Book Building
Book building is a method used to determine the issue price of a financial instrument, such as stocks, during an Initial Public Offering (IPO). In this process, an underwriter, usually an investment bank, invites institutional investors (e.g., mutual funds, hedge funds) to submit bids, indicating the price they are willing to pay for the securities. The bids help establish a price range based on the demand and supply in the market. The underwriter uses these bids to determine the final price that will satisfy both the issuing company and market participants. Book building ensures that the price reflects investor interest and helps achieve a fair valuation for the securities being offered.
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