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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Securities Market Segments

Ms. Kavita Rao, a client of an investment adviser, wants to apply for shares in an IPO through the book building route. Which statement about the book building process is correct?

In book building, the issuer offers a price band, investors bid within it, and the final issue price is discovered from the demand collected in the order book. This differs from a fixed price issue, where the price is set in advance.

  1. AThe issue price is fixed by the issuer before the issue opens, with no price range
  2. BBids are invited within a price band and the final issue price is discovered based on demandCorrect
  3. COnly retail investors can place bids and institutional investors are barred
  4. DThe issue price is decided by the stock exchange after listing

Explanation

In book building, the issuer announces a price band or floor price, investors bid within it, and the final price is discovered from the demand collected in the book. A fixed price issue is the alternative method, which is why the first option is wrong. Institutional investors also participate in book-built issues.

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