The primary market deals with new securities like shares and debentures being offered for the first time. Its main function is to arrange for raising new capital for companies. Underwriting ensures marketability of securities by guaranteeing minimum subscription. Distribution involves selling securities to ultimate investors through brokers and agents. Methods of issuing new securities include public issue through prospectus, offer for sale, private placement, rights issue, bonus issue, and book building. Book building determines the issue price based on bids from investors. Strict SEBI guidelines regulate primary market activities and public issues to protect investors.

1. NEWISSUEMARKET
OR
PRIMARYMARKET

2. PRIMARY MARKET-
The primary market [popularly known as NEW ISSUE
MARKET] deals with new securities i.e; new blocks of
shares , debentures etc. which are offered for the first
time in the market. This is also known as INITIAL
PUBLIC ISSUE.
#THE MAIN FUNCTION OF PRIMARY MARKET IS TO
ARRANGE FOR THE RAISING OF NEW CAPITAL BY
COMPANIES.

3. FUNCTIONSOF PRIMARYMARKET:-
Following are the main functions of primary market:
1. ORGANISATION: The organisational process starts before the issue is
floating in the market. It is concerned with activities like investigation,
analysis and processing of the new project.
2. UNDERWRITING: Underwriting is got done to ensure marketability of
securities . Under underwriting agreement the underwriters promise to
subscribe to a specified no. of shares or debentures of a specified amount of
stock in the event of public not subscribing to the issue. THE MAIN
ADVANTAGES OF UNDERWRITING ARE:-
a) The issuing company is assured of sale of securities and receipt of
minimum subscription . b) He may
undertake to perform the function of distribution of securities and may also
provide expert advice about trading , pricing , type and the size of the issue.
c) Public has confidence in an underwritten issue.
3. DISTRIBUTION: This is concerned with sale of securities to ultimate
investors. This is done with the help of brokers, managers to issue and
agents who maintain regular and direct contact with the ultimate investors.

4. METHODSOF ISSUINGNEWSECURITIES:-
 Publicissuethroughprospectus
 Offer for sale
 Privateplacement
 Rights issue
 Bonusissue
 Book building

5. 1) PUBLICISSUETHROUGHPROSPECTUS:
SEBI guidelines for public issue:-
 Appointment of a merchant banker
 Appointment of registrar to the
issue
 Partly paid shares be made fully
paid
 No issue if company prohibited by
SEBI
 Filing of draft prospectus with SEBI
 Formalities to be fulfilled by
merchant banker
 Carrying out changes suggested by
SEBI
 Dematerialisation of securities
 Exemption from eligibility norms
 Issue through book buillding if net
worth of listing company increases by
5 times
 Denomination of shares
 Promoters contribution
 Ratio of shareholders to net capital
 Minimum no. of shares to be
applied
 Application money 25% of issue
price
 Mentioning PAN NO.
 Duration of subsription list
remaining open
 Refund if min. subscription is not
received
 Over subsription cannot be retained
 Allotment to be on propotionate
basis
 Refund of over subscription
 Appointment of compliance officer
 No offers of prizes etc. to investors
 Monitoring agency
 Option to receive securities in

6. MERITS AND DEMERITS OF ISSUE
THROUGH PROSPECTUS:
MERITS:-
 Must have large issue
 Large participation
 Direct method
 Dispersal
DEMERITS:-
 Expensive
Time consuming
 Observance of legal
formalities

7. 2) OFFERFOR
SALE:-
PROCESS OF SALE UNDER
OFFER FOR SALE:
ADVANTAGES:- The main
advantage of this method is that
the issuing company is saved
from the hasseles of selling their
securities to a large no. of retail
investors. It also ensures surety
of success of the issue and saving
in the cost of new issues.
DISADVANTAGES:- The public
has to pay higher price for the
securities and the price
difference is pocketed by
intermediaries.
ISSUING
COMPANY.
ENBLOCK SALE
TO ISSUE HOUSE
AT FIXED PRICE.
SALE TO
SUBSRIBING
PUBLIC AT
HIGHER PRICES.

