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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.

Key points

• Book building is used to determine the price of securities in an IPO or other offering.

• Involves collecting bids from institutional investors to gauge demand.

• Helps set a market-driven price that reflects true investor interest.

Quick Answers to Curious Questions

The purpose is to discover the optimal price for the securities based on investor demand, ensuring a successful offering.

Primarily institutional investors, as they provide large bids that help gauge demand and set the price range.

It allows the company to price its securities based on actual market demand, potentially maximizing the funds raised and ensuring a successful offering.