Unit 2 Capital Market Operations

I. Function of New Issue Market

I.

Function of New Issue Market

Financial Market

Organized Market

Unorganized Sector

Industrial Securities Market

Consists of

Primary Market (New Issue Market)

Secondary Market (Stock Exchange)

1. New issue Market: (Primary Market) In the new issue market securities are offered to the public for the 1st time. New issue market deals with raising of fresh capital by companies

2. Stock Exchange: (Secondary Market)

It is a market for old securities, Those which have been already issued and listed on stock exchange. These securities are purchased and sold continuously

among investors without involvement of companies.

Functions of New Issue Market:

The main function of New Issue Market is to

facilitate transfer of resources from Savers to the Users.

Who are the Savers? Who are the Users?

The new issue market plays an important role of

Mobilizing the funds from Savers and Transferring them to Borrowers It is not only a platform for raising finance to establish new enterprises but also for

a) Expansion b) Diversification c) Modernization

Of Existing Units

On this basis the New Issue Market can be classified as: 1. IPO 2. 2.SEO

IPO: Is a market where firms go to the public for the first time through initial public offering

3. SEO: Seasoned Equity offering: as per the requirement companies raise capital.

The main function of New Issue Market is divided into triple Service functions: 1. Origination 2. Underwriting 3. Distribution

1. Origination: Origination starts before an issue is actually floated in the market. It refers to the work of : Investigation Analysis and New Project Processing of Proposals

There are two aspects of Origination:

1. A careful study of the Technical, Economic and Financial Viability To ensure soundness of the project

2. Advisory Services: which improve quality of that issue and ensure success. Which includes: a) Type of Issue: refers to the kind of securities to be issued. b) Magnitude of Issue c) Time of Floating an issue Function of origination is done by commercial banks, financial Institutions, private institutions.s

2. Underwriting:
Underwriting is an agreement whereby the underwriter promises to subscribe to specified number of shares or debentures or a specified amount of stock in the event of public not subscribing to the issue If the issue is fully subscribed then there is No Liability for the underwriter to buy the shares.

3. Distribution:
It is the function of sale of securities to the ultimate investors.

This service is performed by Brokers and agents, who maintain a regular and direct contact with the ultimate investors