Difference Between Floor Price And Cut Off Price In Ofs

For retail investors however there is a unique option of bidding at cut off price.

Difference between floor price and cut off price in ofs.

254 per share in the pfc ofs. With ofs there is a â œfloor priceâ. A price floor can lead to inefficient allocation of sales among sellers and selling high quality goods at a high price when a lower quality item at a lower price would do. Bidding at floor price and above ensures that the bids will be considered.

This issue price is called cut off price. But sometimes things go overboard. Under ipos fpos there is a price band in which the investors need to bid for the shares or simply give their consent to buy the shares at the â œcut offâ price. Sbi decided to issue it s shares 250 and investor doesn t have option for bid and ready to pay whatever the price decided by the company i e 250 is called as cut off price.

In june 2013 the ofs was offered at a steep discount of 72 per cent thanks to low free float shares and hence low volumes and premium valuations on lack of efficient price discovery mechanism. In an ofs floor price is a base price or the minimum price at which the sale of shares would take place. There is no upper price limit at which the retail bidders would get a confirmed allotment and there is no method by which they could guesstimate it. As the name suggests it is the minimum price at which you can bid for the shares under ofs.

This is decided by the issuer and lm after considering the book and investors appetite for the stock. But here in an ofs there is only one price which gets disclosed by the promoters or the selling shareholders and that is the floor price i e. In today s pfc ofs the government will fix the cut off price for the retail investors only after the ofs gets over and in case of huge oversubscription the price. Another unintended consequence of a price floor comes into play in professions that are regulated and require licensing such as electricians.

The discounted price is one of the key reasons to buy shares during an offer for sale and not from the secondary market. You can read the ofs prospectus for details of discount in specific ofs. The floor price is generally set at a discount to the prevailing price. In this case company will decide the price of the share and investor buy the share at whatever the price decided by the company is called as cut off price.

Or any price above the floor price.