An IPO issue has a price range within which an investor can place his/her bid. IPOs issues generally have something called as price band and cut-off price, both of which are unique.
The cut-off price is the price that is decided by the book-running lead managers of the IPO in consultation with the company. In a book-building issue, the cut-off price is the price that is anywhere between the price band and the price above the floor price.
Importance of cut-off price
As per the SEBI regulations, only retail investors and investors under the employee reservation category are allowed to bid at the cut-off price in an IPO. QIBs and NIIs are not entitled to bid at the cut-off price. Furthermore, the eligible investors have to opt for the cut-off price at the time of application to ensure allotment of shares based on their demand and whether the IPO is oversubscribed or undersubscribed.
