FINANCIAL MARKETS AND FINANCIAL SERVICES

CHAPTER-8 THE NEW ISSUE MARKET

Chapter 8 The New Issue Market

Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai

Chapter 8 The New Issue Market

Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai

Chapter 8 The New Issue Market

Principal Steps of a Public Issue

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Draft prospectus Fulfillment of Entry norms (EN) Appointment of underwriters Appointments of Bankers Initiating allotment procedure Brokers to the issue Filing Documents Printing of prospectus and application forms Listing the issue Publication in news papers Allotment of shares Underwriters Liability Operational Listing.
Financial Markets and Financial Services Vasant Desai

Himalaya Publishing House

Chapter 8 The New Issue Market

Players in the New Issue Market

1. 2. 3. 4. 5. 6. 7. 8. 9. Merchant bankers Registrars Collecting and co-ordinating bankers Underwriters and brokers Printers, advertising agencies and mailing agencies. Investment bankers Venture capitalists Foreign Financial Institutions (FIIs). SEBI
Financial Markets and Financial Services Vasant Desai

Himalaya Publishing House

Chapter 8 The New Issue Market

Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai

Chapter 8 The New Issue Market

Financial System Business Sector

Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai

Chapter 8 The New Issue Market

Functions of Securities Markets are:

1. Provision for securitisation of the debt or capital issued, which

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promotes savings mobilisation through new capital issues. Extending facilities for trading (buying and selling) in these securities so as to impart liquidity to these instruments so that investors can disinvest while new savers can invest and enter the market. This will facilitate the reallocation of funds as between securities or companies. Making a quotation for a share available to the investors and companies so that their net asset values (NAVs) are known and they can be used for tax purposes. This market also enables the companies to raise more capital from the capital market than is possible without these facilities for disinvestment, trading and liquidity. For the economy as a whole, these markets help mobilisation of savings for financing of corporate and government investment in order that economic growth and rise in incomes of the people can take place on a continuing basis.
Financial Markets and Financial Services Vasant Desai

Himalaya Publishing House

Chapter 8 The New Issue Market

Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai

Chapter 8 The New Issue Market

Powers of the Central Government under the securities Contracts

1.
2. 3. 4. 5. 6. 7. 8. (Regulations) Act 1956 Grant and withdrawal of recognition, approval or change of byelaws. Call for periodical returns from the Stock Exchange. Direct enquiries on the members or on the Stock Exchange. Liability of the Exchange to submit annual reports. Directing the Stock Exchange to make certain rules. Supersede the governing board of the Exchange. Suspend the governing board of the Exchange. Impose any other conditions or regulations for trading.

Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai

Chapter 8 The New Issue Market

Objectives i. to empower the Central Government to control the stock exchanges in India, ii. to provide reasonable uniformity in respect of the rules and bye-laws of the different stock exchanges in the country, iii. to ensure orderly and healthy development of the stock exchanges, iv. to protect the interest of the investors, v. to prevent unhealthy speculations and undesirable activities like the 1992 scam on the stock exchanges.

Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai

Chapter 8 The New Issue Market

Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai

Chapter 8 The New Issue Market

Recent Developments in the Indian Equity Market The Indian equity market has witnessed a series of reforms since the early 1990s. The reform measures were aimed at i. creating growth enabling institutions; ii. boosting competitive conditions in the equity market through improved price discovery mechanism; iii. putting in place an appropriate regulatory framework; iv. reducing the transaction costs; and v. reducing information asymmetry, thereby boosting.

Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai

Chapter 8 The New Issue Market

Other reform measures are as follows: The most significant reform in respect of the primary capital market was the introduction of free pricing. The issuers of securities were allowed to raise capital from the market without requiring any consent from any authority for either making the issue or pricing it. All companies are now able to price issues based on market conditions. Restrictions on rights and bonus issues were also removed. The improvement in disclosure standards has enhanced transparency, thereby improving the level of investor protection. Issuers also have the option of raising resources through fixed price mechanism or the book building process.

Himalaya Publishing House

Financial Markets and Financial Services Vasant Desai