Unit study guide · NISM Series II-A
Processes related to Public Offering of Shares
10 questions in this unit
What this unit covers
- What is a central purpose of a prospectus in a public offer of shares?
- Which detail may be incomplete in a red herring prospectus before a book-built offer is priced?
- What is the defining price feature of a fixed-price share issue?
- An eligible investor bids at cut-off in a book-built offer. The issue price is finalised within the price band. What price has the investor agreed to accept?
- An underwriter covers 1,00,000 shares and valid public subscriptions cover 72,000. Assuming it bears the whole shortfall, what must it subscribe?
- What is the broad purpose of a green shoe option associated with a public offer?
- An investor bids ₹96 per share in a book-built issue. The final issue price is ₹99. With no applicable concession, is this bid price sufficient?
- When several RTAs handle one issue, what should the issuer agreement clearly specify for each RTA?
- For 1,000 shares, bids are 400 at ₹100, 400 at ₹98 and 500 at ₹96. What is the highest price attracting demand for at least 1,000 shares?
- An issue of 10 lakh shares receives 7 lakh valid subscriptions. Two underwriters share the whole shortfall 60:40, with no adjustments. What is the first underwriter’s liability?
Key ideas
From the practice bank · 1
What is a central purpose of a prospectus in a public offer of shares?
A prospectus discloses information about the issuer, offer and risks to help investors evaluate the offer. Remember: Read offer disclosures to understand the issue rather than treating them as a return promise.
Hint Consider how an investor learns about the issuer, offer terms and risks. Common mistake: Assuming publication of a prospectus certifies investment quality.
II-A-081From the practice bank · 2
Which detail may be incomplete in a red herring prospectus before a book-built offer is priced?
The final offer price may be incomplete in a red herring prospectus because price discovery has not yet been completed. Remember: A red herring prospectus precedes final pricing but still contains important disclosures.
Hint The final outcome of price discovery is not known at the beginning of book building. Common mistake: Assuming a red herring prospectus contains no useful issuer information.
II-A-082From the practice bank · 3
What is the defining price feature of a fixed-price share issue?
A fixed-price issue states the offer price before investors subscribe rather than discovering the final price through book building. Remember: Fixed price describes how the issue price is set, not whether a premium exists.
Hint Distinguish a pre-stated subscription price from a price discovered through bids. Common mistake: Assuming a fixed-price issue must be issued at face value.
II-A-083From the practice bank · 4
An eligible investor bids at cut-off in a book-built offer. The issue price is finalised within the price band. What price has the investor agreed to accept?
The investor agrees to the final discovered issue price within the applicable offer terms by placing an eligible cut-off bid. Remember: A cut-off bid accepts the discovered offer price rather than naming a specific bid price.
Hint A cut-off bid leaves the offer’s final price discovery to the process. Common mistake: Treating cut-off as a request for the lowest possible price.
II-A-084From the practice bank · 5
An underwriter covers 1,00,000 shares and valid public subscriptions cover 72,000. Assuming it bears the whole shortfall, what must it subscribe?
The underwriter must subscribe for 28,000 shares under the stated agreement. Shortfall = 1,00,000 − 72,000 = 28,000 shares. Remember: Underwriting liability depends on the agreement and the uncovered subscription.
Hint Calculate the uncovered part of the quantity underwritten. Common mistake: Treating the entire issue size as the final underwriting subscription.
II-A-085From the practice bank · 6
What is the broad purpose of a green shoe option associated with a public offer?
A green shoe option supports price stabilisation after listing through the permitted over-allotment and stabilisation arrangement. Remember: Price stabilisation is a regulated mechanism, not a guaranteed market floor.
Hint Think about the management of price pressure around listing, not a promised return. Common mistake: Assuming a green shoe option eliminates post-listing price risk.
II-A-086From the practice bank · 7
An investor bids ₹96 per share in a book-built issue. The final issue price is ₹99. With no applicable concession, is this bid price sufficient?
No, the ₹96 bid price is insufficient because it is below the ₹99 issue price and no relevant concession applies. Remember: A specified-price bid must satisfy the final price requirement to remain eligible for allotment.
Hint Compare the investor’s maximum stated price with the final offer price. Common mistake: Confusing acceptance into the bid book with eligibility at the final price.
II-A-087From the practice bank · 8
When several RTAs handle one issue, what should the issuer agreement clearly specify for each RTA?
The agreement should clearly specify each RTA’s scope and responsibilities so accountability is defined when more than one registrar is engaged. Remember: Define responsibilities explicitly when an issue uses more than one registrar.
Hint Shared work needs clear accountability rather than overlapping assumptions. Common mistake: Assuming another registrar is responsible for any task not clearly assigned.
II-A-088From the practice bank · 9
For 1,000 shares, bids are 400 at ₹100, 400 at ₹98 and 500 at ₹96. What is the highest price attracting demand for at least 1,000 shares?
The highest qualifying price is ₹96. Demand at ₹100 is 400 shares. At ₹98 it is 400 + 400 = 800. At ₹96 it is 400 + 400 + 500 = 1,300, which covers 1,000 shares. Remember: Price discovery uses cumulative demand at or above a tested price.
Hint At each tested price, include bids willing to pay that price or more. Common mistake: Comparing each bid group alone instead of building cumulative demand.
II-A-089From the practice bank · 10
An issue of 10 lakh shares receives 7 lakh valid subscriptions. Two underwriters share the whole shortfall 60:40, with no adjustments. What is the first underwriter’s liability?
The first underwriter’s liability is 1.8 lakh shares. Shortfall = 10 lakh − 7 lakh = 3 lakh. First underwriter’s share = 3 lakh × 60% = 1.8 lakh shares. Remember: Apply agreed underwriting proportions to the correct uncovered quantity.
Hint Work out the uncovered issue quantity before applying the first underwriter’s share. Common mistake: Allocating the gross issue size instead of the final shortfall.
II-A-090