Economy, Business And Markets

Enhancing Transparency in Equity Market Via Book Building

Enhancing Transparency in Equity Market Via Book BuildingEnhancing Transparency in Equity Market Via Book Building

Following the announcement of new instruments debuting at the equity market, the Securities and Exchange Organization is slated to offer the upcoming Initial Public Offerings through the process of book-building, aimed at improving the stock market’s transparency.

Up until now, the IPOs were conducted through the auction mechanism, wherein the shares were offered at fixed prices set by the company. This, however, was sometimes associated with insider trading, creating serious issues in the process of going public.

In book-building – currently the most commonly used approach all over the world – the IPO issuing price is not pre-determined and is discovered only after the closing of bidding period. Moreover, investors do not have access to the listed companies’ information, reducing the risk of the companies misleading the investors.

Many companies are currently lining up to enter Iran’s equity market, but their requests have been put on hold by SEO officials due to lack of liquidity and unstable economic conditions in the country. However, a transparent price discovery mechanism could help diminish the underlying risks of stock market free fall.

The Financial Tribune interviewed CEO of Aspian Investment advisory company, Stefan R. Kille, and asked him about the book-building and the essential measures to be taken before and after the process.

According to Kille, the book-building process includes appointing the underwriter, promoting the IPO, determining the final offering price and eventually selling the shares on the stock market.

Picking a suitable time for going public and selecting the right underwriters are keys to having a successful offering, said Kille. “The underwriters must be chosen at least a few months before the IPO date. They are responsible to investigate and verify the information about the company and its business to ensure that accurate information is given to the investors,” he added.

While there are many advantages to a company going public, companies must also keep in mind that an IPO is associated with many new challenges, said Kille. “Once a company goes public, it will be more visible to the outsiders. This requires the company to improve its investor services and to keep its share price stable in the secondary market in order to maintain the company’s reputation,” he noted.

To conclude, book-building is considered more transparent and market determined than the fixed price IPOs. That is why it is the most popular method among the companies all over the world for issuing their IPOs to the primary market.