Should you bid at Floor Price or Cut off price in an Offer for Sale (OFS)? - Indian IPO Blog

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Saturday, December 10, 2016

Should you bid at Floor Price or Cut off price in an Offer for Sale (OFS)?

An Offer for Sale (OFS) is the sale of securities by an already listed company. The offer is valid generally for a day or two and is normally to comply with the minimum public shareholding requirement. 

Difference between Floor Price and Cut off price
In an OFS, floor price is a base price or the minimum price at which the sale of shares would take place. For retail investors, however, there is a unique option of bidding at"Cut off" price. 

Bidding at Floor price and above ensures that the bids will be considered. Allocation in such cases shall be subject to final price discovery. Bidding at "cut-off" ensures that the retail investor will get allotment where the allotted quantity will depend upon the demand at various price points.

Whether to bid at Floor price or Cut off price?
As mentioned above, Floor price is the minimum price at which the bids may be placed. In an Offer for Sale (OFS), the final price is determined basis the demand and supply and price bids received during the offer

Thus, when you bid at Floor price, you are essentially offering to buy shares only if the price which is determined is fixed (i.e. Floor price), On the other hand, when you bid at Cut-off price, you are essentially expressing the offer to buy shares at whatever price is determined through the mechanism

Hence, Bidding at "cut-off" ensures that the retail investor will get allotment where the allotted quantity will depend upon the demand at various price points

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