Why was the OFS allotment not received even though the request was placed before the cut-off?

Why was the OFS allotment not received even though the request was placed before the cut-off?

  • On receiving the allotment of the OFS, the funds are debited from the investor’s trading account and the shares are delivered to the investor’s demat account on T +1 day.
  • Offer For Sale (OFS) allotment is decided by the exchanges and not the broker.
  • A cut off price is determined for the 2nd day on the basis of the bids received on the 1st day and this becomes the minimum bid price or cut off price for retail bids.
  • The allotment can be done by two different methods: -
  • Price priority or multiple price basis: - Under Price Priority method, the allotment will be given first to the bidders who are bidding at highest rate and then to the second highest bidder and so on till the shares reserved for retail investors is allotted.
  • Proportionate basis at a single clearing price: - Under proportionate method, total number of shares reserved for retail investors will be proportionately distributed among all the bidders at the cut off price.

FOR EXAMPLE: -

  • Let’s assume the following details for an OFS: -
  • Floor price = ₹ 90
  • Cut-off price is established at = ₹ 100.
  • Total number of shares reserved for retail category = 1000 shares.
  • Details of the bidding from retail investors: 
Mr. X bids for 500 shares at ₹100
Mr. Y bids for600 shares at ₹100
Mr. Z bids for 300 shares at ₹100
Total bidding1400 shares 

  • Any bidding below the cut -off price will not be considered for the allotment.
  • 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:
    1. At the cut-off price, irrespective of the investor's bid price, Mr X and Mr Y get 500 shares and 500 shares each at ₹100. Z gets nothing.
    2. At the investor's bid price, Mr. X gets 500 shares at ₹110. Mr. Y gets 500 shares at ₹105. Mr. Z gets nothing.
  • Proportionate basis at a single clearing price: Retail investors are allocated shares on a proportionate basis at the cut-off price. Mr X ,Y and Z will get shares at Rs. 100 in the ratio of 5:6:3.

Mr. X will get - 1000*5/14 =357

Mr. Y will get - 1000*6/14 =429

Mr. Z will get - 1000*3/14 =214