NEW ISSUES MARKET

• The Primary Market is a New Issue Market;

• it solely deals with the Issues Of New
Securities.
• A Place where Trading Of Securities is done
for the First Time.
• The Main Objective is Capital Formation for
government, institutions, companies, etc. also
known as Initial Public Offer (IPO).
 NEW ISSUES 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.

 Capital Market
• is a market for medium and long-term financial
securities and instruments.
• It is a market where financial securities like
bonds, stocks and so on are bought and sold.
• Both individuals and institutions are
participants in the Capital Markets. ...
• Capital Market puts surplus funds to
productive use.
• It has two segments New Issues Market &
Secondary Market/Stock Exchange.
 NEW ISSUES MARKET

• A new issue is a stock or bond that is being

sold to investors for the first time. ...

• The market that deals with these new issues

is called the new issue market, as opposed to
the secondary market that deals with existing
shares and bonds.
DEVELOPMENTS OF CAPITAL MARKET
• Growth in Financial Intermediation: ...
• Growth in Underwriting of Securities: ...
• Growth in Response to the Offer of Public
Issues of Shares and Bonds: ...
• Growth of Merchant Banking: ...
• Growth of Credit Rating Agencies: ...
• Growth of Mutual Funds: ...
• Stock Exchange Regulation Act: ...
• Liberalisation Measures:
The Main Function of the New Issue Market

• The main function of the New Issue

Market, i.e. channelising of investible
funds,
• can be divided, from the operational stand-
point, into a triple-service function:
• (a) Origination
• (b) Underwriting
• (c) Distribution
 (a) Origination :
• Origination refers to the work of investigation
and analysis and processing of new proposals.
This in turn may be:

• (i) A preliminary investigation undertaken by the

sponsors (specialised agencies) of the issue.
This involves a/careful study of the technical,
economic, financial and/legal aspects of the
issuing companies to ensure that/it warrants
the backing of the issue house.
 (a) Origination :
• (ii) Services of an advisory nature which go to improve the
quality of capital issues.
These services include/advice on such aspects of capital issues
as: determination of the class of security to be/issued and price of
the issue in terms of market conditions; the timing and magnitude
of issues; method of flotation; and technique of selling and so on.

• The importance of the specialised services provided by the New

Issue Market organisation in this respect can hardly be over-
emphasized. On the thoroughness of investigation and
soundness of judgement of the sponsoring institution depends,
to a large extent, the allocative efficiency of the market. The
origination, however, thoroughly done, will not by itself
guarantee success of an issue. A second specialised service i.e.
“Underwriting” is often required.
 (b) Underwriting:
• The idea of underwriting originated on account of
uncertainties prevailing in the capital market as a
result of which the success of the issue becomes
unpredictable.
• If the issue remains undersubscribed, the directors
cannot proceed to allot the shares, and have to
return money to the applicants if the subscription is
below a minimum amount fixed under the
Companies Act. Consequently, the issue and hence
the project will fail.
• Underwriting entails an agreement whereby a
person/organisation agrees to take a specified
number of shares or debentures or a specified
 (b) Underwriting:
• If the issue is fully subscribed by the public,
there is no liability attaching to the
underwriters; else they have to come forth to
meet the shortfall to the extent of the under-
subscription.
• The underwriters in India may broadly be
classified into the following two types:
• (i) Institutional Underwriters;
• (ii) Non-Institutional Underwriting.
 (b) Underwriting:

