The sale of shares to investors is conducted in 3 ways.
Book Building
Book Building with a Fixed Price
Book Building Through Collection of Bids
Book Building with a Price Spread
Sale on Stock Exchange
Sale without Book Building
Corporations willing to sell their shares via a public offering have to use either the book building method or the sale on stock exchange method:
Book Building with a Fixed Price
A single price is determined by the company or the shareholder.
Book Building Through Collection of Bids
It differs from the fixed price method in that a minimum sell price is determined and bids above that price are collected.
Book Building with a Price Spread
Provided that shares are registered with price spreads and circular is announced with price spreads, bids are collected with price spreads. If this method is applied, then the ceiling price is determined such that the spread does not exceed the 20% of the floor price.
The book building period, which should not be less than 2 business days and more than 30 days, does not start no earlier than 2 days after the announcement of the circular, for all the three methods.
Principles of Distribution (for fixed price and price spread methods)
The underwriter meets all bids if the quantity of demand is less than the shares offered. If the quantity of demand is more than the shares offered, after the portion which is allocated to a certain investor group, if any, is set aside, the total quantity offered is divided into the number of investors, and bids which are equal to and lower than the resulting quantity are met. The remaining quantity is divided into the number of investors whose bids were not met, and then distributed in the same way. This process is repeated until all the shares are distributed.
Principles of Distribution (for collection of bids method)
Bids collected from the investors are tabulated to show the cumulative quantities with quantities at each price level ranked from the highest price to the lowest price. The price at which cumulatively the maximum quantity of shares can be sold is determined as the sell price. Bids which meet that price are taken into account in the distribution. If the shares demanded are more than the shares offered, then distribution starts from the bid with the highest price. If the bids of more than one investor cannot be meet at a particular price level, then the distribution is made between the respective investors in proportion to their quantities of demand.
Sale on Stock Exchange
Book building methods relate to public offering of stocks by underwriters outside the Exchange. Companies may offer their shares to public in the primary market of the ISE.
In this method, an application should be lodged with our Exchange, and the application should be accepted and announced by the Executive Council of ISE, prior to registration of shares to CMB. Public offering on the stock exchange can be started 1 week after the decision of the Executive Council and completed within the time period specified on the circular.
Sale without Book Building
This is the sale of capital market instruments to investors via public offering without book building by setting a certain price. Publicly held companies whose stocks are not listed on the ISE may use this method, under certain conditions, to sell their shares. This method may also be used for asks exceeding bids in book building.