Definition
Basis of Allotment
The basis of allotment is the formula, approved by the exchange, that decides how shares are distributed among applicants when an IPO is oversubscribed.
After an IPO closes, the registrar finalises the basis of allotment in consultation with the NSE or BSE. For the retail category, if oversubscribed, allotment is by computerised lottery in multiples of the minimum lot, with SEBI requiring that the maximum number of applicants each get at least one lot where possible.
For NIIs and QIBs, allotment is proportionate to the bid size. The basis of allotment document, published by the registrar, shows the ratio and the number of successful applicants in each category.
Related terms
- Retail Individual Investor (RII)An RII is an individual investor applying for up to ₹2 lakh in an IPO, who gets a reserved quota and can bid at the cut-off price.
- OversubscriptionOversubscription is when an IPO receives bids for more shares than are on offer, expressed as a multiple such as '10x'.
- Registrar to an IssueThe registrar is the SEBI-registered intermediary that processes IPO applications, finalises the basis of allotment and handles refunds and share credits.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.