. This process is called 'bidding' and is similar to open auction.

(e) A book should remain open for a minimum of five days.
(f) Bids cannot be entered less than the floor price.
(g) The bidder can revise bids before the issue closes.
(h) On the close of the book-building period, the book runner evaluates the bids on the
basis of the evaluation criteria which may include:
(i) Price aggression
(ii) Investor quality

(iii) Earliness of bids, etc.
(i) The book runner and the company conclude the final price at which it is willing to
issue the stock and allocation of securities.

(j) Generally, the number of shares is fixed; the issue size gets frozen based on the price
per share discovered through the book-building process.
(k) Allocation of securities is made to the successful bidders.

(l) Book-building is a good concept and represents a capital market that is in the process
of maturing.

Notes Rules governing book-building are covered in Chapter XI of the Securities and
Exchange Board of India (Disclosure and Investor Protection) Guidelines 2000.

BSE's Book-building System

(a) BSE offers the book-building services through the book-building software that runs
on the BSE private network.
(b) This system is one of the largest electronic book-building networks anywhere
spanning over 350 Indian cities through over 7,000 Trader Work Stations via eased
lines, VSATs and Campus LANS.

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