Book Building

Book building is a process used in initial public offerings (IPOs) or other securities offerings to determine the price at which the securities will be offered. In this process, underwriters or investment banks gather and record bids from institutional investors to gauge demand and set the final offering price. The goal of book building is to discover a market-driven price that reflects the true demand for the securities, ensuring that the issue is successful and that the price is fair for both the issuer and investors.

Example

A company planning an IPO hires an investment bank to manage the book building process. The bank collects bids from institutional investors and determines that the optimal price range for the IPO is between $20 and $22 per share.