Why was the OFS allotment not received even though the request was placed before the cut-off?
The Offer For Sale(OFS) allotment is decided by the exchanges and not the broker. The cut-off price is established based on bids made by the non-retail category, and the allotment price can be higher depending on the demand for the OFS shares.
During the first day of the OFS, bids from the non-retail category (those above ₹2 lakhs or corporate entities) are accepted, and the cut-off price for allocation is determined based on these bids.
Assuming the floor price of an OFS issue is ₹100 and based on the general bids, the cut-off is determined to be ₹110. On Day 2, only retail bids at or above ₹110 are considered. If 1000 shares are reserved for retail allotment and the retail demand is for 1500 shares in the following structure:
Assuming a floor price of ₹100 for an OFS issue, and the cut-off price is established at ₹110 based on general bids, only retail bids of ₹110 or higher are considered on the second day. If 1000 shares are reserved for retail allotment and the retail demand is for 1500 shares, the following allotment scenarios are possible:
- Mr A gets 400 shares at ₹110
- Mr B gets 500 shares at ₹111
- Mr C gets 600 shares at ₹112
Depending on the basis of allotment opted for by the company, the following allotment scenarios are possible:
- Price priority (multiple prices) basis: There are two ways retail investors may be allocated shares under the price-priority method:
- At the cut-off price, irrespective of the investor's bid price, Mr B and Mr C get 600 shares and 400 shares each at ₹110. Mr A gets nothing.
- At the investor's bid price, Mr C gets 600 shares at ₹112. Mr B gets 400 shares at ₹111. Mr A gets nothing.
- Proportionate basis at a single clearing price: Retail investors are allocated shares on a proportionate basis at the cut-off price. Mr C, Mr B and Mr A get shares at Rs. 110 in the ratio of 6:5:4. In other words, Mr C gets 400 shares, Mr B gets 333 shares, and Mr A gets 267 shares at ₹110.
In both allocation methods, bids below the cut-off price are not considered, and the allotment price is reduced by the discount offered to the retail category (if any). More information on allocation methodologies for OFS issues can be found in the BSE circular (PDF).
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