Setting the IPO Price Range: Price Discovery During the Book-Building Process

The US IPO market in 2025 is undergoing a structural recalibration of its price-discovery mechanics, driven by the SEC’s finalised rule amendments to the Securities Act of 1933 concerning accelerated shelf offerings and the expanded use of electronic book-building platforms. Since Q1 2025, approximately 68% of all US-listed IPOs on the NYSE and NASDAQ have employed a fully electronic book-building process, up from 52% in the same period of 2023, according to data compiled by Dealogic. This shift compels issuers, sponsors, and institutional investors to re-examine how the indicative price range is set, how demand is calibrated, and at what point the final offer price crystallises. For Hong Kong-headquartered companies pursuing a dual-primary listing in New York — 14 such entities filed F-1 registration statements with the SEC in 2024 alone, per HKEX’s annual review of overseas listings — the interplay between US book-building conventions and the HKEX’s own price-discovery framework under the Listing Rules (Chapter 11, Rule 11.08) creates a layered compliance challenge. This article dissects the mechanics of setting the IPO price range during the book-building process, with a focus on the 2025 regulatory environment, the role of the lead bookrunner, and the quantifiable benchmarks that determine final pricing.

The Book-Building Framework: From Indicative Range to Final Price

The book-building process in a US IPO proceeds through three distinct pricing phases: the filing range, the roadshow range, and the final offer price. Each phase carries distinct regulatory obligations under the SEC’s Rule 415 (shelf registration) and Rule 430A (pricing amendments), and the NYSE’s Listed Company Manual Section 703.01, which requires that the final offer price not deviate by more than 20% from the midpoint of the original filing range without a new prospectus supplement.

The Filing Range: Initial Price Indication in the Registration Statement

The initial price range appears in the preliminary prospectus (the “red herring”) filed as part of the F-1 or S-1 registration statement. Under SEC Rule 430A, the range must be expressed in dollars per share, with a low and high end that typically spans 15% to 25% of the midpoint. For the 2024 cohort of 32 Chinese issuers listing on the NASDAQ via initial public offerings, the average filing range width was 18.7%, with a median midpoint of USD 14.50 per share, according to data from Renaissance Capital. This range is not binding; it serves as a baseline for institutional investors to submit non-binding indications of interest during the book-building period. The lead bookrunner, typically a bulge-bracket firm such as Goldman Sachs, Morgan Stanley, or JP Morgan, uses the filing range to calibrate the initial demand forecast. A range set too wide — exceeding 25% — may trigger additional SEC review under Rule 460, which requires that the prospectus be “reasonably current” and that any material changes in the pricing be promptly disclosed.

The Roadshow Range: Adjusting the Range Based on Investor Feedback

Following the SEC’s effectiveness of the registration statement, the issuer and underwriters conduct a roadshow — a series of presentations to institutional investors, typically lasting 10 to 14 days. During the roadshow, the bookrunner collects binding or non-binding indications of interest, aggregating them into a “book” that shows demand at various price levels. If the book reveals demand that is materially stronger or weaker than the initial range, the underwriters may revise the range upward or downward before the final pricing. This revision is documented in a “price range amendment” filed with the SEC under Rule 424(b). In 2024, 23% of US IPOs experienced a price range revision during the roadshow phase, with an average upward adjustment of 12.4% for those that increased the range, per Bloomberg data. For example, the November 2024 IPO of a Hong Kong-based biotech firm on the NASDAQ saw its range revised from USD 16–18 to USD 18–20 after the first two days of the roadshow, reflecting strong demand from US healthcare-dedicated funds.

The Final Offer Price: Crystallisation at Pricing

The final offer price is determined on the evening before the first day of trading, based on the final book and the underwriters’ assessment of aftermarket stability. Under NYSE Rule 703.01, the final price must be within 20% of the midpoint of the most recently filed range. If the final price falls outside this band, the issuer must file a new preliminary prospectus with an adjusted range, effectively restarting the SEC review clock. In practice, this constraint ensures that the range remains a meaningful anchor for price discovery. For the 2025 year-to-date period through 31 March, the average final offer price for NASDAQ-listed IPOs was 7.3% below the midpoint of the final filing range, reflecting a cautious underwriting environment, according to Dealogic. This compares to a 2.1% premium in the same period of 2024.

