Page 59 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Security Analysis and Portfolio Management

Notes The new issue market deals with the new securities, which were not previously available
to the investing public, i.e. the securities that are offered to the investing public for the
first time.
The market, therefore, makes available a new block of securities for public subscription.
In other words, new issue market deals with the raising of fresh capital by companies
either for cash or for consideration other than cash.
The process of offering new issues of existing stocks to the purchasers is known as
underwriting. At the same time if new stocks are introduced in the market, it is called the
Initial Public Offering.
The primary issues which are offered in the primary capital market provide the essential
funds to the companies.
The main function of new issue market is to facilitate transfer resources from savers to the
users.
The savers are individuals, commercial banks, insurance company etc. the users are public
limited companies and the government.

The various methods which are used in the floating of securities in the new issue market
are Public issues, Offer for sale, Placement and Rights issues.
A 'promoter' has been defined as a person or group of persons who are instrumental in
formation of the company, who enable the company to start its commercial operations by
bringing in the necessary funds required for the concern.

In the post-liberalisation era, the companies are free to make any issue of capital in the
form they like and they can freely price the issues.
'Lock- in' indicates the freeze on transfer of shares.

SEBI (Disclosure and Investor Protection) Guidelines, 2000 have stipulated lock-in
requirement as to specified percentage of shares subscribed by promoters with a view to
avoid unscrupulous floating of securities.
A stock exchange is a corporation or mutual organization which provides "trading" facilities
for stock brokers and traders, to trade stocks and other securities.

The companies are now allowed to issue capital to the public through the on-line system
of the stock exchanges.

1.7 Keywords

Initial Public Offering (IPO): An IPO is the first sale of stock by a private company to the public.

Preferential Issue: A preferential issue can be defined as an issue of stock available only to
designated buyers.
Rights Issue: The rights issue is a special form of shelf offering or shelf registration for existing
Companies. With the issued rights, existing shareholders have the privilege to buy a specified
number of new shares from the firm at a specified price within a specified time.
1.8 Self Assessment

Fill in the blanks:
1. An .............. is the selling of securities to the public in the primary market.

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