MEANING OF NEW ISSUE MARKET

It refers to the set-up which helps the industry to raise the funds by issuing different types of securities. These securities are issued directly to the investors (both individuals as well as institutional) through the mechanism called primary market or new issue market. The securities take birth in this market.

Primary and secondary market

In order to obtain required financing, new issues of shares, debentures securities are sold in the primary market. Subsequent trading in these securities occurs in other segment of the capital market, known as secondary market

Features of primary markets

Market for new long term equity capital. Securities are issued by the company directly to investors The company receives the money and issues 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. The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions

FUNCTIONS OF NEW ISSUE MARKET

The main function of new issue market is to facilitate transfer resources from savers to the users. It plays an important role in mobilizing the funds from the savers and transferring them to the borrowers. The main function of new issue market can be divided into three service functions: 1. Origination 2. Underwriting 3. Distribution

Origination
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.

Underwriting
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. Underwriters may be institutional and noninstitutional.

Distribution
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.

METHODS OF FLOATING NEW ISSUES

The various methods which are used in the floating of securities in the new issue market are: Public issue through prospectus Offer for sale Private Placement Right issues Offer through book building process Public offer through online system

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
It consists in outright sale of securities through the intermediary of issue houses or share brokers. 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. 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
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. 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 Issue. This mode of raising capital is the best suited when the dilution of controlling interest is not intended.

Book-Building/Price Band
It is a process used for marketing a public offer of equity shares of a company. Book building is a process wherein the issue price of a security is determined by the demand and supply forces in the capital market The Price at which securities will be allotted is not known in advance to the investor. Only an indicative price range is known. (Also called price band and it should not be more than 20% of the floor price).

E-IPO
The companies are now allowed to issue capital to the public through the on-line system of the stock exchanges. For making such on-line issues, the companies should comply with the provisions contained in Chapter 11A of SEBI( Disclosure and Investor Protection) Guidelines, 2000.

Listing of Securities
Listing means admission of the securities to dealings on a recognized stock exchange. The securities may be of any public limited company, central or state government, quasi governmental and other financial institutions/corporations, municipalities etc.

Objectives of listing
Providing liquidity to securities; Mobilize savings for economic development; Protect interest of investors by ensuring full disclosures. The exchange has a separate Listing Dept. to grant approval for listing of securities of companies in accordance with the various provisions of the concerned laws, guidelines issued by SEBI and rules, bye-laws and regulation of the exchange.

Difference between money market and capital market

Difference and demarcation between money market and capital market is made on the basis of maturity period of instruments and claims. short-term instruments maturing within a period of one year are traded in money market whereas the capital market deals with longer maturity financial assets and claims. In capital market, the financial instruments being dealt with are shares (equity as well as preference),debentures (a large variety), public sector bonds and units of mutual funds. On the other hand, money market has different financial instruments such as treasury bills, commercial papers, call money, certificate of deposits, etc.