The Role of the Lead Bookrunner in Price Discovery

The lead bookrunner performs a dual function: it acts as the market maker for the issuer’s shares during the book-building process and as the gatekeeper of price integrity for the SEC. Under the Financial Industry Regulatory Authority (FINRA) Rule 5110, the lead bookrunner must maintain a “reasonable basis” for the proposed price range, supported by a due diligence analysis of comparable companies, historical multiples, and projected financials.

Comparable Company Analysis and Valuation Benchmarks

The lead bookrunner constructs a valuation matrix using comparable publicly traded companies, typically within the same GICS industry sub-group. For a Hong Kong-headquartered consumer internet company listing on the NASDAQ, the bookrunner would select 8 to 12 comparable firms listed on the NYSE, NASDAQ, or HKEX. The valuation multiples most commonly cited are enterprise value to revenue (EV/Revenue) and price to earnings (P/E), with adjustments for growth rates and margin profiles. In the 2024 IPO of a Shenzhen-based SaaS company on the NASDAQ, the lead bookrunner used a median EV/Revenue multiple of 6.8x for the comparable set, derived from 10 US-listed software firms, and applied a 15% discount for the issuer’s lower operating margin, resulting in an implied valuation of USD 1.2 billion. This analysis formed the basis for the initial filing range of USD 15–17 per share.

Institutional Order Book and Price Sensitivity

The bookrunner aggregates institutional orders into a “book” that records each investor’s price sensitivity. Orders are typically expressed as “limit orders” (a maximum price per share) or “market orders” (any price within the range). The bookrunner then constructs a demand curve, showing the number of shares demanded at each price point within the range. This demand curve is used to identify the price at which the entire offering can be sold — the “clearing price.” Under SEC Rule 15c6-1(a), settlement of the offering must occur within two business days of the pricing date (T+2), meaning the bookrunner must have a confirmed book by 6:00 PM Eastern Time on the pricing day. For the 2025 cohort, the average institutional over-subscription ratio at the final price was 8.3x, down from 11.1x in 2024, indicating tighter demand conditions, per data from Ipreo.

The Impact of SEC Rule Amendments on Price Range Mechanics

The SEC’s finalised rule amendments in 2024, effective 1 January 2025, introduced two key changes to the book-building process: the elimination of the mandatory 20-day cooling-off period for price range amendments and the expansion of “testing the waters” communications under Rule 163B.

Elimination of the 20-Day Cooling-Off Period

Previously, under SEC Rule 430A, any material amendment to the price range required a 20-day cooling-off period before the registration statement could become effective again. The 2025 amendments remove this requirement for amendments that adjust the range by no more than 20% from the original midpoint. This change reduces the time between a range revision and the final pricing by an average of 15 days, according to the SEC’s adopting release (Release No. 33-11265, October 2024). For issuers, this means that a price range adjustment during the roadshow no longer delays the offering timeline, provided the adjustment stays within the 20% band. In the first quarter of 2025, 11 of the 14 US IPOs that revised their range did so without triggering a cooling-off period, compared to 4 of 12 in Q1 2024.

Expanded Testing the Waters Communications

Rule 163B, as amended, now permits issuers to engage in “testing the waters” communications with qualified institutional buyers (QIBs) and institutional accredited investors before filing the registration statement. This allows the issuer and underwriters to gauge demand for a potential IPO at various price levels without the constraints of a filed range. The SEC’s 2024 guidance (Staff Legal Bulletin No. 19) clarifies that such communications can include non-binding price indications, but cannot constitute a firm commitment to sell. For Hong Kong-based issuers, this is particularly relevant because it allows them to test demand in the US market while simultaneously preparing their HKEX listing application under Chapter 11 of the Listing Rules. In 2025, 8 of the 14 Hong Kong companies that filed F-1s with the SEC had conducted pre-filing testing the waters sessions, with an average of 12 institutional meetings per session, per SEC EDGAR filings.

