This session is a crucial part of the “price discovery” process and is conducted through “book-building”.
In this session, the issuing company and its underwriters interact with institutional investors, such as mutual funds, pension funds, and insurance companies, to assess their demand for the shares being offered.
What is an early price discovery session?
During the early price discovery session, the issuing company and its underwriters engage in the process of gauging the demand for the shares by holding meetings with institutional investors, such as mutual funds, pension funds, and insurance companies. These investors are typically the ones who are willing to purchase the largest number of shares in the IPO.
The issuing company and its underwriters will typically set a preliminary price range for the shares and then ask institutional investors for their indications of interest (IOIs) at different prices within that range. This is done to get a sense of the demand for the shares at different price points. For example, suppose an institutional investor expresses interest in purchasing many shares at a lower price. In that case, this may indicate that the final price for the shares should be lower than initially anticipated.
How does the early price discovery session work?
During the early price discovery session, the issuing company and its underwriters hold meetings with institutional investors to gauge their interest in the shares. They set a preliminary price range and ask these investors for their indications of interest (IOIs) at different prices within that range. The issuing company and its underwriters use the IOIs received to adjust the price range to determine the final price of the shares. The supply and demand dynamics and the overall market conditions determine the final price.
Why is the early price discovery session important?
The early price discovery session is an important part of the IPO process because
- It helps the issuing company and its underwriters to gauge the demand for the shares and determine the final price of the shares.
- This process also helps ensure that the shares are priced at a fair level to both the issuing company and the investors.
It is worth noting that the early price discovery session is usually done before the actual IPO. The issuing company and its underwriters will use the information gathered during this session to set the final price of the shares, which will be included in the prospectus and announced to the public on the day of the IPO.
Conclusion
The early price discovery session is a process used in IPOs to determine the price of shares.
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