Book building is a technique used to place securities on the market. It is the process that involves collection of information about investors’ intentions as to the volumes they are willing to have and the prices they are willing to offer for a security. The bank marketing an offering gathers this information about investors’ intentions as to required quantities and corresponding offer prices. Book building is a method of pre-market price discovery for initial public offerings (IPOs) and secondary offerings.

The main types of book building are initial public offerings (IPOs), accelerated book building and reverse book building:

• Initial public offerings (new issues): a process by which a company’s security is offered for sale to investors for the first time. A private (privately held) company intending to g public can raise capital by issuing securities to the public through the primary market. In an initial public offering (IPO), it is the company’s shares, not the shareholders’ shares, which are sold to investors, and the sale proceeds go to the company to finance its future growth. When a company plans to go public, it first has to select one or more investment banks as underwriter or co-underwriters for the offering.
• Accelerated book building: a book building that completes in a very short period of time (e.g., a few hours). Accelerated book building are used to sell a large block of securities or to raise capital in very short periods of time. The underwriting investment bank has to build the order book, set the final price, and allocate the securities within short periods, such as 48 hours or less. The process does not require any roadshows.
• Reverse book building: a book building that is used by an issuer to buy back shares from existing shareholders in the market. The underwriter solicits bids (reverse offers) from these shareholders and uses the order book to reach at a final offering price for the shares.