Allotment scenarios in IPO.

Allotment scenarios in IPO. 

In an IPO (Initial Public Offering), companies can choose different methods for allotting shares to applicants. The two most common methods are:

1.      Pro Rata Basis Allotment:

·         In this method, shares are allocated proportionately based on the number of shares applied for. If the demand exceeds the number of shares available, the allotment is made on a pro rata basis. For example, if an applicant applies for a certain number of shares and there are more applicants than available shares, each applicant may receive a fraction of the shares they applied for.

·         This method is often used in cases where there is high demand for the IPO and can help ensure a fair distribution of shares among applicants.

2.      First Come, First Serve (FCFS) Allocation:

·         In this method, shares are allocated based on the order in which applications are received. The first applicants to submit their applications are allotted shares until the available shares are exhausted.

·         This method is generally used in situations where the IPO is expected to be oversubscribed, and it can lead to quick allocations but may not be as fair as pro rata, especially for larger applicants.

Final Decision:-

Ultimately, the method of allotment is decided by the company and its lead managers and is mentioned in the IPO prospectus. Some companies may also adopt a hybrid approach, combining both methods to balance demand and ensure fair distribution.