154528911-New-Issue-Market.ppt presentation

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1. New Issue MarketNew Issue Market

2. Chapter ObjectivesChapter Objectives

To understand the concept and functions of To understand the concept and functions of
new issue marketnew issue market

To explain the process of floating the sharesTo explain the process of floating the shares

To know measures taken to protect the To know measures taken to protect the
interests of the investorinterests of the investor

To learn the emerging trends in the primary To learn the emerging trends in the primary
marketmarket

3. Concept of New Issue MarketConcept of New Issue Market

It is a market in which the new securities or stocks It is a market in which the new securities or stocks
are issued.are issued.

It is also known as It is also known as primary marketprimary market..

The securities may be issued by a new or an existing The securities may be issued by a new or an existing
company.company.

It is used by the companies to acquire capital for the It is used by the companies to acquire capital for the
purpose of setting up a new company for expanding purpose of setting up a new company for expanding
an existing company.an existing company.

Investment bankers and brokers act as intermediaries Investment bankers and brokers act as intermediaries
for selling the stocks to the public. for selling the stocks to the public.

4. Functions of Functions of
New Issue MarketNew Issue Market
The three main functions of new issue market are:The three main functions of new issue market are:

Origination:Origination: Deals with the origin of newDeals with the origin of new
securities to be traded in the market.securities to be traded in the market.

Underwriting:Underwriting:Removes the element ofRemoves the element of
uncertainty in the subscription ofuncertainty in the subscription of
shares. shares.

Distribution:Distribution:Facilitates sale of securities to theFacilitates sale of securities to the
investors. investors.

5. Parties Involved inParties Involved in
New Issue MarketNew Issue Market
The various parties involved in the new issue The various parties involved in the new issue
market are as follows:market are as follows:

Managers to the issue:Managers to the issue: Lead managers are Lead managers are
appointed for managing the entire process of appointed for managing the entire process of
issuing securities. issuing securities.

RegistrarsRegistrars: They deal with the allocation of shares : They deal with the allocation of shares
to the applicants. to the applicants.

UnderwritersUnderwriters: They give an assurance to the : They give an assurance to the
company that they will buy the securities in case company that they will buy the securities in case
the investors don’t buy them.the investors don’t buy them.

6. Parties Involved in Parties Involved in
New Issue Market (Contd.)New Issue Market (Contd.)

BankersBankers: Selected banks are assigned with the : Selected banks are assigned with the
responsibility of collecting the application money responsibility of collecting the application money
of the public issue.of the public issue.

Advertising agentsAdvertising agents: They promote the public : They promote the public
issue. issue.

Financial institutionsFinancial institutions: They are responsible for : They are responsible for
underwriting the securities and providing financial underwriting the securities and providing financial
assistance to the companies.assistance to the companies.

7. Placement of the IssuePlacement of the Issue

It refers to the ways used by the issuer to issue It refers to the ways used by the issuer to issue
or float the shares.or float the shares.

The following are the ways through which the The following are the ways through which the
shares can be floated:shares can be floated:

ProspectusProspectus

Bought out dealsBought out deals

Private placementPrivate placement

Rights issueRights issue

Book buildingBook building

8. ProspectusProspectus

It gives details regarding the company and It gives details regarding the company and
issue.issue.

It specifies the terms and conditions on which It specifies the terms and conditions on which
the shares and debentures are issued.the shares and debentures are issued.

It helps the investor to assess the risks It helps the investor to assess the risks
involved in the issue.involved in the issue.

9. Bought Out DealsBought Out Deals
It is a method in which the shares are offered to It is a method in which the shares are offered to
the investment banker who sells it to the public the investment banker who sells it to the public
at a later date.at a later date.
Advantages:Advantages:

The funds can be realised by the promoters The funds can be realised by the promoters
without any delay.without any delay.

The cost of raising the funds is reduced.The cost of raising the funds is reduced.

It helps those entrepreneurs to raise funds who It helps those entrepreneurs to raise funds who
are not familiar with the share market. are not familiar with the share market.

10. Private PlacementPrivate Placement

In this method, a company privately sells or places its shares In this method, a company privately sells or places its shares
before a selected group of investors such as corporate bodies, before a selected group of investors such as corporate bodies,
financial institutions and high networth individuals.financial institutions and high networth individuals.

This group of investors sells the shares to the public at a later This group of investors sells the shares to the public at a later
date and at a suitable price.date and at a suitable price.

This method is usually used both by the public and private This method is usually used both by the public and private
limited companies.limited companies.

Equity shares, preference shares, debentures, bonds, etc. are Equity shares, preference shares, debentures, bonds, etc. are
sold through private placement.sold through private placement.

