Definition
Book Building
Book building is the price-discovery process where an IPO's final price is set from the bids investors submit within a price band, rather than fixed in advance.
Under SEBI ICDR Regulations, most large Indian IPOs use book building. Investors bid at various prices within the band over the issue period, and the merchant bankers build a 'book' of demand. The final price is fixed at a level that clears the issue, and a basis of allotment is then drawn up.
Book building contrasts with the fixed-price method, where the price is announced upfront. Book building is generally preferred for mainboard issues because it lets the market signal what it is willing to pay, while fixed price is common for smaller or SME issues.
Related terms
- Fixed Price IssueA fixed price issue is an IPO where the company sets a single, definite price per share in advance, instead of discovering it through bidding.
- Basis of AllotmentThe basis of allotment is the formula, approved by the exchange, that decides how shares are distributed among applicants when an IPO is oversubscribed.
- Price BandA price band is the maximum permissible price movement, expressed as a percentage above and below a reference price, within which a security may trade during a session before being frozen.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.