Definition
Floor Price
The floor price is the lower limit of an IPO price band, below which bids are not accepted.
In a book-built issue, the floor price is the minimum at which investors can bid. SEBI allows the cap of the price band to be at most 20% higher than the floor. Bids below the floor are invalid.
In an Offer for Sale (OFS) through the exchange mechanism used by listed companies, the floor price is similarly the lowest price the seller will accept, and is usually announced the evening before the OFS opens. It anchors the auction and protects sellers from a collapse in price.
Related terms
- Cut-off PriceThe cut-off price is the final price discovered in a book-built IPO; retail investors can bid 'at cut-off' to accept whatever that price turns out to be.
- 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.