NEW ISSUE MARKET

Forms of Borrowing capital

Equity / Preference share / CCPs Debentures Convertible & non Convertible Deposits form public ICD Inter corporate deposits / lending Lease finance / HP Loans and Advances from Banks & FI
Rupee Loans FC Loans FCCB GDRs

Methods of Raising Share Capital

Offer through Prospectus Offer of sale Private Placement

Rights Issue

Offer thru Prospectus

It is a notice inviting offers for subscription to shares from public It requires registration with ROC before issue to public It should also have the approval of the Board, Underwriters, merchant banker, SEBI and stock exchanges. Contains relevant information to facilitate an informed decision by the investing public

Offer to Sale

Involves outright sale to the brokers and merchant bankers who in-turn resell them to investing public Happens where a existing shareholder/s sell a block of shares to the public. This may involves sales of shares by Promoters or foreign collaborators.

Private placement

Sale of shares by brokers to its clients the securities previously purchased by them. Here the broker acts as a wholesaler / market maker Is in limited use in India but popular in developed markets On many occasions is a prelude to an IPO

Rights issue

Prospectus inviting existing share holders Rights granted are in the ratio of existing holdings The rights are transferable / saleable in market Generally if the company is doing well then underwriting may not be required. Mandatory where companies are issuing shares within 2 years of formation or after one year of the first issue whichever is earlier.

Malpractices in IPOs

Companies making exaggerated claims about the prospects to public Ads about over subscription to influence public demand, without documentary evidence Malpractices in allotment to retail investors Trading in new shares before formal listing / delays in listing Rigging prices before floating of new issues to place the shares at higher premium

Bonus shares

They are made out of free reserves Permitted only if the existing shares are fully paid up and not in lieu of dividend The time lag between to bonus issues is 12 months It does not lead to any new capital infusion Should be approved by the general body of Shareholders, does not require a govt. approval.

Preference Shares

CP cumulative preference shares have a right to dividends in arrears once company makes profits NCP Non CP have a rights to accumulation of dividends CCPs cumulative convertible preference shares carry a fixed dividend and convert to equity post a fixed period as per the shale holding agreement or terms of issue Participating Preference shares have the right to participate in the residual profits of the company along with he equity holders

Advantages of Preference shares

Fixed income Lower risk still can participate in the future prospects thru CCPs and participating P.shares Companies are able to meet the investment need of certain investors like the investor trusts, UTI, LIC etc which require fixed return securities in their portfolios Disadvantage is the P share are costlier then debts/ debentures

Securities & Exchange board of India SEBI

Need for SEBI Curb malpractices in the primary & secondary market Infuse confidence in the investors for mobilization of larger funds form public to promote growth Investor protection and promotion of efficient servicing by brokers, merchant bankers and other intermediaries.

Functions of SEBI
Regulatory Functions penalties for such practices Registration of brokers / sub brokers Registration of Mutual Developmental Funds collective functions investment schemes Investor education Regulation o stock Training the exchanges, merchant Intermediaries banks and portfolio Promoting Fair practice managers code Prohibition of fraudulent Conducting research and unfair practices and publishing Controlling insider information useful to all trading and takeover market participants

Reforms brought in by SEBI

Primary Issue Market IPO

Free entry and free pricing of new issues subject to some guidelines
Minimum 20% to be offered to public for listing Promoter holding minimum 25% for Paid up capital of 100cr and 20 % above 100cr FFIs allowed to operate in both the new issue and secondary markets but thru Indian brokers Preferential allotments restricted to 20% subject to holding period post allotments Allotment on proportional basis to prohibit multiple applications . Over subscription not allowed to be retained

Malpractices in Secondary Markets

Lack of transparancy in trading ops and prices to customer Delays in payments or deliverys by brokers Insider trading by agents or brokers and manipulating prices Takeover bids to destabilise maagement Poor servising as regards the delay in giving contract notes

Reforms in the Secondary Markets

Demat form of trading for all shares made compulsary

Rolling settlement made compulsory in many scrips with T+1 basis

Disclosure norms for the listed companies were tightened thru Qtly/ hly results provided

Transparency in prices and brokerage charged

Capital adequacy norms introduced for members of Stock exchanges depending upon their turnover and other factors Compulsory audit of the Stock exchanges and their members.

Stock exchanges have to inspect 20% of their active brokers annually

Securities amendment Act 1999 opened up the gates for trading in derivatives

It is a dynamic environment with frequent changes to make the

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