Page 11 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Security Analysis and Portfolio Management

Notes 3. Distribution: Distribution is the function of sale of securities to ultimate investors. Brokers
and agents who maintain regular and direct contact with the ultimate investors, perform
this service.

1.2.2 Methods of Floating New Issues

The various methods which are used in the floating of securities in the new issue market are:
1. Public issues
2. Offer for sale

3. Placement
4. Rights issues
Let us understand them one by one.
1. Public issues: Under this method, the issuing company directly offers to the general public/
institutions a fixed number of shares at a stated price through a document called prospects.
This is the most common method followed by join stock companies to raise capital through
the issues of securities.
(a) Name of the company
(b) Address of the registered office of the company

(c) Existing and proposed activities
(d) Location of the industry
(e) Names of directors
(f) Authorized and proposed issue capital to the public
(g) Dates of opening and closing the subscription list

(h) Minimum subscription
(i) Names of brokers/underwriters/bankers/managers and registrars to the issue.
(j) A statement by the company that it will apply to stock exchange for quotations of its
shares.
According to the Companies Act, 1956 every application form must be accompanied by a
prospects. Now, it is no longer necessary to furnish a copy of the prospectus along with
every application forms as per the Companies Amendment Act, 1988. Now, an abridged
prospectus is being annexed to every share application form.
Merits of Issue through Prospectus
(a) Sale through prospectus has the advantage of inviting a large section of the investing
public through advertisement.
(b) It is a direct method and no intermediaries are involved in it.
(c) Shares, under this method, are allotted to a large section of investors on a non-
discriminatory basis. This procedure helps in wide dispersion of shares and to avoid
concentration of wealth in few hands.

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