1. Price should not be more than 20%.
WORKING OF BOOK BUILDING
Applicants bidding for shares quote the price (within the band) and quantity of shares they
want to bid.
The “first cut off price ” is arrived at on the basis of demand for the security.
Only retail investors are allowed to opt for “cut off price”.
CATEGORIES OF INVESTORS
1. Retail Individual Investors(RII)
2. Non Institutional Investors(NII)
3. Qualified Institutional Buyers(QBI)
QIB means
a. Public financial institutions
b. Scheduled commercial banks
c. Mutual funds
d. FII’s
e. Devopment banks
f. Venture Capital fund-Indian and Foreign
g. SIDBI
h. Insurance cos
i. Provident funds
j. Pension funds
NII are those which are not RII and QIB.
ALLOTMENT OF INVESTOR CATEGORY
a. Book built issue
1. Not less than 35% of RII
2. Not less than 15% of NII
3. Not more than 50% of QIB
b. Allotment in case of fixed price issue.
i. 50% to RII
ii. Balance to individuals other than RII investors and other investors
IMPORTANT TERMS RELATED TO PRIMARY MARKETS
2. a. Offer document.
Also known as “prospectus”/letter of offer. It contains all the relevant information about
company,promoters,financial details,etc.
b. Red herring prospectus
Offer document used in book buildt public issue. It is filled with Registrar of the Companies.
c. Draft offfer document
offer document filed with SEBI. It is available in Public Domain including SEBI website.
d. Abridged prospectus.
It is offer to the investors along with the application form.
e. Shelf prospectus
It enables issuer to make a series of issues with a year without filing for fresh prospectus.
f. placement document
offer document for QIP’s.
g. green shoe option
issue of shares in excess of issue size by a maximum of 15%. It gives the option to the issue
to retain over subscribed issues.
h. sweat equity
It is equity offered to people who have contributed to the project with time and effort. It is
compensation to owners or employees.
i.
Safety net
Buy back arrangement disclosed in the red herring prospectus in case the price of shares
post listing goes below a certain level.
j.
Open book/closed book.
Demand for securities is displayed online in book building is open book building.
In closed book building ,it is not displayed.
3. k. Hard underwriting
Underwriter agrees to buy his commitment before issues closed.
l.
Soft underwriting
Underwriter agrees to buy his commitment after issue closes.
m. Differential pricing
When one category of investors are offered shares at a price different from the other
category.
n. Basis of allotment
Over subscribed issue of shares have to alloted. For this ratios are decided for each
categories. The ratio is applied to each category and number of successful alloters are
issued shares.
o. Employees Stock Option Plan (ESOP)
A plan under which the company grants options to employees to buy shares of the
company/
p. Employees Stock Purchase Plan.(ESPP)
A plan under which the company offers shares to employees as a part of public issue.
