The memorandum as prescribed in Form 2A under sub-section (3) of section 56 of the
Companies Act, 1956. It contains all the salient features of a prospectus. It accompanies
the application form of public issues.
Add on offering
When a publicly traded company issues additional shares to the public.
This is the amount of stock in an initial public offering (IPO) granted by the underwriter
to an investor. For most IPOs, the allocation is significantly less than the indication
of interest. The allocations are meted out based on commission volume, trading history
and type of investor.
All trading activity in an IPO or secondary subsequent to the new issue offering
from the underwriters.
Underwriters look favorably on investors who buy IPOs in the days after the IPO
first goes public. While underwriters cannot solicit aftermarket orders, some expect
investors to purchase two or three times their IPO allocation in the aftermarket.
The price appreciation (or depreciation) in IPOs is measured from the offering price
going forward. However, to obtain a better benchmark of IPO aftermarket performance,
some investors track performance from the first day close.
An additional registration document that is filed by the issuer with the SEC that
has additional information regarding the proposed offering for that company.
American Depositary Receipts (ADRs)
ADRs are securities offered by non-U.S. companies who want to list on an American
exchange. Each ADR represents a certain number of a company's regular shares
Also referred to as the offer. It represents the price at which someone is willing
to sell his or her stock on a market order.
Basis of Allocation/Basis of Allotment
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, Retail, 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 then applied to the number of shares applied for and the number of shares
to be allotted for applicants in each of the buckets is determined. Then, the number
of successful allottees is determined. This process is followed in case of proportionate
allotment. In case of allotment for QIBs, it is subject to the discretion of the
post issue lead manager.
Represents the price at which someone is willing to buy your stock on a market order.
The difference between the bid price and the ask price
Board of Directors
The composition of the Board of Directors is particularly critical for an IPO. Typically,
a board is composed of inside and outside directors. Inside directors could be management,
significant shareholders, venture capitalists, vendors and relatives. Outside directors
have no underlying financial or personal relationship with the company that could
create a conflict of interest and are on the board for their experience, business
judgment and contacts. Outside directors may own stock, but are not large shareholders.
Investors should look for a board that has a majority of outside directors. Typically,
IPOs add their first outside directors at or immediately after the offering.
A list of all indications of interest for a new issue-offering put together by the
Book Building as a process undertaken by which a demand for the securities proposed
to be issued by a corporate body is elicited and built up and the price for such
securities is assessed for the determination of the quantum of such securities to
be issued by means of a notice, circular, advertisement, document or information
memoranda or offer document.
A condition in the financial markets when the buyers have a very strong input
as to where an issue will get priced. This generally happens in a market that is
trending lower in prices. Underwriters will usually pay closer attention to the
buyer's want and needs, within reason, when that happens.
A stocks last transaction price for the day
Underwriters that appear on the cover of a prospectus and help the lead manager
with the distribution of the offering but do not make the final decisions.
A unit of ownership in a public company for which the holder can vote on matters
and receive dividends from the company's growth, but he or she is the last to receive
assets if the company liquidates.
Cooling off period
The time period, usually about 20 days, between the filing of the registration statement
with Securities Exchange Board of India (SEBI) and the offer of those securities
to the public. During the cooling off period, the syndicate and selling group members
distribute notifications announcing the new issue, send preliminary prospectuses
to qualified investors for review, and take indications of interest from interested
Cut Off Price
In Book building issue, the issuer is required to indicate either the price
band or a floor price in the red herring prospectus. The actual discovered issue
price can be any price in the price band or any price above the floor price. This
issue price is called “Cut Off Price”. This is decided by the issuer and LM after
considering the book and investors’ appetite for the stock. Sebi (DIP) guidelines
permit only retail individual investors to have an option of applying at Cut Off
Day To Day (DTD)
When an IPO is listed as day-to-day on the offering calendar, it means that the
lead underwriter does not have sufficient orders in the book. IPOs listed as DTD
are likely to be postponed.
Referring to the actual delivery of the stock certificates to the buyers as delivered
from the seller. This completes the transaction.
