Financial Services

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Types of issue of securities in Indian capital market

Hasna Askar Reg. No. 330 IV th sem. MBA
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Introduction:A security is generally, negotiable financial instrument representing financial value. Securities are broadly categorized into: 1] Debt securities (such as banknotes, bonds and debentures), 2] Equity securities, e.g., common stocks; and, 3] Derivative contracts, such as forwards, futures, options and swaps.

April 18, 2012

Under the Securities and Exchange Board of India (SEBI) Guidelines, the securities can be offered for sale in the primary market in different ways. Each method of issue has got its procedure and mechanism. The methods of issues of securities are as follows:-

April 18, 2012

Public Issue through Prospectus:

This method is the most common and popular method of issue of securities. The securities are offered to the investors through a detailed statement of terms and conditions known as prospectus. The prospectus is also known as the offer document. The issue by prospectus method is adopted when the company wants to issue fixed number of securities at a fixed price (which may be equal to, less than or more than the face value). The application forms together with the copy of prospectus are distributed among the public investors who offer to the company to buy a specific number of securities.

April 18, 2012

 Offer for Sale:

The companies do not offer the securities directly to the investors. Instead, the securities are issued to an issue house or a merchant banker who will subsequently offer the securities for sale to the investors. Sometimes, the existing shareholder(s) may offer to offload their holding to the investors. The difference between the issue price by the company and the offer price by the issue house is the gain to the latter.

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Issue through Private Placement of Securities:

In this case, the issuing company does not offer the securities to investors in general. Instead, the securities are offered to selected big institutional clients only. The institutional investors may be selected in conformity with the merchant banker. The terms and conditions are agreed between the company and the institutional buyer. Unlisted companies may also adopt this method. Even listed companies may adopt private placement method for raising of funds through debt instruments.

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Offer through Book-building Process:

Public issue of securities through the book-building process is a relatively new concept for Indian capital market. In case of bookbuilding, the company decides the funds to be raised. The number of securities and issue price are decided by the demand and supply forces. Offers are invited from the public, stating the price as well as the number of shares, the investors are ready to buy. On the basis of bids received from the investors, the issue price is decided by the company.

April 18, 2012

Public Offer through Stock Exchange On-line System:

Securities and Exchange Board of India (SEBI) has also allowed to offer shares through the on-line systems of stock exchanges. In this case, the issuing company has to fulfil the general requirements of public offer as well as some other conditions. The company has to enter into an agreement with a stock exchange which has an on-line system.

April 18, 2012

A thankful heart is not only the greatest virtue, but the parent of all other virtues.

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