New issue

market

Meaning of Security Market

Securities marketisacomponentofthe
widerfinancialmarketwheresecuritiescanbe
boughtandsoldbetweensubjectsoftheeconomy,
onthebasisofdemandandsupply.
Securitiesmarketsincludeequitymarkets,bond
marketsandderivativesmarketswhereprices
canbedeterminedandparticipantsboth
professionalandnonprofessionalscanmeet.

 Securities markets can be split into two levels.

Primary markets, where new securities are
issued and secondary markets where existing
securitiescanbeboughtandsold.
Secondary markets can further be split
intoorganized
exchanges,
suchstock
exchangesandover-the-counterwhere
individualpartiescometogetherandbuyorsell
securitiesdirectly.

PRIMARY MARKET/NEW
ISSUE MARKET
Primarymarketisthepartofcapitalmarketwhereissue
ofnewsecuritiestakesplace.
Theissuermaybeanewcompanyormaybean
existingcompany.
Theissuesmaybeofnewtypesorthesecuritiesused
inthepast.
Inshortwecansaythatprimarymarketrepresentthe
newissuemarketwherenewsecurities,bonds,shares
thathavebeenneverpreviouslyissuedareoffered.
Boththenew&existingco.canraisecapitalinnew
issuemarket.

Features

Concerntolongtermcapital.
Knownasprimarymarket.
Securitiesissuedirectlytoinvestors.
Securitiescertificatesissuedirectlyto
investors.
Capitalformationineconomy.

Functions

Origination
Itdealswiththeoriginofthenewissue.
Theproposalisanalyzedintermsof:
Thenatureofthesecurity,
Thesizeoftheissue,
Timingoftheissue
Methodoftheissue.

Itreferstotheworkofinvestigation,analysis,
andprocessingofnewprojectproposal.
Thereforeoriginationistheoriginofnewissues.

Underwriting
Itisanagreementbetweentheunderwriterand
theissuerwherebytheunderwriterpromisesto
subscribe to a specified no.of securitiesin the
eventofpublicnotsubscribingtoit.
Underwritingcontractmakestheshare
predictableandremovestheelementofthe
uncertaintyinthesubscription

Distribution
Distributionisthesaleofsecuritiestothe
ultimateinvestors.
Itreferstothesaleofsecuritiestothe
investors.
Thisiscarriedoutwiththehelpofthelead
managersandbrokerstotheissue.

Parties involved in the new

issue
Managers to the issue
Theyareappointedbytheissuingcompanytomanagethe
publicissue
Duties

DraftingProspectus
Preparingthebudgetrelatedtoissues.
Suggestingtheappropriatetimingsofthepublicissues.
Assistinginthemarketingofpublicissues.
AdvisingthecompanyintheappointmentoftheRegistrarofthe
issue,underwriter,brokers,bankerstotheissue,advertising
agents,etc.
Directingthevariousagenciesinvolvedinthepublicissues.

Registrar to the issue

Registrarsaretheimportantcategoryof
intermediarieswhoundertakeallactivities
connectedwithNewIssueManagement.
Duties
Theyreceivetheshareapplicationfrom
variouscollectioncenters.
Theyrecommendthebasisofallotmentin
consultationwiththeregionalstock
exchanges.
Theyarrangeforthedispatchingofshares

Underwriters
Underwritingisacontractbymeansofwhichapersongives
anassurancetotheissuertotheeffectthattheformerwould
subscribetothesecuritiesofferedintheeventofnon
subscriptionbythepersontowhomtheyareoffered.The
personwhoassuresiscalledanunderwriter
Duties
TheyStandasbackupsupporters.
Theyprovideaninsuranceagainstthepossibilityofinadequate
subscription.
TheyeithermaybeBanksorFIsormaybebrokersand
approvedinvestmentcompanies.
Theychargeacommissionforunderwritingfromtheissuing
company.

Bankers to the issue

They are responsible for collecting the
application money along with the along with
theapplicationform.Thebankertotheissue
generally charges commission besides the
brokerage,ifany.
Asspecifiedbythecentralgovernmentthere
are numbers of collections Centre and the
bankertotheissueshouldhavebranchesin
theinthesecollectioncenters.

Advertising agents
Advertising plays a key role in promoting
public issues. This agency is given the
responsibility to the issue on the suitable
media
.
These
Media
Includes
Newspaper/magazines/hoardings/press
releases . The Financial institutions -
FinancialInstitutionsgenerallyunderwritethe
issueandlendtermloanstothecompanies.
Hence they normally go through the draft
prospectus, study the proposed programme
forpublicissueandapprovethem.

Financialinstitutions
Financialinstitutionsgenerallyunderwrite
theissueandlendtermloanstothecompanies.
Hence,normallytheygothroughthedraft
ofprospectus,studytheproposedprogrammefor
publicissueandapprovethem.
IDBI,IFCI&ICICI,LIC,GICandUTIarethe
someofthefinancialinstitutionsthatunderwrite
andgivefinancialassistance.

Government and statutory

agencies

SEBI
Registrarofcompanies
RBI
Stockexchage
Industriallicensingauthorities
Pollutioncontrolauthorities.

Placement of issue

Offerthroughprospectus
Boughtoutdeals(Offerforsale)
PrivatePlacement
RightsIssue
Bookbuilding

Offer through Prospectus

Prospectusisadocumentgivesdetails
regardingthecompanyandinvitesoffers
forsubscriptionor
purchaseofanysharesordebenturesfro
mthepublic.

Offer for sale

In bought out deal, an existing company off-loads a
part of the promoters capital to a wholesaler instead
of making a public issue.
The sponsors hold on to these shares for a period
and at an appropriate date they offer the same to the
public.
The hold on period may be as low as 70 days or
more than a year.

Private Placement
In this method the issue is placed with a small
number of financial institutions, corporate bodies
and high net worth individuals.
The special feature of the private placement is
that there is no need for underwriting
arrangements since the placement itself amounts to
underwriting.
Through private placement equity shares,
preference shares, cumulative convertible preference
shares, debentures and bonds are sold.

Rights issue
Ifapubliccompanywantstoincreaseits
subscribedcapitalbyallotmentoffurther
sharesaftertwoyearsfromthedateofits formation
or one year from the date of its first
allotment,whicheverisearlier,shouldoffer share at
first to the existing shareholders in proportion to the
shares held by them at the time of offer.
Shares of this type is called as rights shares

Book Building
Book building is a mechanism through
which the initial public offerings (IPOs)
takes place in the U.S.
Similar methods are used in the
primary market for the issue ofGDRs.

Pricing of new issues

Pricing of the public issue has to e carried out

according to the guidelines issued by SEBI.
The companies are permitted to price their
issues at par or at premium