Once a term used to describe professional investors who aggressively trade stocks,
bonds and other financial instruments to capture short-term swings in prices, it
is now applied to individuals who frequent small brokerage firms that offer terminals
and quote streams. These individuals use their own capital - sometimes borrowed
- to establish an account and then trade on a short-term basis. The term is also
applied to individual investors who trade online for short-term gains. Regulators
such as the SEBI are currently examining the operations of day-trading brokerage
firms, who may be reaping huge profits in the form of commissions at the expense
of their high-volume customers.
Pricing of an issue where one category is offered shares at a price different from
the other category is called Differential Pricing. In DIP guidelines Differential
Pricing is allowed only if the securities to applicants in the firm allotment category
is at a price higher than the price at which the net offer to the public is made.
The net offer to the public means the offer made to the Indian public and does not
include firm allotments or reservations or promoters’ contributions.
Material information (e.g.. management practices, financial statements and legal
involvements, etc.) made public by an issuer as required by the Securities Exchange
Board of India (SEBI). The purpose is to put investors on notice of information
pertinent to their making initial and continued investment decisions about the issuer.
Disclosures and Investor Protection guidelines (DIP)
Sebi governs the primary issuances in terms of Sebi (Disclosures and Investor Protection)
guidelines. Sebi framed its DIP guidelines in 1992. Many amendments have been carried
out in the same in line with the market dynamics and requirements. In 2000, Sebi
issued “Securities and Exchange Board of India (Disclosure and Investor Protection)
Guidelines, 2000” which is compilation of all circulars organized in chapter forms.
Sebi thereon issues these guidelines and amendments under section 11 of the Securities
and Exchange Board of India Act, 1992. Sebi (Disclosure and Investor Protection)
guidelines 2000 are in short called DIP guidelines. It provides a comprehensive
framework for issuances buy the companies.
The amount of money or securities, out of net profits, distributed to the company's
A reasonable investigation conducted by the parties involved in preparing a
disclosure document to form a basis for believing that the statements contained
therein are true and that no material facts are omitted.
The physical location where brokers transact business for their clients. The principal
ones are the BSE (Bombay Stock Exchange), NSE (National Stock Exchange).
A company proposing to issue capital to public through the on-line system of
the stock exchange for offer of securities can do so if it complies with the requirements
under Chapter 11A of DIP guidelines. The appointment of various intermediaries by
the issuer includes a prerequisite that such members/registrars have the required
facilities to accommodate such an online issue process.
Follow on Public Offering
A Follow on Public Offering, FPO, is when an already listed company makes either
a fresh issue of securities to the public or an offer for sale to the public, through
an offer document. An offer for sale in such scenario is allowed only if it is made
to satisfy listing or continuous listing obligations
Fixed Price Offer
An issuer company is allowed to freely price the issue. The basis of issue price
is disclosed in the offer document where the issuer discloses in detail about the
qualitative and quantitative factors justifying the issue price
Financial Statement, changes in accounting policies in the last three years and
differences between the accounting policies and the Indian Accounting Policies (if
the Company has presented its Financial Statements also as per Either US GAAP/IAS
A company making an issue to public can reserve some shares on “allotment on
firm basis” for some categories as specified in DIP guidelines. Allotment on firm
basis indicates that allotment to the investor is on firm basis. DIP guidelines
provide for maximum percent of shares, which can be reserved on firm basis.
Green shoe option
Green shoe option means an option of allocating shares in excess of the shares included
in the public issue and operating a post-listing price stabilizing mechanism for
a period not exceeding 30 days in accordance with the provisions of Chapter VIIIA
of DIP guidelines, which is granted to a company to be exercised through a Stabilizing
The process by which a privately held company first offers shares of stock to
the public. This is done via an Initial Public Offering (IPO).
A company that owns enough shares of another company to secure voting control.
An IPO that trades at a significantly higher price on the secondary market than
its initial offering price. This usually occurs when demand of the issue far exceeds
Hard underwriting is when an underwriter agrees to buy his commitment at its
earliest stage. The underwriter guarantees a fixed amount to the issuer from the
issue. Thus, in case the shares are not subscribed by investors, the issue is devolved
on underwriters and they have to bring in the amount by subscribing to the shares.