Some of the advantages of private placement are as follows:Some of the advantages of private placement are as follows:
 Time effectiveTime effective  Cost effective Cost effective  Access effective Access effective

11. Rights IssueRights Issue

When a public company already listed in the When a public company already listed in the
exchange issues new shares to the existing exchange issues new shares to the existing
shareholders in order to raise capital, it is shareholders in order to raise capital, it is
called called rights issue.rights issue.

The shareholders have the right to accept or The shareholders have the right to accept or
renounce the offer in favour of any person.renounce the offer in favour of any person.

12. Book BuildingBook Building

It is a technique used for marketing the public It is a technique used for marketing the public
offer of equity shares of a company.offer of equity shares of a company.

The likely demand for shares can be estimated The likely demand for shares can be estimated
more realistically under book building.more realistically under book building.

Decision is taken by the company on the Decision is taken by the company on the
amount of funds to be raised.amount of funds to be raised.

The merchant banker files a draft prospectus, The merchant banker files a draft prospectus,
excepting issue price, with the Securities and excepting issue price, with the Securities and
Exchange Board of India (SEBI).Exchange Board of India (SEBI).

13. Pricing of New SharesPricing of New Shares

It is a process of fixing the prices of shares.It is a process of fixing the prices of shares.

The offer prices are fixed by the issuers and The offer prices are fixed by the issuers and
the merchant bankers.the merchant bankers.

Pricing of shares must be done according to Pricing of shares must be done according to
the guidelines issued by SEBI.the guidelines issued by SEBI.

Shares can be priced in two ways:Shares can be priced in two ways:
At premiumAt premium  At par value At par value

14. Allotment of SharesAllotment of Shares

It means distributing the shares of the It means distributing the shares of the
company to the investors.company to the investors.

A company before allotting shares must first A company before allotting shares must first
invite the applications from the investors.invite the applications from the investors.

The allotment of shares is carried out on the The allotment of shares is carried out on the
basis of the SEBI guidelines.basis of the SEBI guidelines.

15. Investors Protection in Investors Protection in
New Issue MarketNew Issue Market

The investors must be protected in order to The investors must be protected in order to
ensure smooth functioning of the new issue ensure smooth functioning of the new issue
market.market.

The following steps should be taken to protect The following steps should be taken to protect
the interest of the investors:the interest of the investors:
1.1.Project appraisalProject appraisal: The technical and economic : The technical and economic
feasibility of the project is evaluated so as to determine feasibility of the project is evaluated so as to determine
whether or not the project should be financed.whether or not the project should be financed.
2.2.UnderwritingUnderwriting: The reputed institutions underwrite the : The reputed institutions underwrite the
issue. issue.

16. Investors Protection inInvestors Protection in
New Issue Market (Contd.)New Issue Market (Contd.)
3.3.Disclosures in the prospectusDisclosures in the prospectus: All the data and information : All the data and information
contained in the prospectus is evaluated.contained in the prospectus is evaluated.
4.4.Clearance by the stock exchangeClearance by the stock exchange: After the evaluation of : After the evaluation of
the prospectus it is cleared by the stock exchange.the prospectus it is cleared by the stock exchange.
5.5.Signing by board of directorsSigning by board of directors: The Board of Directors of : The Board of Directors of
the company sign the prospectus and it is made available to the company sign the prospectus and it is made available to
the investors for inspection.the investors for inspection.
6.6.SEBI’s roleSEBI’s role: SEBI scrutinizes the offer documents carefully. : SEBI scrutinizes the offer documents carefully.
Any type of misleading information is deleted by the SEBI. Any type of misleading information is deleted by the SEBI.
7.7.Redressal of investors grievancesRedressal of investors grievances: The grievances and : The grievances and
complaints of the investors are addressed by the Registrar of complaints of the investors are addressed by the Registrar of
Companies.Companies.

17. Recent Trends in Recent Trends in
New Issue MarketNew Issue Market
The following are the recent trends of the new The following are the recent trends of the new
issue market:issue market:

Aggressive pricingAggressive pricing

Poor liquidityPoor liquidity

Low returnsLow returns

Low volumeLow volume

Economic slow downEconomic slow down

18. Chapter SummaryChapter Summary
By now, you should have:By now, you should have:

Understood the concept of new issue marketUnderstood the concept of new issue market

Understood the process of floating the sharesUnderstood the process of floating the shares

Knowledge of the measures taken to protect Knowledge of the measures taken to protect
the interest of the investorsthe interest of the investors

Learnt about the emerging trends in the Learnt about the emerging trends in the
primary marketprimary market