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Process of Issuing Securities in Primary Market

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Process of Issuing Securities in Primary Market

Uploaded by

sharonjune1006
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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PROCESS OF ISSUING SECURITIES IN

PRIMARY MARKET

FINANCIAL MARKETS

NAME : DINA SHARON W


REG.NO : MBAFM2414
CLASS : I- MBA(FM)
INTRODUCTION

The process of issuing securities in the primary market involves raising capital by
selling new securities (stocks or bonds) to investors for the first time. Here’s an overview
of the steps involved in the process. A company hires an investment bank to help structure
and acts as an underwriter, guaranteeing the sale of the securities at a certain price or
taking the risk of buying them to resell to investors. Investors are invited to apply at a
fixed pricce or bid within a price range in the case of book-building. This process ensures
that comapnies can raise capital efficiently, while investors can raise capital efficiently,
while investors can evaluate risks and returns based on available information.
PRIMARY MARKET

The primary market is a part of the capital market where new securities (such as
stocks or bonds) are issued and sold for the first time. It is the market for Initial
offerings, where companies, Governments, or other institutions raise fresh capital by
selling new financial instruments to investors, the key features of the primary
market is that the securities are purchased directly from the issuer. The primary
market comprises two main segments: the equity market and the debt market. In
this segment, companies issue shares to the public for the first time. This is usually
done through an IPO, where a company offeres a portion of its ownership to
investors in exchange for capital.
PURPOSE OF ISSUING SECURITIES IN PRIMARY MARKET

 Raising Capital for Business Expansion

Companies issue securities like share, bonds, or debentures to raise funds for
expanding operations, launching new projects, or entering new markets.

 Financing New Projects

Governments and corporations often need capital for infrastructure development,


research and development or other projects. Issuing securities helps them these funds.

 Debt Repayment

Companies may issue new securities to repay existing debts, thereby improving
their balance sheet and reducing financial risk.
 Diversifying Funding Sources
Issuing securities allows organizations to diversify their funding sources beyond
traditional bank loans, reducing dependency on any single form of finance.
 Ownership Dilution for Equity
In the case of equity shares, companies can raise capital without incurring debt. The
insurance of new shares results in a dilution of ownership but provides long-term funding.

 Government Funding
Government issue bonds and other securities to fund public expenditure, meet fiscal
deficits, or finance specific government projects.

 Liquidity for Investors


By issuing securities, organizations provide investors with a liquid form of investment,
which they can buy or sell in secondary market later.
PROCESS OF ISSUING SECURITIES
 Decision to Issue Securities
The company decides to raise funds for expansion, acquisition or debt repayment. The
company determines whether to issue equity (shares) or debt (bonds). The company
ensures compliance with the rules set by regulatory bodies such as SEBI (India) or the
SEC (USA)
 Appointment of an Underwriter
The company hires an investment bank (underwriter) to manage the issuance, which
includes determining the price of the securities and marketing the issue to potential
investors. The underwriter buys the entire issue from the company and resell it to
investors.
 Regulatory filings and Approvals
The company, with the help of underwriter, prepares a detailed prospectus that
provides information about the comapny’s financials, business model, risks, and the terms
of the securities. The prospectus is filed with the relevant regualtory authority (SEBI,
SEC) for approval.
 Pricing the Securities
The underwriters helps determine the value od te securities based on the company’s
financial performance and market conditions. A specific price is set for the securities.
Investors bis within a price range, and the final price is determined based on demand
during the bidding process.

 Subscription Period
The issue is opened to investors for subscription for a specified period. Investors
apply to purchase securities at the fixed price or bid within the price range in the case of
ook building. If demand exceeds the number of available securities, allotment may be
done proportionally or through other methods.

 Allotment of Securities
After the subscription period, securities are allotted to investors based on demand and
available supply. If the issue is oversubscribed, excess funds from unallotted bids are
refunded to investors.
 Listing on Stock Exchange
Once the securities are allotted, they are listed on a stock exchange, enabling investors
to trade the securities in the secondary market. After listing, the securities can be bought
and sold freely, providing liquidity to investors.
 Post-Issue Compliance
The company must provide periodic updates, such as financial reports, and comply
with the ongoing disclosure requirements of the regulatory authorities and stock
exchanges.
 Decision to Issue Securities
The company and underwriter promote the issue to institutional and retail investors
through roadshows, presentations, and advertisements to create awareness and attract
investors.
CONCLUSION

The process of issuing securities in the primary market concludes with the
successful allotment of shares or bonds to investors. This process involves various
stages, including planning, regulatory approval, marketing, and allocation, with the
main aim of raising capital for the issuer. Once the securities are sold to investors,
they receive ownership or debt instruments, and the issuer receive the funds to
support their business activities, expansion or project financing. In essence, the
primary market serves as the foundation for capital formation, supporting economic
growth and allowing the flow of investments into productive uses.

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