The underwriter bears a risk, which is much higher in soft underwriting
Persons such as management, directors, and significant stockholders who are privy
to information about the operations of a company, which are not known to the general
public. Insiders are subject to various restrictions and or limitations regarding
equity stock offerings.
The Introduction covers a summary of the industry and business of the issuer company,
the offering details in brief, summary of consolidated financial, operating and
other data. General Information about the company, the merchant bankers and their
responsibilities, the details of brokers/syndicate members to the Issue, credit
rating (in case of debt issue), debenture trustees (in case of debt issue), monitoring
agency, book building process in brief and details of underwriting Agreements are
IPO - Initial Public Offering
A privately held company offers its shares to the public.
The price at which a new security will be distributed to the public prior to
the new issue trading on the secondary market. Also commonly referred to as offering
Lock-in indicates a freeze on the shares. Sebi (DIP) guidelines have stipulated
lock-in requirements on shares of promoters mainly to ensure that the promoters
or main persons who are controlling the company, shall continue to hold some minimum
percentage in the company after the public issue
The time period after an IPO when insiders at the newly public company are restricted
by the lead underwriter from selling their shares in the secondary market
In the pre-issue process, the Lead Manager, LM, takes up the due diligence of company’s
operations/ management/ business plans/ legal etc. Other activities of the LM include
drafting and design of Offer documents, Prospectus, statutory advertisements and
memorandum containing salient features of the Prospectus.
The underwriter who, among other things, is in charge of organizing the syndicate,
distributing member participation shares and making stabilizing transactions. The
lead underwriter's name appears on the left side of a prospectus cover.
A method of calculating the value of a company which is equal to the number
of shares outstanding multiplied by the price of each share of the stock.
A security publicly offered for sale for the first time.
The first day a security is publicly offered for sale.
The price for which a new security issue will be sold to the public. Also known
as Issue Price.
This is the price range at which the company expects to sell its stock in a public
Open book/closed book
Presently, in issues made through book building, Issuers and merchant bankers are
required to ensure online display of the demand and bids during the bidding period.
This is the open book system of book building. Here, the investor can be guided
by the movements of the bids during the period in which the bid is kept open. Under
closed book building, the book is not made public and the bidders will have to take
a call on the price at which they intend to make a bid without having any information
on the bids submitted by other bidders.
The number of shares that have been issued by the company which are held by the
insiders and the general investing public.
Part of the underwriting agreement which allows, in the event the offering is oversubscribed,
the issuer to authorize additional shares(typically 15 percent ) to be distributed
by the syndicate Also called the green shoe.
A situation in which investors have expressed an interest in buying more shares
of a new security than will be available. Under this condition, the price of the
security has a greater likelihood of opening higher in the secondary market than
is the offering price.
The Red Herring Prospectus may contain either the floor price for the securities
or a price band within which the investors can bid. The spread between the floor
and the cap of the price band shall not be more than 20%. In other words, it means
that the cap should not be more than 120% of the floor price. The price band can
have a revision and such a revision in the price band shall be widely disseminated
by informing the stock exchanges, by issuing press release and also indicating the
change on the relevant website and the terminals of the syndicate members. In case
the price band is revised, the bidding period shall be extended for a further period
of three days, subject to the total bidding period not exceeding thirteen days
A Preferential Issue is an issue of shares or of convertible securities by listed
companies to a select group of persons under Section 81 of the Companies Act, 1956
which is neither a rights issue nor a public issue. This is a faster way for a company
to raise equity capital. The issuer company has to comply with the Companies Act
and the requirements contained in Chapter pertaining to preferential allotment in
Sebi (DIP) guidelines which inter-alia include pricing, disclosures in notice etc.
This is the offering document printed by the issuer containing a description of
the business, discussion of strategy, presentation of historical financial statements,
explanation of recent financial results, management and their backgrounds and ownership.
The preliminary prospectus has red lettering down the left-hand side of the front
cover of the prospectus and is sometimes called the” red herring."
If the opening price of an IPO in the secondary market is higher than its offering
price, the difference would be the premium.
This is the price range at which the company expects to sell its stock in a public
offering... Also referred to as Offering Range.
A company whose shares have never been offered publicly for sale.
