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Proceedings of International Conference on Educational Discoveries and Humanities
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placement and is announced in the issue prospectus. The main advantage of fixed
price proposals is the low cost and relative ease of implementation of the proposal.
Investors know in advance the true price they pay if they acquire a share of the stock.
However, it is not possible to determine for sure whether this will be a fair price,
which creates a major disadvantage of fixed-price proposals.
When using the book-building method, investment banks set a price range that
reflects the market value of the offer from the point of view of the underwriters.
As a rule, the process of building a book of applications lasts about two weeks and
takes place in parallel with the roadshow. In the course of book-building, investors,
based on the price range, leave orders of two types: in the number of securities or
monetary terms; and also indicate the price level at which they are ready to buy
securities. Book-runners, in turn, accumulate demand for the issuer's shares from
investors and analyze the composition of the order book.
In some cases, during book-building, book-runners narrow down the price range to
provide investors with a clearer target. Also, the price range can be changed if there
is low demand or an insufficient number of applications. However, in each case,
decisions to change the range are made by the book-runners in conjunction with the
issuer.
At the end of the book-building process, investment banks make a recommendation
regarding the placement price, taking into account the interests of investors and the
issuer.
To support the dynamics of quotations after the placement of a company, the
international practice uses a stabilization mechanism - an over-allotment option
(greenshoe) built into the structure of the transaction. This option allows
underwriters to buy and resell additional shares. The syndicate can buy additional
shares (usually up to 15% of the offering) at the IPO price up to 30 days after the
stock starts trading. Additional allocated shares are borrowed by the syndicate from
the issuer or its shareholder. Greenshoe shares can be sourced from both primary
and secondary shares.
This option is a call option received by the book-runners from the company. In the
event that the share price rises after the IPO, then the buyback of shares from the
market is not carried out, and the book-runners execute the greenshoe. In the
opposite case, when there is a negative trend in the shares, the book-runner buys
shares from the market at the IPO price or lower during the entire period of
stabilization.
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