Why is there a price band in IPO?

The primary purpose of the price band is to provide buyers with a framework, guiding their bidding decisions. The floor and cap of the band serve as benchmarks, ensuring that bids remain within a predetermined range.

This pricing technique is particularly suited for situations where there is a need for transparency and predictability in the bidding process. It helps to stabilize market expectations and prevents extreme fluctuations in prices.

The price band mechanism is commonly utilized in the context of initial public offerings (IPOs). During an IPO, companies offer shares to the public for the first time, and the price band serves as a guide for investors looking to participate in the offering.

A price band is a pricing strategy employed by sellers to establish a clear range within which buyers can submit their bids. It involves specifying both an upper and a lower limit for the cost.

By setting a price band, the issuing company and its underwriters can manage investor expectations and control the pricing of the shares. This, in turn, helps to ensure a smooth and orderly launch of the IPO.