FUNCTIONS OF NEW ISSUE

MARKET

MEANING
y The financial market is classified into 2
groups-
1-Primary market
2-Secondary market
y The primary market deals in the new

financial claims
or new securities and therefore they are also
known as
the NEW ISSUE MARKET.
y Secondary market deals in the old

securities, i.e., those

which has been already issued in the primary
market,
ex- Stock exchange.

Difference between
New Issue Market & Stock
Exchange
yThe distinction between new issue market
and stock
exchange can be made on 3 grounds.
y They are -
1-Functional difference
2-Organisational difference
3-Nature of contribution to
Industrial finance.
15-4

Functions of New Issue

Market
1. Organisation 2. Underwriting
3.Distribution

Organisation
15-5

Organisation refers to the work of investigation,

analysis and processing of new project proposals.
There are two aspects involved in this:
1.
A carefully study of technical, economic and financial
viability to
ensure soundness of the project.
2.
Advisory services: they are:
a) Type of issues
b) Magnitude of issue
c) Pricing of an issue
d) Time of f loating an issue
e) Methods of issue
f ) Technique of selling the securities

Underwriting
y Underwriting is an agreement where the
underwriter
promises to subscribe to a no. of shares or
debentures or
a specified amount of stock in the event of public not
subscribing to the issues.
y Methods of underwriting

i) Standing behind the issue

ii) Outright purchase
iii) Consortium method.

Advantages of
Underwriting
15-8

•Relieved from the risk of finding

buyers
•Company is assured of Getting
minimum
 subscription
•Provide expert advise
•Public confidence on issue enhances.
Underwriters in India
15-9

1. Institutional underwriters: LIC,

GIC, UTI,
IDBI, ICICI, commercial banks etc.
2. Non Institutional underwriters:
Brokers.

Distribution
15-10

•Distribution is the function of sale f

securities to ultimate investors. This
service is maintained by brokers and
agents who maintain regular and direct
contact with the untimate investors.

Methods of floating new

issues
y The various methods, which are used in the
f loating of
securities in the issue market are :
a) Public issues b) Offer for sale c) Placement
d) Rights issues.

INSTRUMENTSOF ISSUE
1)Secured premium notes with detachable
warrants
(SPN)
2)Equity shares with detachable warrants
3)Preference shares with warrants.
4)Nonconvertible debentures with detachable equity
5)Fully Convertible Cumulative Preference shares.
6)Zero interest Fully Convertible Debentures(FCDs)
7)FCDs with interest
8)Zero int. Partly Convertible Debentures (PCDs) with
Detachable and SEPARATELY TRADABLE
WARRANTS.
9)Zero Interest Bonds
10)Deep Discount Bonds
11)Option Bonds
12)Bonds with Warrants.

What is Warrant?
A Warrant allows the holder to buy a number of
equity
share at a pre-specified price in future.
The Pherwani Study Group has
recommended
the following new instruments
1. Participating Preference Shares
2. Participating Debenture
3. Covertible Debenture with option
4. Convertible Debentures Redeemable
at
Premium
5. Debt for Equity Swap

PLAYERS INTHE ISSUE MARKET

1) MERCHANT BANKERS
2. Registrars: undertake all activities
connected with
new issue management – Pre-allotment work,
allotment work, post allotment work

3)COLLECTING AND CO-ORDINATING

BANKERS
4)UNDERWRITERS AND BROKERS
5)PRINTERS, ADVERTISING AGENCIES AND
MAILING AGENCIES.