Table of Contents
The Primary Market:
It also known as the New Issue Market, is where new securities are raised and issued to the public for the first time. It is utilised by both new and existing businesses. For the purpose of raising long-term cash, the corporation issues additional shares and debentures. Securities are issued through the prospectus.
Businessmen, clients of the company, corporate workers, present shareholders, and others can buy new shares and debentures.
BENEFITS
- In comparison to the secondary market, there is less price manipulation.
- There are no brokerage fees, transaction fees, or other charges.
- It is unaffected by market movements.
- It contributes to portfolio diversity.
- Investors are given a share of the company at a certain price.
- It helps in raising capital for the companies
- Investors get the share at the same prices
- It helps in cost Reduction
KEY PLAYERS
- Corporations – They require funds to grow and run their operations
- Institutions referred to as “Buy Side” Fund Managers
- Investment Banks referred to as “Sell Side”
- Public Accounting Firms
FUNCTIONING OF PRIMARY MARKETS
It facilitates capital formation by channelling funds from individual savings towards ideal productive investments. It is made up of three parts: a firm, an investor, and an underwriter.
The company launches an initial public offering (IPO):
The securities are issued for the first time in the primary market. This procedure is referred to as an IPO (Initial Public Offering). The primary market is known as the New Issue Market since the securities are purchased for the first time.
The underwriter’s role is to:
It is a complete method of obtaining funds through the sale of new stock to investors through an initial public offering (IPO). The sale price of the fresh issue of securities is then determined by the underwriter. The fresh issue offering is enabled and monitored by the underwriter. The fresh issue offering is enabled and monitored by the underwriter. Underwriting services are provided by financial institutions such as funding banks, insurance plan firms, and so on.
Investors
Investors are the people who buy new securities in the main market.
INVESTORS’ PREREQUISITES:
PAN Number, Bank Account, Demat Account
A public offering
A public offering occurs when a publicly traded corporation issues an offer document. The document could represent a new issue of securities or a public offer for sale.
Rights Issue:
When a publicly traded firm issues new securities to current shareholders, this is known as a rights issue. It is best suited for businesses looking to raise funds to fund operations or expand.
When a publicly traded firm issues new securities to current shareholders, this is known as a recapitalization. It is best suited to businesses who need to obtain funds to fund operations or seek greater growth prospects.
A private placement or preferential issue
A private placement or preferential issue is a stock or convertible security issue by a publicly traded company that is neither a right issue nor a public offering. It is an efficient method of raising equity capital for the organisation.
ROLE AND FEATURES OF PRIMARY MARKET:
- Organisation
- Underwriting
- Distribution
The organisation of New Issues:
There are two categories of investigations: forensic and non-forensic.
To ensure the project’s soundness, the preliminary inquiry contains specific understanding about economic, financial, legal, and technological elements.
The structure of financial arrangements includes the requirements for and availability of promoter equity, public equity, various ratios, and foreign exchange requirements.
Banks, financial institutions, and private funding organisations are examples of service provider bankers.
The information regarding the adequacy and structure of financial arrangements is a crucial component of the company of new shares.
The second aspect is implemented by sponsoring organisations.
Underwriting
Underwriting entails a guaranteed purchase of a specific number of new issues at a set price. The purchase could be for public sale, for one’s personal portfolio, or for any other reason. The use of underwriters ensures a minimum subscription. If the issue is fully subscribed, the underwriters will have no legal liability.
If the underwriter fails to sell the required number of shares to the public, it will be forced to purchase the unsold shares. They could be banks, financial institutions, or specialised underwriting organisations.
Distribution of New Issues:
The selling of stock to the general public is referred to as distribution of new issues. Finally, the distribution job is handed over to the broker. The brokers or dealers hold direct contact with the supreme investors.
DISADVANTAGES
- During over subscription, small investors don’t get an allocation.
- Money gets locked in for a long time.
- Quite expensive
- Disclosure of information
- Decision’s take time