The document discusses the new issue market, also known as the primary market, where new securities are first sold. It describes how the primary market raises funds for companies and projects. The key functions of the new issue market include origination, underwriting, and distribution of new securities. Various methods for floating new issues are also outlined such as public issues, offers for sale, private placements, and right issues.
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The document discusses the new issue market, also known as the primary market, where new securities are first sold. It describes how the primary market raises funds for companies and projects. The key functions of the new issue market include origination, underwriting, and distribution of new securities. Various methods for floating new issues are also outlined such as public issues, offers for sale, private placements, and right issues.
The document discusses the new issue market, also known as the primary market, where new securities are first sold. It describes how the primary market raises funds for companies and projects. The key functions of the new issue market include origination, underwriting, and distribution of new securities. Various methods for floating new issues are also outlined such as public issues, offers for sale, private placements, and right issues.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online from Scribd
The document discusses the new issue market, also known as the primary market, where new securities are first sold. It describes how the primary market raises funds for companies and projects. The key functions of the new issue market include origination, underwriting, and distribution of new securities. Various methods for floating new issues are also outlined such as public issues, offers for sale, private placements, and right issues.
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PRESENTATION
ON
NEW ISSUE MARKET INTRODUCTION: • The financial market is classified into 2 groups- 1-Primary market 2-Secondary market • The primary market deals in the new financial claims or new securities and therefore they are also known as the NEW ISSUE MARKET. • Secondary market deals in the old securities, i.e., those which has been already issued in the primary market, ex- Stock exchange. MEANING OF NEW ISSUE MARKET:
• The part of the capital market dealing with new securities is known as Primary Market. It is also known as New Issue Market. • Both private and or public sector organizations can get funds by selling new shares or bonds. • Usually, small or medium scale companies enter into the market of new securities in order to widen the scope of their business. • The selling process of new securities to investors is called underwriting. The security dealers earn a commission that is added in the cost of the securities. • A lot of formalities are required to be fulfilled before a security can be sold.
• “The market in which new, as opposed to existing, securities are
sold. Investors who purchase shares in a new security issue are purchasing them in the primary market.” 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:
• 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. 2.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 non-institutional.
3.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. Features Of Primary Market are:- 1. 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).
2. In a primary issue, the securities are issued by the
company directly to investors.
3. The company receives the money and issue new security
certificates to the investors. 4. 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 public’. METHODS OF FLOATING NEW ISSUES The various methods which are used in the floating of securities in the new issue market are: • Public issues • Offer for sale • Placement • 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 • 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. Participants In The Securities Market
• Regulators: 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.
• Stock Exchanges: A stock exchange is an institution
where securities that have already been issued are bought and sold. Presently there are 23 stock exchanges in India, the most important ones being BSE and NSE. • Registrars: Also known as a transfer agent, a registrar is employed by a company or a mutual fund to handle all investor-related services.
• Underwriters: 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. • Brokers: Brokers are registered members of the stock exchanges though whom investors transact. • Foreign Institutional Investors: Institutional investors from abroad who are registered with SEBI to operate in the Indian Capital market are called foreign institutional investors (FIIs). • Merchant Bankers: Firms that specialize in managing the issue of securities are called merchant bankers. They have to be registered with SEBI.
• Primary Dealers: Appointed by the RBI, primary
dealers serve as underwriters in the primary market and as market makers in the secondary market for governmental securities. • Credit Rating Agencies: 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).