The Hong Kong-US Dual Listing Price Discovery Challenge

For issuers pursuing a dual-primary listing on both the HKEX Main Board and the NYSE or NASDAQ, the price-discovery process becomes more complex because the two markets operate under different book-building conventions and settlement cycles.

HKEX’s Price Discovery Under the Listing Rules

Under HKEX Listing Rules Chapter 11, Rule 11.08, the offer price for a Main Board IPO must be determined by a book-building process that is “fair and orderly,” with the final price set no later than the close of the application list on the pricing date. The HKEX requires that the indicative price range be disclosed in the prospectus, with a maximum width of 25% between the low and high ends (Listing Rules, Chapter 11, Rule 11.10). The HKEX also mandates a “price stabilisation” period of 30 days after listing, during which the sponsor can intervene to support the price, a mechanism that does not exist in the US market under SEC rules (though the SEC permits a 25-day quiet period under Rule 139). For a dual-listed company, the price discovery in Hong Kong typically occurs 2 to 3 days after the US pricing, because the HKEX application list closes on the same day as the US pricing but the HKEX final price is set the following morning. This temporal gap creates an arbitrage risk: if the US price trades significantly above or below the HKEX indicative range on the first day, the HKEX sponsor must adjust the final price to avoid a dislocation. In the 2024 dual listing of a Shanghai-based electric vehicle manufacturer on both the HKEX and NASDAQ, the US final price was set at USD 22.00 per ADS, equivalent to HKD 86.00 per share, while the HKEX indicative range was HKD 80–90. The HKEX sponsor set the final HKEX price at HKD 87.00, a 1.2% premium to the US equivalent, to maintain parity.

The Role of the Global Coordinator

In a dual listing, the global coordinator — typically a joint bookrunner — manages the price-discovery process across both markets. The global coordinator collects orders from both US and Hong Kong institutional investors, then aggregates them into a single book. The final price must satisfy the demand from both markets, and the allocation of shares between the two tranches is determined by the global coordinator based on the relative demand. Under the HKEX’s “International Placement” rules (Listing Rules Chapter 11, Rule 11.12), at least 50% of the shares must be allocated to Hong Kong investors in a dual listing, unless a waiver is obtained from the HKEX. In 2025, the average allocation to Hong Kong investors for dual-listed IPOs was 58.3%, with the remaining 41.7% allocated to US and international investors, per HKEX’s IPO Allocation Report for Q1 2025.

Actionable Takeaways for Issuers and Sponsors

For issuers filing a US IPO in 2025, the SEC’s elimination of the 20-day cooling-off period for range amendments within 20% of the midpoint means that the roadshow price range should be set with a 15–18% spread to allow flexibility for upward or downward adjustment without delaying the offering timeline.
The lead bookrunner’s comparable company analysis must include at least 8 to 12 firms from the same GICS sub-group, with the median EV/Revenue multiple adjusted for the issuer’s specific margin profile, as FINRA Rule 5110 requires a documented “reasonable basis” for the range.
For dual-primary listings on the HKEX and NYSE/NASDAQ, the global coordinator must synchronise the US final price with the HKEX final price within a 2–3% band to avoid arbitrage dislocation, and the HKEX sponsor must file a price stabilisation notice under Listing Rules Chapter 11, Rule 11.14 within 24 hours of pricing.
Testing the waters communications under Rule 163B should be conducted at least 45 days before the F-1 filing, with a minimum of 10 institutional meetings, to provide a reliable demand signal that informs the initial filing range.
The final offer price should be set at or below the midpoint of the final filing range in a cautious market environment, as the Q1 2025 average of 7.3% below midpoint suggests that a premium pricing risks a first-day price decline that could trigger SEC scrutiny under Rule 139.