1. New Issue Market
N e w I s s u e s M a r k e t c o m p r i s e s a l l p e o p l e , institutions,
m e t h o d s , s e r v i c e s a n d p r a c t i c e s involved in raising fresh capital for both new
ande x i s t i n g c o m p a n i e s . T h i s M a r k e t i s a l s o c a l l e d Primary Market. PM deals in only new
securitieswhich acquir e f or m f or the fir st ti me, i.e. which were not available previously.O n
the other hand, secondary market or stock m a r k e t o r s t o c k e x c h a n g e
d e a l i n e x i s t i n g securities, i.e. securities which have already beenissued by companies and
are listed with the stockexchanges.
Functions of Merchant Bankers:
The basic function of merchant banker or investment banker is marketing of corporate and other
securities. In the process, he performs a number of services concerning various aspects of
marketing, viz., origination, underwriting, and distribution, of securities. During the regime of
erstwhile Controller of Capital Issues in India, when new issues were priced at a significant
discount to their market prices, the merchant banker’s job was limited to ensuring press coverage
and dispatching subscripttion forms to every corner of the country. Now, merchant bankers are
designing innovative instruments and perform a number of other services both for the issuing
companies as well as the investors. The activities or services performed by merchant bankers, in
India, today include:
1. Project promotion services.
2. Project finance.
3. Management and marketing of new issues.
4. Underwriting of new issues.
5. Syndication of credit.
6. Leasing services.
7. Corporate advisory services.
8. Providing venture capital.
9. Operating mutual funds and off shore funds.
10. Investment management or portfolio management services.
11. Bought out deals.

2. 12. Providing assistance for technical and financial collaborations and joint ventures.
13. Management of and dealing in commercial paper.
14. Investment services for non-resident Indians.
R e g i s t r a r s :
undertake all activities connected withnew issue management – Pre-allotment work,allotment work, post
allotment work
A merchant banker plays multiple roles which include those of an entrepreneur, a management
advisor, an investment banker, and a transaction broker.
This shows that the breadth and depth of a merchant bankers activity has changed over the years.
Services offered: The wide gamut of services offered by a merchant banker include: Issue
management- this forms the ‘Bread and Butter’ operations for most merchant bankers. The main
area of service involves:
Instrument designing
Pricing of the issue
Registration process for the issue of shares
Underwriting of the issue
Marketing efforts
Final allotment to investors
Listing details on stock exchanges
Corporate advisory services
Merchant bankers offer customised solutions to solve the financial problems of their clients.
Advice is sought in areas of financial structuring (as shown in the Modern Manufacturing case
above). Merchant bankers study the working capital practices that exist within the company and
suggest alternative policies. They also advise the company on rehabilitation and turnaround
strategies, which would help companies to recover from their current position. They also provide
advice on appropriate risk management strategies like hedging strategies.
Project advisory services
Merchant bankers help clients to conceptualise the project idea, to carry out feasibility studies to
find out the viability of the project, and also to appraise their project.
Loan syndication

