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Dr. Ratnesh Chaturvedi, FMS, Session – 2-3
Distinction between New Issue Market & Stock Exchange
Functional Organisational
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Dr. Ratnesh Chaturvedi, FMS, Session – 2-3
Relationship between New Issue Market & Stock Exchange
Savers Users
Individuals Public Ltd. Companies
Commercial Banks Government
Insurance Companies, etc.
Origination
Underwriting is an agreement in which underwriter
Underwriting promises to subscribe a specified no. of shares
or debentures or stock in the event of public not
subscribing to the issue
Distribution
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Dr. Ratnesh Chaturvedi, FMS, Session – 2-3
Methods of Underwriting
Outright Purchase
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Dr. Ratnesh Chaturvedi, FMS, Session – 2-3
Underwriters in India
Institutional Non-institutional
Origination
Expensive
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Dr. Ratnesh Chaturvedi, FMS, Session – 2-3
Methods of Floating New Issues Offer for Sale
Ajanta Ltd. Has 100000 equity shares outstanding and it plans to issue 20000 new
shares, then the number of rights needed to buy each new share is 5
( 100000/20000).
An investor who owns 4000 shares (4 percent) of the company’s shares would have
enough rights to buy 800 (4000/5) of the new shares. Upon subscribing to the new
issue, the investor would own 4800 shares, or 4 percent of the total 120000 shares
now outstanding. The investor’s proportionate ownership is maintained.
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Dr. Ratnesh Chaturvedi, FMS, Session – 2-3
-Issue of Bonus Shares
-Offer to employees
Other Methods
-Offer to the Creditors
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Dr. Ratnesh Chaturvedi, FMS, Session – 2-3
Instruments of Issue
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Dr. Ratnesh Chaturvedi, FMS, Session – 2-3
Instruments of Issue
Preference Share Capital - As per sec 85 of ICA’1956, in the case of a company limited
by shares, that part of the capital which carries a preferential rights as to –
- payment of dividend during the life time of the company
- return on capital on winding up
Equity all share capital which is not preference share capital
Offer for Sale – In this case offer for sale to public is made by intermediaries (deemed
Prospectus). Prospectus is not required.
Offer to Employees – to promote better industrial relation and higher productivity
Offer to creditors – in full settlement of their loans or advances
Offer to the customers – share holding of customers helps in the affairs and functioning of
the concern.
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Players in the New Issue Market Merchant Bankers
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Dr. Ratnesh Chaturvedi, FMS, Session – 2-3
Players in the New Issue Market Registrars
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Dr. Ratnesh Chaturvedi, FMS, Session – 2-3
Role of Registrars
Registration from SEBI based on having competency and expertise, quality of manpower,
their past records, adequacy of infrastructure and capital adequacy. Code of conduct by
SEBI. They have to maintain proper books of accounts and registers for a period of three
years.
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Dr. Ratnesh Chaturvedi, FMS, Session – 2-3
Players in the New Issue Market Collecting and coordinating Bankers
Printers, Advertising
agencies and mailing
agencies
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Dr. Ratnesh Chaturvedi, FMS, Session – 2-3