• Institutional Underwriting in our country has been development oriented. It

stands as a major support to those projects which often fail to catch the eye
of investing public. These projects rank high from the points of view of
national importance e.g. steel, fertilizer, and generally receive higher priority
by such underwriters.
• Thus institutional underwriting may be broadly recognised, in the context of
development credit, as playing a decisive role in directing the economic
resources of the country towards desired activities.
• This does not mean that they are barred entrance in the issue market from
so called glamorous issues to which public can be expected to readily
subscribe. They may be underwriting in such cases, but what is expected of
them is their support to projects in the priority sector.
• One of the principal advantages they offer is that resource-wise they are
undoubted. They are in a position to fulfill their underwriting commitments
even in the worst foreseeable situations.
• The public financial institutions namely IDBI, IFCI, ICICI, LIC and UTI,
underwrite a portion of the issued capital. Usually, the underwriting is done in
addition to granting term finance by way of loans on debentures. These
institutions are usually approached when one or more of the following
situations prevail:
 (c) Distribution :
• The sale of securities to the ultimate investors is
referred to as distribution;

• it is another specialised job, which can be

performed by brokers and dealers in securities
who maintain regular and direct contact with the
ultimate investors.

• The ability of the New Issue Market to cope with

the growing requirements of the expanding
corporate sector would depend on this triple-
service function.
 METHODS OF FLOATING
NEW ISSUES
• 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.
 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.
 Right Issue
• 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.
 Preferential Issue

• An issue of equity by a listed company to

selected investors at a price which may or
may not be related to the prevailing market
price is referred to as preferential
allotment in the Indian capital market.
• In India preferential allotment is given
mainly to promoters or friendly investors to
ward off the threat of takeover
E-IPO

• The companies are now allowed to issue

capital to the public through the
on_x0002_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
 Green Shoe Option
• It denotes ‘an option of allocating shares
in excess of the shares included in the public
issue’.
• SEBI guidelines allow the issuing company to
accept over subscriptions, subject to a ceiling,
say 15% of the offer made to public.
• It is extensively used in international IPOs to
stabilized the post-listing price of new issued
shares.
 Pricing of Issues

• The companies eligible to make public

issue
• can freely price their equity shares or any
security convertible at a later date into
equity shares as per SEBI guidelines
2000.
• The issuer can fix-up issue price in
consultation of with merchant banker,
subject to giving disclosures of the
parameters which have considered while
deciding the issue price
 Fixed Price Process
• The price which has been fixed by the
company for its securities before issue is
brought to the market.
• The price at which the securities are
offered/allotted is known in advance to the
investor.
• Demand for the securities offered is known
only after the closure of the issue.
• Payment is made at the time of subscription
whereas refund is given after allotment
 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).
 Lock-in Period

• Lock-in indicates the freeze on transfer of

shares. SEBI (Disclosure and Investor
Protection) Guidelines, 2000 have
stipulated lock-in requirements as to
specified percentage of shares subscribed
by promoters with a view to avoid
unscrupulous floating of securities and to
ensure the promoters involved in the issue
continue have controlling a interest in the
company, which can be subjected to legal
compliances.
 Offer Documents
• An offer document means ‘prospectus’ in
case of public issue or an offer for sale
and ‘letter of offer’ in case of right issue,
which is required to be filed with the
Registrar of Companies (ROC) and Stock
Exchanges.
• An offer document covers all the relevant
information to help an investor in making
wise investment decisions.
 Kinds of Offer Documents

• 1. Draft Prospectus
• 2. Draft Letter of Offer
• 3. Prospectus
• 4. Abridged Prospectus
• 5. Shelf Prospectus
• 6. Information Memorandum
• 7. Red-Herring Prospectus
 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, byelaws and
regulation of the exchange.
 Nes Issues Market
• Deals with new securities.
• No tangible form nor any administrative
organisational set up.
• Provides the issuing co. with funds.
Secondary Market
• Ready market for trading old securities.
• Have physical setup and are located in
particular geographical areas.
• Provides liquidity to the co. as well as to the

• The cos. which make new issue apply for listing of
shares on a recognized stock exchange.
• The new issues first placed in the NIM can be
disposed off subsequently in the stock exchange.
• Both the markets are susceptible to the changes in
the macro-environment conditions.
• NIM and stock market are economically an integral
part of industrial securities market.