invest met

7/29/2019 Invest Met

1/18

MEANING OF NEW ISSUE MARKET

It refers to the set-up which helps theindustry to raise the funds by issuing

different types of securities. These securities are issued directly to

the investors (both individuals as well asinstitutional) through the mechanismcalled primary market or new issuemarket.

The securities take birth in this market.


2/18

Primary and secondary market

In order to obtain required

financing, new issues of shares,

debentures securities are sold inthe primary market.

Subsequent trading in these

securities occurs in other segmentof the capital market, known as

secondary market


3/18

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 newsecurity 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


4/18

FUNCTIONS OF NEW ISSUE

MARKET

The main function of new issue market is tofacilitate transfer resources from savers to theusers.

It plays an important role in mobilizing the fundsfrom the savers and transferring them to theborrowers.

The main function of new issue market can be

divided into three service functions:1. Origination

2. Underwriting

3. Distribution


5/18

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 studyof the technical, economic and financial viability

to ensure the soundness of the project and

provides advisory services.


6/18

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 guaranteefor the marketability of shares.

Underwriters may be institutional and non-

institutional.


7/18

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.


8/18

METHODS OF FLOATING

NEW ISSUES

The various methods which are used in thefloating of securities in the new issue marketare:

Public issue through prospectus Offer for sale

Private Placement

Right issues Offer through book building process

Public offer through online system


9/18

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 followedby companies to raise capital through issue of the

securities.


10/18

Offer of sale

It consists in outright sale of securities throughthe intermediary of issue houses or sharebrokers.

It consists of two stages: the first stage is a

direct sale by the issuing company to the issuehouse and brokers at an agreed price.

In the second stage, the intermediaries resellthe above securities to the ultimate investors.

The issue houses purchase the securities at anegotiated price and resell at a higher price.The difference in the purchase and sale price iscalled turn or spread.


11/18

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.


12/18

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 existingholding, 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.


13/18

Book-Building/Price Band

It is a process used for marketing a public offerof equity shares of a company.

Book building is a process wherein the issue

price of a security is determined by the demandand supply forces in the capital market

The Price at which securities will be allotted isnot known in advance to the investor. Only an

indicative price range is known. (Also calledprice band and it should not be more than 20%of the floor price).


14/18

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 theprovisions contained in Chapter 11A of SEBI(

Disclosure and Investor Protection) Guidelines,

2000.


15/18

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, quasigovernmental and other financial

institutions/corporations, municipalities etc.


16/18

Objectives of listing

Providing liquidity to securities;

Mobilize savings for economic development;

Protect interest of investors by ensuring fulldisclosures.

The exchange has a separate Listing Dept. togrant approval for listing of securities ofcompanies in accordance with the various

provisions of the concerned laws, guidelinesissued by SEBI and rules, bye-laws andregulation of the exchange.


17/18

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 marketwhereas 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.


18/18

invest met

Documents