How Are IPO Shares Allotted?
Initial Public Offering or IPO is a process in which a privately held organisation makes the shares of the firm available to the general public for purchase. This application is made available in assigned banks and online for applicants to bid. If you have ever applied for the shares of an IPO, you must have observed that many a time no shares were allotted to you. At the same time, maybe your friend was allotted some shares in the same IPO application. So, why does this really happen and how do IPO shares get assigned to applicants? Let’s understand the allotment process of an Initial Public Offering in detail and look at the reasons for zero allotments.
Procedure for Allotment of Shares in IPO
After an organisation launches an IPO to the general public, all bids for the shares are registered online. Then through an online process, all invalid bids that were incorrectly submitted are eliminated from the total number of bids. With this, you now have the final number of successful bids for the said IPO.
There are two cases amongst which the situation of a company may fall in, that are:
1. The total number of successful bids is less than or equal to the number of shares offered by the firm
2. The total number of successful bids is more than the number of shares offered by the firm
1: Total number of bids is less than or equal to the number of shares offered
If the total number of bids made by the applicants is less than or equal to the number of shares being offered, then complete allotment of stocks will take place. Thus, every applicant who has applied will be assigned shares.
2: Total number of bids is more than the number of shares offered
If the total number of bids made by the applicants is more than the number of shares being offered, then the allotment process of shares requires more planning. SEBI or Securities and Exchange Board of India mandates that at least one lot should be allotted to every individual who has applied.