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MEANING OF NEW ISSUE MARKET

á It refers to the set-up which helps the industry to

raise the funds by issuing different types of
securities.

á These securities are issued directly to the investors

(both individuals as well as institutional) through the
mechanism called primary market or new issue
market.

á The securities take birth in this market.

 FUNCTIONS OF NEW ISSUE MARKET

á The main function of new issue market is to facilitate

transfer resources from savers to the users.

á It plays an important role in mobilizing the funds

from the savers and transferring them to the
borrowers.

á The main function of new issue market can be

divided into three service functions:
 '. ORIGINATION:

á It refers to the work of investigation, analysis and

processing of new project proposals. Origination
starts before an issue is actually floated in the
market. It includes a careful study of the technical,
economic and financial viability to ensure the
soundness of the project and provides advisory
services.
 ß.UNDERWRITING:

á It is an agreement whereby the underwriter

promises to subscribe to a specified number of
shares or debentures in the event of public not
subscribing to the issue. Thus it is a guarantee for the
marketability of shares.

á Underwriters may be institutional and non-institutional.

 ].DISTRIBUTION

á It is the function of sale of securities to

ultimate investors. Brokers and agents who
maintain regular and direct contract with the
ultimate investors, perform this service.
Features Of Primary Market are:-
'. This is the market for new long term capital. The primary
market is the market where the securities are sold for the
first time. Therefore it is also called New Issue Market (NIM).

ß. In a primary issue, the securities are issued by the

company directly to investors.

]. The company receives the money and issue new security

certificates to the investors.
. Primary issues are used by companies for the
purpose of setting up new business or for
expanding or modernizing the existing business.
5. The primary market performs the crucial
function of facilitating capital formation in the
economy.
6. The new issue market does not include certain
other sources of new long term external finance,
such as loans from financial institutions.
Borrowers in the new issue market may be raising
capital for converting private capital into public
capital; this is known as ͚going public͛.
 METHODS OF FLOATING NEW ISSUES
The various methods which are used in the
floating of securities in the new issue market
are:
á Public issues
á Offer for sale
á Placement
á Right issues
 Public issues or Initial public offering
(IPO)
The issuing company directly offers to the
general public/institutions a fixed number of
securities at a stated price or price band
through a document called prospectus. This is
the most common method followed by
companies to raise capital through issue of the
securities.
 Offer of sale
á It consists in outright sale of securities through the
intermediary of issue houses or share brokers.
á It consists of two stages: the first stage is a direct sale by the
issuing company to the issue house and brokers at an agreed
price.
á In the second stage, the intermediaries resell the above
securities to the ultimate investors. The issue houses
purchase the securities at a negotiated price and resell at a
higher price. The difference in the purchase and sale price is
called turn or spread.
 Private placement
á It involves sale of securities to a limited number of
sophisticated investors such as financial institutions,
mutual funds, venture capital funds, banks, and so
on.
á It refers to sale of equity or equity related
instruments of an unlisted company or sale of
debentures of a listed or unlisted company.
 Right Issue
When a listed company proposes to issue securities
to its existing shareholders, whose names appear in
the register of members on record date, in the
proportion to their existing holding, through an offer
document, such issues are called ͚Right Issue͛. This
mode of raising capital is the best suited when the
dilution of controlling interest is not intended.
 Participants In The Securities Market

á Y
 The key agencies that have a significant

regulatory influence , direct or indirect, over the
securities market such as SEBI, RBI, CLB, DEA and
MCA etc.

á ?
 

 A stock exchange is an institution
where securities that have already been issued are
bought and sold. Presently there are ß] stock
exchanges in India, the most important ones being
BSE and NSE.
á Y
 Also known as a transfer agent, a
registrar is employed by a company or a mutual
fund to handle all investor-related services.

á Ô   An underwriter agrees to subscribe

to a given number of shares (or any other security)
in the event the public subscription is inadequate.
The underwriter, in essence, stands guarantee for
public subscription.
á s  Brokers are registered members
of the stock exchanges though whom
investors transact.
á ` 
 
Institutional investors from abroad who are
registered with SEBI to operate in the
Indian Capital market are called foreign
institutional investors (FIIs).
á  
s  Firms that specialize in managing
the issue of securities are called merchant bankers.
They have to be registered with SEBI.

á |   Appointed by the RBI, primary

dealers serve as underwriters in the primary market
and as market makers in the secondary market for
governmental securities.
á ( Y


  A credit rating agency
assigns ratings primarily to debt securities. In
India there are two main credit rating
agencies; Credit Rating Investment Services of
India Limited (CRISIL) and Investment
Information and Credit Rating Agency (ICRA).