IPO Cut-Off Price: What It Means and How It Works

The IPO cut-off price is generally the final issue price determined within the announced price band through the applicable book-building process. Investors may see a cut-off option while applying for certain IPOs, depending on the investor category and applicable rules.

What Is an IPO Price Band?

Before understanding the cut-off price, it is useful to understand the IPO price band. A book-built IPO may specify a lower and upper price limit within which bids can generally be submitted.

What Does Cut-Off Price Mean?

Selecting the cut-off option generally means that the investor agrees to apply at the final price determined through the applicable issue process, subject to the rules and conditions for that investor category.

The final price is not necessarily known at the time the application is submitted.

Why Do Investors Choose the Cut-Off Option?

Some eligible investors may choose the cut-off option instead of selecting a specific price within the announced price band.

This can allow the application to remain linked to the final price determined for the issue, subject to applicable rules and successful completion of the application process.

Simple Illustration

This is only a simplified example. Actual application, bidding, payment and allotment procedures can vary.

Who Can Apply at the Cut-Off Price?

Eligibility to use the cut-off option may depend on the investor category and applicable rules for the specific IPO.

Investors should not assume that every category of applicant can use the cut-off option. The official offer documents and application platform should provide the relevant details.

Cut-Off Price and Allotment

Selecting the cut-off option does not guarantee allotment.

IPO allotment depends on factors such as the applicable allotment process, valid applications, available shares and subscription levels within the relevant category.

Cut-Off Price and Listing Price Are Different

The final IPO issue price and the stock's market price after listing are different concepts.

Even if shares are allotted at the final issue price, the market price after listing can move above or below that price depending on market conditions and investor demand.

Important Things to Check Before Applying

• The official IPO price band.
• The minimum lot size and application amount.
• Your investor category and eligibility.
• The availability of the cut-off option.
• Payment or fund-blocking requirements.
• The company's business and financial information.
• Risk factors mentioned in the official documents.

Common Misunderstandings

• Selecting cut-off does not guarantee IPO allotment.
• The cut-off price does not guarantee a listing gain.
• The cut-off option may not be available to every investor category.
• The final issue price may differ from the lower end of the price band.
• IPO applications should not be based only on expected listing gains.

Key Takeaways

• The cut-off price generally refers to the final issue price determined within the applicable price band.
• Eligible investors may be able to select a cut-off option when applying.
• The final price may not be known when the application is submitted.
• Selecting cut-off does not guarantee allotment.
• The IPO issue price and market listing price are different.
• Always review the official offer documents and applicable terms before applying.