How it works
Ahead of listing, a company goes through a review by its lead underwriting securities firm and an examination by the stock exchange, after which an "offer price" is set at which investors can acquire shares. Individual investors participate through their securities firm in a bookbuilding (demand survey) process and, if selected through a lottery or similar allocation, obtain the opportunity to purchase shares.
What to keep in mind
The price at which a stock first trades on the exchange after listing is called the "first trading price," and the gap between it and the offer price often attracts attention. However, share prices tend to be more volatile immediately after a listing, so the offer price and first trading price alone cannot be used to forecast the stock's subsequent performance.