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This is a public offer of equity shares of a company. In this process, bids are collected from the investors, in a certain price range fixed by the company. The issue price is fixed after the bid closing date depending on the number of bids received at various price levels. A company that is planning an initial public offer (IPO) appoints a merchant banker as a ‘book runner’. The company issues a prospectus which does not mention the price, but gives other details about the company with regard to issue size, the business the company is in, promotes and future plans among other disclosures. A particular period is fixed as the bid period. The book runner builds an order
book, that is, collates the bids from various investors, which shows the demand for the shares. Prospective investors can revise their bid at any time during the bid period. On closure of the book, the quantum of shares ordered and the perspective prices offered are known. The price discovery is a function of demand at various prices, and involves negotiations between those involved in the issue. The book runner and the company conclude the pricing and decide the allocation to each member.