Thursday, 21 November 2019

Unit 5: Primary Market


                                                        Unit 5: Primary Market    

Primary market of a country renders three major services: investigating and processing of proposals for new issues, underwriting of new security issues and distribution of new securities to ultimate investors.

These functions are carried out by specialized agencies like financial institutions, brokers and dealers in securities.

There are various methods of selling securities, viz.

, public issue through prospectus, offer for sale, private placement, right issue, over-the-counter-placement, stock option and book building.

A host of players participate in the activities of the primary market in India.

They are merchant brokers, underwriters, bankers to the issue, brokers to the issue, registrars and share transfer agencies and debenture trustees.

These players can carry on their business after getting Certificate of registration from the SEBI.
The SEBI has laid down comprehensive rules defining duties and responsibilities of each of these players and codes for conduct in their business.

Violation of rules and failure to observe codes may lead to suspension of their business.

The SEBI plays a vital role in the effective functioning of the primary market in India by formulating comprehensive rules regarding issue of new securities, defining duties and responsibilities of various players of the market, and conducting the inspection of the working of these players.

Book-building means a process by which a demand for the securities proposed to be issued by a body corporate is elicited and built-up and the price for such securities is assessed.

Brokers to an issue: Represent intermediaries who are concerned with procuring the subscription to the issue from prospective investors across the country.

Green-shoe Option: Means an option of allocation of shares in excess of the shares included in the public issue and operating a post-listing price stabilizing mechanism through a Stabilizing Agent (SA).

Merchant banker: Is any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to securities or acting as manager, consultant, advisor or rendering corporate advisory service in relation to such 'issue management'.

Qualified Institutional Bidders: Under this method, bidders will be free to bid at any price above the floor price and allotment would be at differential prices against the current practice of bidding within a price band.

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