Question

Distinguish between the following.

Fixed Price Issues and Book Building

Answer 1

Fixed Price Issue Method	Book Building Method
1. Meaning: Under this method, the issue price of shares is mentioned in the prospectus and investors have to buy shares at that price only.	Under this method, the issue price is determined by a bidding process. The investors are given a price band and are asked to bid at a price within the band. This way company arrives at a price at which it will sell its shares.
2. Price of Shares: The exact price of shares is known in advance and it is mentioned in the prospectus.	The price of shares is not known in advance. Only the minimum price and maximum price at which the company is willing to sell the shares are known in advance.
3. Prospectus: The company has to issue a prospectus and it contains the details of the price at which shares are offered and the total number of shares offered by the company.	Company issues a Red Herring Prospectus. It contains only the price band and the total size of the issue.
4. Determination of Demand: The company comes to know the public demand for its shares only after the closure of the issue.	The company can know the public demand for its shares every day. The bids are registered in the book every day until the closure of the issue.
5. Payment of Application Money: Application money or the entire money has to be paid by the investor at the time of submitting his application for shares.	Only application money has to be paid at the time of bidding. The money will be collected only after the issue price has been fixed.
6. When Used: It can be used for any issue i.e. Public Issues, Rights Issues, ESOS, etc.	It is usually used in Public issues i.e. IPO and FPO.