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
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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
Case 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.
Case 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.
Let’s understand case 2 with an example:
Assume that there are 5 lakh shares offered to the investors and the minimum lot size is 50. Then the maximum number of investors who will get at least one lot is = 5 lakh/50 = 10,000
Thus, 10,000 investors will be allotted at least one lot.
For the allotment procedure for case 2, there are two types:
1. Small oversubscription
The minimum lot will be distributed amongst all applicants and the remaining shares will be assigned proportionally to the investors who have bid for more than one lot.
2. Large oversubscription
In the case where there is such an oversubscription that even one lot cannot be allotted to every applicant, then allotment takes places via lucky draw. This lottery draw will be computerised without any partiality. Thus, during large oversubscription, some names are not drawn in the lottery system, and shares are not assigned to many applicants.
Reason for No Allotment of Shares
There are two reasons if no shares were allotted to you, which are:
1. You bid for the IPO was termed invalid due to incorrect Demat account number, incorrect PAN number, or multiple applications submitted for the IPO
2. Your name wasn’t picked out in the lucky draw in the case of large oversubscription
You can now purchase shares via an IPO and know why you didn’t get any lots allotted if your application is not accepted. Be updated about upcoming IPOs so you get a chance to enter your bid.
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