An investment in a company by a group of private investors. The offering is limited
both by the amount of shares or units and the number of investors. The recipients
receive restricted stock from the issuer.
When an offering that had a tentative "pricing" date is pushed back in timing
to a later date. Postponement may occur when market conditions threaten the viability
of the offering. Extremely adverse market conditions could lead to cancellation
of the offering.
Qualified Institutional Buyer
A ‘Qualified Institutional Buyer’ shall mean: a. Public financial institution
as defined in section 4A of the Companies Act, 1956; b. Scheduled commercial banks;
c. Mutual funds; d. Foreign institutional investor registered with Sebi; e. Multilateral
and bilateral development financial institutions; f. Venture capital funds registered
with Sebi. g. Foreign Venture capital investors registered with Sebi. h. State Industrial
Development Corporations. i. Insurance Companies registered with the Insurance Regulatoryand
Development Authority, IRDA. j. Provident Funds with minimum corpus of Rs 25 crore
k. Pension Funds with minimum corpus of Rs 25 crore, these entities are not required
to be registered with Sebi as QIBs. Any entities falling under the categories specified
above are considered as QIBs for the purpose of participating in primary issuance
This is another name for the preliminary prospectus. This is the offering document
printed by the issuer containing a description of the business, discussion of strategy,
presentation of historical financial statements, explanation of recent financial
results, management and their backgrounds and ownership.
A procedure by which a company who would like to go public files a registration
statement with the SEBI. This statement contains a description of the company, its
management and its financials.
Retail Individual Investor’ means an investor who applies or bids for securities
of or for a value of not more than Rs 1,00,000.
Rights Issue, RI, is when a listed company which proposes to issue fresh securities
to its existing shareholders as on a record date. The rights are normally offered
in a particular ratio to the number of securities held prior to the issue. This
route is best suited for companies who would like to raise capital without diluting
stake of its existing shareholders unless they do not intend to subscribe to their
Here, the issuer’s management gives its view on the Internal and external risks
faced by the company. Here, the company also makes a note on the forward-looking
statements. This information is disclosed in the initial pages of the document and
it is also clearly disclosed in the abridged prospectus. It is generally advised
that the investors should go through all the risk factors of the company before
making an investment decision.
Any Safety Net scheme or buy-back arrangements of the shares proposed in any public
issue shall be finalized by an issuer company with the lead merchant banker in advance
and disclosed in the prospectus
The Book Runner(s) may appoint those intermediaries who are registered with the
Board and who are permitted to carry on activity as an ‘Underwriter’ as Syndicate
Members. The Syndicate Members are mainly appointed to collect and entire the bid
forms in a book-built issue
Soft underwriting is when an underwriter agrees to buy the shares at later stages
as soon as the pricing process is complete. He then, immediately places those shares
with institutional players. The risk faced by the underwriter as such is reduced
to a small window of time. Also, the soft underwriter has the option to invoke a
force Majeure (acts of God) clause in case there are certain factors beyond the
control that can affect the underwriter’s ability to place the shares with the buyers.
The date on which an executed trade of securities must be paid for.
Any person who owns shares of a company's stock.
A group of securities, generally from the same company, that are bundled together
and sold as a single piece. They usually consist of shares of common stock plus
shares of warrants
A source of money for start up companies. Venture capital firms who invest in private
companies that need capital to develop and market their products typically raise
this. In return for this investment, the venture capitalists generally receive significant
ownership of the company and seats on the board.
A characteristic of a security, which rises or falls sharply in price within
a short time period.
When a company decides to not continue with its proposed offering of securities.
| || || |
| || || 926.10 || 2.25 ||
| 925.10 || 2.06 ||
| || || 188.95 || 0.59 ||
| 188.55 || 0.35 ||
| || || 86.90 || 1.11 ||
| 86.95 || 1.34 ||
| || || 2,699.70 || -1.07 ||
| 2,704.30 || -0.94 ||
| || || 941.15 || 0.68 ||
| 940.95 || 0.63 ||
| || || 21,100.90 || -1.47 ||
| 21,096.80 || -1.51 ||
BSE's IPO pricing is "fair" and is based on robust feed back from institutional investors, according to investment bankers, re...