Procedure for the bidding

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As an Investor when we apply to an IPO, all we know is Brand Price of the IPO, It’s issue size, duration for subscriptions and views of analysts on the IPO based on it’s fundamental analysis. We don’t know how this bidding procedure takes place and on what basis the allotment is done. In this post we will see the method and procedures of bidding in an IPO.

The method and procedures of bidding is subject to following:

  1. Bid is required to be kept open for at least 3 working days and no more than 7 working days, which may be extended to a maximum of 10 working days in case the price band is revised.
  2. Bidding is permitted only if an electronically linked transparent facility is used.
  3. The ‘syndicate members’ are required to be present at the bidding centers so that at least one electronically linked computer terminal all the bidding centers is available for the purpose of bidding.
  4. a) The number of bidding centers, in case 75% of the net offer to the public is offered through the book building process shall not be less than the number of mandatory collection centers as specified in regulations. In case 100% of the net offer to the public is made through the book building process, the bidding centers shall be at all the places, where the recognized stock exchanges are situated. b) The same norms as applicable for collection centers shall be applicable to the bidding centers also.
  5. Individual, as well as qualified buyers, shall place their bids only through the brokers who shall have the right to vet the bids. The applicant is required to enclose the proof of DP ID and Client ID along with the application while making a bid.
  6. The investors shall have the right to revise their bids provided that Qualified Institutional Buyers are not be allowed to withdraw their bids after the closure of the bidding.
  7. During the period the issue is open to the public for bidding, the applicants may approach the brokers of the stock exchanges through which the securities are offered under the online system to place an order for bidding to securities. Every broker shall accept orders from all clients/investors who place orders through him.
  8. Bidding Form a)There shall be a standard bidding form to ensure uniformity in bidding and accuracy. b)The bidding form before being issued to the bidder shall be serially numbered at the bidding centers and date and time stamped. c)The serial number may be system generated or stamped with an automatic numbering machine. d)The bidding form shall be issued in duplicate signed by the investor and countersigned by the syndicate member, with one form for the investor and the other for the syndicate member(s)/book runner(s).
  9. At the end of each day of the bidding period, the demand shall be shown graphically on the terminal for information of the syndicate members as well as the investors.
  10. The identities of the Qualified Institutional Buyers making the bidding shall not be made public.
  11. The stock exchanges shall display data pertaining to book built issues in a uniform format, interalia giving category-wise details of the bids received indicative format as given in the guidelines. The data pertaining to an issue shall be displayed on the site for a period of at least three days after closure of bids.
  • After the closure of the issue, the bids received are aggregated under different categories i.e. firm allotment, qualified institutional buyers (QIBs), Non-institutional buyers (NIBs), retails etc.
  • The over subscription ratios are then calculated for each of the categories as against the shares reserved for each of the categories in the offer document.
  • Within each of these categories, the bids are then segregated into different buckets based on the number of shares applied for.
  • The over-subscription, ratio is the applied to the number of shares applied for and the numbers of shared to be allotted for applicants in each of the bucket is determined.
  • Then the number of successful allotees is determined.
  • The process is followed in case of proportionate allotment.
  • In the case of allotment for QIBs, it is subject to discretion of the post issue lead manager.
  • Where the lead book runner has reasons not to accept a qualified institutional buyer’s bid, the same is required to be done at the time receipt of the bids and the reasons therefore is required to the bidder
  • Ideally, the share should trade in secondary market on T+6 day after Bid Closure at T day.