New Issue Market

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• Meaning
• Stock Exchange
• Distinction between New Issue Market &
Stock Exchange
1. Functional Differences
2. Orgnisational Difference
3. Nature of contribution to the industrial finance

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 Functions of New Issue Market
1. Organisation
2. Underwriting
3. Distribution

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 Organisation
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:
1. Type of Issue 2. Magnitude of issue
3. Time of an issue 4. Pricing of an issue
5. Methods of Issue 5. Technique of selling

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 Underwriting
• Meaning
Underwriting is an agreement whereby the
underwriter promises to subscribe to a
specified number of securities in the event
of public not subscribing to the issue.

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 Methods of Underwriting
1. Standing behind the issue

2. Outright Purchase

3. Consortium Method

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 Advantages of Underwriting
• Relieved from the risk of finding buyers
• Company is assured of Getting minimum
subscription
• Provide expert advise
• Public confidence on issue enhances

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 Underwriters in India
1. Institutional underwriters: LIC, GIC, UTI,
IDBI, ICICI, commercial banks etc.
2. Non Institutional underwriters: Brokers

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 Distribution
• 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.

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 Methods of Floating New Issues
1. Public Issue
2. Offer for sale
3. Placement
4. Rights Issue

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 Instruments of Issue
1. Equity shares with detachable warrants
2. Preference Shares with Warrants
3. Non-convertible debentures with detachable equity
warrants
4. Fully convertible cumulative preference shares
5. Zero interest fully convertible debentures
6. Fully convertible debentures wit interest
7. Zero interest Partly Convertible Debentures with
Detachable and Separately Tradable Warrants
8. Zero Interest Bonds

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 Instruments of Issue
9. Deep Discount Bonds
10. Option Bonds (cumulative or non-cumulative)
11. 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.

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 Instruments of Issue
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

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 Players in the New 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 Coordinating Bankers
4. Underwriters and brokers
5. Printers, advertising agencies and mailing
agencies

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