3. These financial intermediaries arrange loans, for their clients, by analysing their cash flow
pattern, so that the terms of borrowing meet the clients cash requirements. They also offer
assistance in loan documentation procedures.
Restructuring strategies
Merchant bankers assist the management of the client company to successfully restructure
various activities, which include mergers and accquisitions, divestitures, management buyouts,
joint venture among others.
To help companies achieve the objectives of these restructuring strategies, the merchant banker
participates in different activities at various stages which include understanding the objectives
behind the strategy (objectives could be either to obtain financial, marketing, or production
benefits), and help in searching for the right partner in the strategic decision and financial
valuation of the proposal.
Conclusion
The merchant banker plays a vital role in channelizing the financial surplus of the society into
productive investment avenues. Hence before selecting a merchant banker, one must decide what
are the services for which he is being approached. Selecting the right intermediary who has the
necessary skills to meet the requirements of the client will ensure success.
s a student of investment management, one should know the number of agencies involved and
their respective role in the public issue. The promoters also should have a clear idea about the
agencies to coordinate their activities effectively in the public issue. The main agencies involved
in the public issue are managers to the issue, registrars to the issue, underwriters, bankers,
advertising agencies, Financial institutions and government/statutory agencies.
Managers to the issue: Lead managers are appointed by the company to manage the public
issue programmes. Their main duties are (a) drafting of prospectus (b) preparing the budget of
expenses related to the issue (c) suggesting the appropriate timings of the public issue (d)
assisting in marketing the public issue successfully (e) advising the company in the appointment
of registrars to the issue, underwriters, brokers, bankers to the issue, advertising agents etc. and
(f) directing the various agencies involved in the public issue. There are many agencies which
are performing the role of lead managers to the issue. The merchant banking division of the
financial institutions, subsidiary of commercial banks, foreign banks, private sector banks and
private agencies are available to act as lead managers.
Registrar to the issue: In consultation with the lead manager, the Registrar to the issue is
appointed. Quotations containing the details of the various functions they would be performing
and charges for them are called for selection. Among them the most suitable one is selected. It is
always ensured that the registrar to the issue has the necessary infrastructure like computer,
internet and telephone.

4. The Registrars to the issue normally receive the share application from various collection
centres. They recommend the basis of allotment in consultation with the Regional Stock
Exchange for approval. They arrange for the dispatching of the share certificates. They handover
the details of the share allocation and other related registers to the company. Usually registrars to
the issue retain the issuer records at least for a period of six months from the last date of dispatch
of letters of allotment to enable the investors to approach the registrars for redressal of their
complaints.
Underwriters: Underwriter is a person/organization who gives an assurance to the issuer to the
effect that the former would subscribe to the securities offered in the event of non-subscription
by the person to whom they were offered. They stand as back-up supporters and underwriting is
done for a commission. Underwriting provides an insurance against the possibility of inadequate
subscription. Some of the underwriters are financial institutions, commercial banks, merchant
bankers, members of the stock exchange, Export and Import Bank of India etc. The underwriters
are exposed to the risk of non subscription and for such risk exposure they are paid an
underwriting commission.
When appointing an underwriter, the financial strength of the prospective underwriter is
considered because he has to undertake the agreed non-subscribed portion of the public issue.
The other aspects considered are
a. experience in the primary market
b. past underwriting performance and default
c. outstanding underwriting commitment
d. the network of investor clientele of the underwriter and
e. his overall reputation.
Bankers to the issue: The responsibility of collecting the application money along with the
application form is on bankers to the issue. The bankers charge commission besides the
brokerage, if any. Depending upon the size of the public issue more than one banker to the issue
is appointed. When the size of the issue is large, three or four banks are appointed as bankers to
the issue. The number of collection centres is specified by the central government. The bankers
to the issue should have branches in the specified collection centres. In big or metropolitan cities
more than one branch of the various bankers to the issue are designated as collecting branch for
acceptance of money. To create investment awareness in the minds of the people collecting
branches are designated in the different towns of the state where the project is being set up. If the
collection centres for application money are located nearby people are likely to invest the money
in the company shares.
Advertising agents: Advertising a public issue is very essential for its promotion. Hence, the
past track record of the advertising agency is studied carefully. Tentative programmes of each
advertising agency along with the estimated cost are called for. After comparing the
effectiveness and cost of each programme with the other, a suitable advertising agency is
selected in consultation with the lead managers to the issue. The advertising agencies take the
responsibility of giving publicity to the issue on the suitable media. The media may be
newspapers /magazines/ hoardings/press release or a combination of all.

5. The financial institutions: The function of underwriting is generally performed by financial
institutions. Therefore, normally they go through the draft of prospectus, study the proposed
programme for public issue and approve them. IDBI, IFCI, ICICI, LIC, GIC and UTI are the
some of the financial institutions that underwrite and give financial assistance. The lead manager
sends copy of the draft prospectus to the financial institutions and include their comments, if any
in the revised draft.