Primary Market
What the domain tests
This domain covers how new securities reach investors: public offers, book building, prospectus disclosure, allotment and listing. Questions often test the sequence of events and the difference between raising capital and trading it afterwards.
Core rules
- A public offer requires SECP approval and a prospectus containing material information about the issuer, risk factors, use of proceeds and financials.
- Book building sets a floor price, collects bids from institutional and other eligible investors, and determines a strike/cut-off price at which demand covers the offer. Bidders above the strike normally receive full allocation; bidders at the strike are scaled back pro-rata.
- Underwriters commit to subscribe for unsubscribed shares, reducing issuance risk.
- After allotment, the securities are credited in CDC and listed on PSX, moving future trading into the secondary market. Rights issues offer new shares to existing holders, usually pro-rata to their holding.
Worked example
An issuer offers 20 million shares with a floor price of Rs 50. Bids are: 12 million at Rs 55, 10 million at Rs 52, and 5 million at Rs 50. Demand at or above Rs 52 is 22 million, which covers the 20 million offer, so the strike price is Rs 52. The Rs 55 bidders receive their 12 million in full. The remaining 8 million is allocated pro-rata to the Rs 52 bidders, who bid 10 million, so each receives 80% of the amount bid. The Rs 50 bids are unsuccessful.
Traps
Confusing book building with secondary trading; assuming every bidder pays their own bid price; ignoring pro-rata scaling at the strike; forgetting that SECP approval and listing are separate steps from allotment.