8. 3) PRIVATE
PLACEMENT:-
Under this method ,
the company issuing
securities arranges
with some issuing
houses , broker or
underwriter to
purchase the
securities from the
company and to
privately place them
with its clients or
associates later on .
ADVANTAGES:-
 Cheaper
 Exempt from certain legal
requirements and public disclosure
 Securities in which general public is
not interested can be sold here.
DISADVANTAGES:-
 The issuing houses may create
artificial scarcity of securities to push
up their prices.
 People interested in gaining control
over the company may corner large
chunks of shares.
 No confidence in this kind of
allotment by people.

9. OVERTHECOUNTERPLACEMENT:-
Under this method the issuing company places its
issue through Over the Counter Exchange by
appointing a member of the OTCEI as its sponsor.
The shares proposed to be offered for public trading by
the company are placed by the sponsor with itself and
other members and dealers of the OTCEI.
The OTCEI members and dealers operate conters
to facilitate trading vid prospective investors.

10. 4) RIGHTS ISSUE:-
 When an existing
company requires
funds for expansion
and as a result more
shares are issued ,
the existing
shareholders are
given the privilege of
subscribing to them.
 Such an issue is offered
at concessional rates
as compared to
market rate.
 Offered only to existing
companies when they
go for further issue.
 Shares are
transferable and
saleable.
1) Underwriting is optional
2) Appointment of registrar to the issue and
merchant banker.
3) Partly paid shares be made fully or
forfeited
4) Issue to be kept open for minimum 30
days
5) NO reservation
6) No promoters contribution
7) Similar benefits to fully and partly
convertible debentures.
8) Over subscription not to be retained.
9) Issue to be made fully paid up within 12
months
10) Offer document to be made public
11) Despatch of letters of offers.
12) Return of money
13) Filing a compliance report
SEBI guidelines about issue of
rights shares:-

11. 1) Economical
2) No change in control over company.
3) Allotment is Democratic
4) Savings in expenses of issue
5) Improves image of the company
1) The subscription remains confined to existing
shareholders only. New investors cannot join
the company.
2) It leads to concentration of economic power
and wealth with same few selected people
who have purchased the shares of the shares
of that comapany.

12. 5)BONUS
SHARE
Additional shares which are
allotted to existing
shareholders free of charge are
known as BONUS SHARES.
These are issued in proportion
to the shares held by existing
equity shareholders.
PROVISIONS:- 1) Every company can
issue
2) sources of funds:
o Free reserves
o The securities premium
reserves
o Capital redemption
reserves
3) Revaluation reserve
cannot be used
4) Conditions of
capitalization of profits
5) No bonus shares in lieu of
dividend
6) Implement the proposal
within 6 months
7) Provisions In the articles
of association
8) Pass a resolution to
increase authorized
capital , if necessary
9) Similar benefit extended
to FCDs /PCDs.
ADVANTAGES OF BONUS SHARES:-
1) No outflow of cash
2) Additional capital
3) A way out to avoid payment of high rate of
dividend
4) Balance sheet more realistic.

13. DIFFERENCEB/WRIGHTSSHARESAND
BONUSSHARES:-
RIGHTS SHARES:- BONUS SHARES:-
 Issued for a price
 Can be issued as partly paid
 Can be allotted only if min.
subscription of 90% has been
received
 Money rec. on application of
rights shares have to be kept in
separate account till approval
 Allotees of rights shares can
reannounce their allotment in
favour of someone else
 Regulated by sec.81 of the
companies Act and guidelines
issued by SEBI
 Issued free of charge
 Have to be fully paid
 No req. of min. subscription
 Not relevant to bonus issue as no
money is to be received
 Shares allotment cannot be
reannounces in some body else
favour
 Governed by express provisions
in the ARTICLES OF
ASSOCIATION and guidelines
issued by SEBI.

