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Book Building Method

Book building is a price discovery mechanism used in stock markets for pricing securities during IPOs, where underwriters collect bids from institutional investors. This method allows for tracking investor demand to determine the issue price, making it the preferred approach by major stock exchanges. In contrast, the fixed price method involves a predetermined share price known to investors before the IPO, with market demand only revealed after the issue closes.

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58 views2 pages

Book Building Method

Book building is a price discovery mechanism used in stock markets for pricing securities during IPOs, where underwriters collect bids from institutional investors. This method allows for tracking investor demand to determine the issue price, making it the preferred approach by major stock exchanges. In contrast, the fixed price method involves a predetermined share price known to investors before the IPO, with market demand only revealed after the issue closes.

Uploaded by

simran
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Book building method

Book building is a price discovery mechanism that is used in the stock markets
while pricing securities for the first time.

An underwriter, usually an investment bank, creates a book by allowing


institutional investors (such as fund managers and others) to submit bids for the
amount of shares they want and the price(s) they're willing to pay for them.

Before arriving at an issue price, the price discovery process involves generating
and tracking investor demand for shares.

All of the major stock exchanges promote book building as the most effective
approach to price shares, and it is the de facto mechanism through which
businesses price their IPOs.

FIXED PRICE METHOD

The firm going public chooses a predetermined price at which its shares are
offered to investors under fixed price. Before the firm becomes public, the share
price is known to the investors. The market demand is only known when the
issue is closed. When submitting an application for this IPO, the investor must
pay the full share price.

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