How NEPSE Share Auctions Work: Cut-Off Price, Bidding and Allotment
Updated · 6 min read
Promoter shares and unclaimed rights are sold by sealed-bid auction, not on the floor. How bidding works, how the cut-off price is set, and when the auction is a trap.
An auction is how shares that cannot move through the normal order book change hands. You do not place a TMS order; you submit a bid, the bids are opened together, and a single cut-off price decides who gets shares. That difference explains almost every surprise retail bidders run into.
What actually gets auctioned
- Unclaimed rights. When a rights issue closes with shares unsubscribed, the company auctions the leftover to the public. This is the auction most retail investors can join.
- Promoter shares. Promoters cannot sell into the secondary market, so their holdings are sold by auction. Some of these are restricted to promoter-eligible buyers, and bank or insurance stakes above a threshold need regulator approval; the notice states who may bid.
- Institutional disposals. Bodies such as CIT periodically auction blocks they hold. These are large and often clear well above the market price.
How the bid works
Auctions are sealed-bid. You state a price and a quantity, and you commit the full money up front — a good-for-payment cheque or bank voucher for the whole bid value, plus your BOID confirmation, PAN and identity documents, submitted through the issue manager or the appointed broker before the deadline. Some issues now accept applications online; the auction notice is the only authority on the channel and the document list for that particular auction.
The floor price is set by the notice — commonly the last traded price, a recent average, or par value for certain promoter issues. A bid below the floor is rejected outright.
Where the cut-off price comes from
On the opening date every bid is ranked highest price first, and shares are handed down that list until the offered quantity runs out. The price of the last bid that still received shares is the cut-off price. Everyone at or above the cut-off is allotted; everyone below gets a full refund, usually within a few days of allotment.
Two consequences follow, and both catch people out:
- You pay your own bid price, not the cut-off, in most Nepali auctions. Bidding far above the market to guarantee allotment means you actually pay that price.
- Bidding one paisa below the cut-off gets you nothing. Your money sits blocked until the refund, and the market may have moved in the meantime.
Is an auction a cheap entry?
Sometimes. Where an auction is under-noticed, the cut-off can land below the market price and bidders book an immediate paper gain. But three things work against that assumption. Popular auctions attract tens of thousands of bids and clear above market. The shares arrive in your demat weeks after the money leaves, so you carry price risk with no ability to sell. And the auction itself is public information — a large upcoming auction often depresses the scrip in the days before, which is exactly when bidders are picking a price.
A workable rule: decide the price you would pay for the scrip in the open market today, bid at or slightly below it, and accept losing the auction. Check the scrip's recent range on its company page and see who has been accumulating it on the floorsheet before deciding.
After allotment
Allotted shares are credited to the demat account tied to the BOID on your application — another reason a second, forgotten demat account causes problems. Once listed, they trade like any other ordinary share, and your weighted average cost should be updated with the bid price you actually paid, not the cut-off you read in the news.
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