14. 6)BOOKBUILDING:-
Under the process of book
building prospective buyers
make offers to purchase
specified no. of shares at
different prices.
In book building the issuer
company does not issue
shares directly to the public
but invites BIDS (through
merchant banker who act as
a book runner) from
investment bankers and
large investors based on
indicative price range.
Under this method issue
price is not decided in
advance.
SEBI GUIDELINES ABOUT BOOK
BUILDING:-
a) Guidelines about 75% process
b) guidelines about 100% process
GUIDELINES ABOUT 75%
PROCESS:-
Separate indication of
issue through book building
Min. 35% offer to public
Compulsory underwriting
for “net offer to public ”
portion
Nomination of book
runner
Circulation of draft
prospectus
Intimation to book runner
about offer
Determination of offer
price
Prior payment of
application money by
institutional buyers
Maintainance of records
GUIDELINES ABOUT 100%
PROCESS:-
All companies can adopt
this method
Applicable on portion other
than promoters contribution
Appointment of a merchant
banker as a book runner
Filing of draft prospectus
with SEBI
Advertising the offer
Determination of issue
price
No incentives to be offered
Underwriting
Offer remain open for 3days
Allotment within 15 days

15. ADVANTAGESOF BOOKBUILDING:-
1) Practical method
2) Flexible method
3) No lock-in of money
4) Right to choose
investors
5) No risk about non-
receipt of min.
subscription
LIMITATIONSOF BOOK
BUILDING:-
LEAD MANAGERS
can MISGUIDE
issuer companies
with promises of
unduly high valuation
and leave them in
cold.

16. InitialPublicIssuethroughonline(E-IPO):
COMPANIES CAN ALSO ISSUE SHARES THROUGH
ELECTRONIC MEDIUM known as E-IPO.
SEBI guidelines for online IPO-
 Agreement with stock exchange
 Appointment of brokers
 Appointment of registrar to the issue
 Commission to brokers
 Advertising
 Collecting centers
 Listing
 Obligation of brokers
 Allocation
 Maintenance of records
 Inspection by SEBI

17. Preferential allotment in capital issuesof companies:
 EMPLOYEES STOCK OPTION SCHEME: Under this scheme
suitable % not exceeding 10% of the shares to be issued or 5% of
paid up capital , can be reserved for permanent officers
employees and whole time directors of the companies on
equitable basis.
 INDIAN MUTUAL FUNDS: Companies proposing to issue capital
to the public may reserve up to a max. of 20% of the proposed
total issue of capital for participation by Indian Mutual Funds on
competitive basis.
 DEVELOPMENT FINANCIAL INSTITUTIONS: Companies can
make firm allotment up to 20% of the proposed public issue to
development financial institutions. Such allotment is subject to
a lock-in period of 3yrs. From the date of allotment.
 OTHERS: It includes NRF’s and OCB’s up to 15% of the issue. Lead
merchant banker is eligible for firm allotment up to 5% of the
issue.

18. Market strategy for Public Issue:
 Feeling the pulse of the investors
 Publicity
 Identify target segment of investors
 Right timing
 Consultations

19. #PRICING OF PUBLIC ISSUE:-
1) Free pricing
2) Different prices for firm allotment and public issue
3) Rights issue at concessional rates
4) Mentioning the price band of 20%
5) No discount , commission , allowance etc. to firm
allotees
#REASONS FOR POOR PERFORMANCE OF
NEW ISSUES IN INDIA:-
1) No proper appraisal of projects
2) No appraisal after the issue
3) Poor performance of merchant bankers
4) Falsehood in prospectus

20. SUGGESTIONSFORBETTERMENTOFPRIMARY
CAPITALMARKET:-
For the betterment of the new issue market the
merchant banker s or lead managers should be held
responsible foe full and proper disclosures about the
project and future projections of the companies
sponsored by them…………
THE END