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Allotment Procedure of Shares

Allotment Procedure of Shares



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Published by james4819

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Published by: james4819 on Mar 05, 2009
Copyright:Attribution Non-commercial


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Few things frustrate an investor more than applying for shares and not getting them, especially when talk of booming share prices leaves them with stars in their eyes.They simply did not get an allotment after they appliedfor an Initial Public Offering.An IPO refers to the first time a company offers itsshares to the public. After the shares are allotedthrough the IPO, the stock will be listed on the stockexchange so that the shares can be bought and sold.A number of IPOs are in the limelight at the moment.Since many people apply for an IPO, very few end upwith the shares.
Let me explain why this happensand how the IPO game works.
The company will 'discover' its priceEarlier, the company determined a fixed price for the stockissue. The issue was marketed to the general public throughadvertisements and a media campaign.Today, companies prefer a book building process. Bookbuilding is the process of price discovery. That means there isno fixed price for the share.Instead, the company issuing the shares comes up with aprice band. The lowest price is referred to as the floor and thehighest, the cap.Bids are then invited for the shares. Each investor states howmany shares s/he wants and what s/he is willing to pay for those shares (depending on the price band).The actual price is then discovered based on these bids.

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