IPOs on the Tehran Stock Exchange: How Book Building Works

An IPO is one of the most common ways newcomers first step into the Tehran Stock Exchange, and it is also exactly where the most misconceptions are made. In this lesson we open up how an IPO really works, with no promise of returns.

What you will learn in this lesson

• What an IPO actually is and how it differs from buying an ordinary share.
• How the order-registration method, known as book building, works step by step.
• What "price discovery" and the "per-code quota" mean, with a hypothetical worked example.
• Why the behavior of an offering's first sessions is no guarantee for the future.

Definitions

IPO (Initial Public Offering, «عرضهٔ اولیه»): the first time a company's shares are offered to the public on the exchange (بورس) or the over-the-counter market (فرابورس), where anyone with a trading code can place an order. Before the IPO, that company's shares could not be traded in the market.

Trading code («کد بورسی»): the unique identifier of each investor in the capital market. A person holds only one code, and in an IPO the quota is set per code, not per brokerage.

Order-registration / book building («ثبت سفارش»، «بوک‌بیلدینگ»): the method that has been the dominant IPO method on the Tehran exchange in recent years. It uses a pre-announced price band within which buyers register their bid price. Earlier, an auction with a fixed price was more common.

Price band (floor to ceiling): the "offering notice" («اطلاعیهٔ عرضه»), published before offering day, announces a floor price (the base price) and a ceiling price per share. Your order must fall inside this band.

Per-code quota («سهمیهٔ هر کد»): the maximum number of shares a single trading code may bid for in that offering. This figure also appears in the offering notice.

The mechanism: an order-registration IPO, step by step

1. The offering notice is published. A few days before the offering, a notice states the company name and symbol, the offering date, the total number of shares on offer, the price band (floor to ceiling), the per-code quota, and the order-registration time window.
2. Registering an order within the window. On offering day, each investor places one order through their brokerage system: a price inside the band and a volume no larger than the per-code quota. Unlike the old method, the time priority of registration no longer affects allocation; registering earlier does not give you more shares.
3. Price discovery. After the window closes, all orders are collected and, based on the registered prices and volumes, a single "discovered price" is set, the price at which all offered shares are sold. The deal is executed for every winner at that same price.
4. Allocation. If demand at the discovered price exceeds supply, the shares are divided fairly among the qualifying codes, and each code may receive less than its quota ceiling.

A worked example (hypothetical)

Suppose company "A" wants to offer 10 percent of its shares, that is 100 million shares. The offering notice announces a price band of 9,000 to 9,900 rials per share (floor to ceiling) and a per-code quota of at most 500 shares.

Now suppose one million codes take part, and each code bids for the full quota, 500 shares, at the ceiling price. Total demand is then 500 million shares, five times the supply. Because everyone bid at the ceiling, the discovered price settles at 9,900 rials, and since demand exceeds supply, each code receives about 100 shares instead of 500 (100 million divided by one million codes). The example shows that the per-code quota is a ceiling, not a guarantee: the more participants there are, the smaller each person's actual allocation becomes.

In Iran's market

On the Tehran exchange and its OTC market, the common method in recent years is this same order registration (book building), and everything follows the official offering notice. One important local point is how an IPO interacts with the daily "price limit" («دامنهٔ نوسان»): for most symbols, a price can move only a limited percentage up or down each day. So if a share's equilibrium price is above the discovered price of offering day, the market cannot reach it in one session, and historically many IPOs have opened with several days of "buy queues" («صف خرید»). These queues are purely a mechanical result of the price-limit rule and reflect delayed price discovery, not a certain profit. (We explain the price limit and the basics of the trading board in the lesson the Tehran Stock Exchange from scratch.)

Not all offerings are alike: some companies that meet certain conditions are offered through the "opening method" («روش گشایش»), which has no price limit on the first day, so price discovery happens faster. Offering size also varies widely; for instance, the largest IPO in the history of Iran's exchange was underway in July 2026 (Tir 1405), a 5 percent offering of Taban Petrochemical Group, whereas many offerings involve much smaller companies with far lower volume and value.

Common mistakes

• "An IPO means guaranteed profit." No. The good behavior of past offerings is no guarantee for the future; a share's price after the offering can rise or fall, and in downturns buy queues have been shorter, or even turned into sell queues.
• "The sooner I register, the more shares I get." No. In the order-registration method time priority has been removed, and the moment of registration within the window does not change your quota.
• "If I bid a higher price in the band, I get more shares." No. The discovered price is the same for all winners, and the per-code quota ceiling is fixed; bidding higher changes only your chance of being included in the allocation, not the number of shares beyond the quota.
• "An IPO is no different from buying an existing share." It is different. An IPO is a share's first entry into the market with its own special mechanism, whereas afterward the share trades in the secondary market like any other symbol.

Summary

An IPO is a company's first entry into the market, and on the Tehran exchange it is usually done through order registration (book building): a pre-announced price band, orders registered within it, a single discovered price for everyone, and a ceiling quota per code. The per-code quota is not a guarantee but a ceiling, and the first sessions' behavior is more a mechanical reflection of the price limit than a certain profit. Earlier, in the lesson technical analysis in plain language, we saw that analysis tools describe the past, not the future; the same logic holds for the historical behavior of IPOs. To see all the lessons, visit the Sahmino Academy.