Stock Market Operations - New Issue Market

The primary market, often referred to as the "new issue market," is where companies issue new securities to the public for the first time. In the case of equity, this process is known as an Initial Public Offering (IPO), while for debt instruments, it involves issuing bonds or debentures.

1. NEW ISSUE MARKET STOCK MARKET OPERATIONS UNIT I By Dr.M.Devaki Assistant Professor

2. MEANING New Issue Market – Primary Market Issue new securities to the public for the first time. Equity – Initial Public Offering (IPO) Debt instruments – Issuing bonds or debentures. All financial institutions which contribute, underwrite and directly subscribe to the securities are part of new issue market. There are various intermediaries like registrars, custodians and merchant bankers that are involved in this activity of issuing new securities.

3. FUNCTIONS OF NEW ISSUE MARKET Market where firms go to the public for the first time through initial public offering (IPO).   Market where firms which are already trading raise additional capital through seasoned equity offering (SEO).

4. ORIGINATION The work of investigation, analysis and processing of new project proposals. This function is done by merchant bankers who may be commercial banks, all India financial institutions or private firms. THE FUNCTION OF ORIGINATION IS DONE BY : 1.        MERCHANT BANKERS 2.       COMMERICAL BANKS 3.       ALL INDIA FINANCIAL INSTITUTES UNDERWRITING It is an agreement between the underwriter and the issuer where by the underwriter promises to subscribe to a specific number of securities in the event of public not subscribing to it. METHODS OF UNDERWRITING Underwriters In India Classified Two Categories : 1. Institutional Underwriters: LIC,UTI,IDBI,ICICI, Commercial Banks 2. Non Institutional Underwriters : Brokers

5. DISTRIBUTION It is the function of sale of securities to ultimate investors. This service is performed by brokers and agents who maintain a regular and direct contact with the ultimate investors. It invites the public at large to buy a new issue and provides detailed information on the company, issue and involved underwriters.

6. METHODS OF FLOATING NEW ISSUE The various methods which are used in the flotation of securities in the new issue market are : 1. Public issues 2. Offer for sale 3. Placement 4. Rights issues

7. Public Issues Under this method, this issuing company directly offers to the general public/ institutions a fixed number of shares at a stated price through a document called prospectus. The prospectus must state the following: Name of the company Address of the registered office Existing and proposed activities Location of the industry Names of Directors Minimum subscription Names of brokers/ underwriters/ bankers/ managers and registrars to the issue.

8. Offer for Sale This method of offer of sale consists in outright sale of securities through the intermediary of Issue Houses or share-brokers. In other words, the shares are not offered to the public directly. This method 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.

9. Placement Under this method, the issue houses or brokers buy the securities outright with the intention of placing them with their clients afterwards. Here the brokers act as almost wholesalers selling them in retail to the public. The brokers would make profit in the process of reselling to the public. The issue houses or brokers maintain their own list of clients and through customer contact sell the securities. There is no need for a formal prospectus as well as underwriting agreement.

10. Rights Issue It is a method of raising funds in the market by an existing company. A right means an option to buy certain securities at a certain privileged price within a certain specified period. Shares, so offered to the existing shareholders are called rights shares. Section 81 of the Companies Act deals with rights issue. The cost of issue is minimum. There is no underwriting, brokerage, advertising and printing of prospectus expenses. It prevents the directors from issuing new shares in their own name or to their relatives at a lower price and get controlling right.

11. PLAYERS IN THE PRIMARY MARKET Merchant Bankers Registrars to the issue Underwriters and Brokers Collecting and Co- ordinating Bankers

12. ROLE OF SEBI RELATING TO NEW ISSUE MARKET PROTECTION

13. Protecting the interest of investors To ensure Development activities in Stock Exchange Regulate the business of stock exchange and activities of stock exchange To Regulate Insider Trading Process of Issuance Of Securities