Different Methods of Marketing of Securities

8/11/2019 Different Methods of Marketing of Securities

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Methods of Marketing Securities

1. Pure Prospectus Method

2. Offer for Sale Method

3. Private Placement Method4. Initial public Offers (IPOs) Method

5. Rights Issue Method

6. Bonus Issue Method

7. Book-building Method

8. Stock Option Method and

9. Bought-out Deals Method


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1. Pure prospectus Method

Features

Exclusive subscription

Issue Price

Underwriting

ProspectusAdvantages

Benefits to investors

benefits to issuers

Drawbacks

High issue costs

Time consuming


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2. Offer for sale methodWhere the marketing of securities takes place through

intermediaries, such as issue houses, stock brokers andothers

The difference between the purchase price and theissue price constitutes profit for the intermediaries


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3. Private placement methodA method of marketing of securities whereby the

issuer makes the offer of sale to individual andinstitutions privately without the issue of prospectus isknown as Private placement method


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Initial Public Offer (IPO) Method

The public issue made by a corporate entity for thefirst time in its life is called Initial public Offer (IPO)

The job of selling the stock is entrusted to a popularintermediary, the underwriter.


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mar e ng o secur es are asfollows:

Order: Broker receives order from the client and places orderson behalf of the client with the issuer.

Share Allocation: The issuer finalizes share allocation and

informs the broker regarding the same. The Client: The broker advises the successful clients of the

share allocation. Clients then submit the application forms forshares and make payment to the issuer through the broker.

Primary issue account: The issuer opens a separate escrow

account (primary issue account) for the primary market issue.The clearing house of the exchange debits the primary issueaccount of the broker and credits the issuers account.

Certificates: Certificates are then delivered to investors.Otherwise depository account may be credited.


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Rights issue MethodWhere the shares of an existing company are offered to

its existing shareholders.

Underwriting as to rights issue is optional andappointment of Registrar is compulsory.


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advantages

Economy:Rights issue constitutes the most economicalmethod of raising fresh capital, as it involves nounderwriting and brokerage costs.

Easy: The issue management procedures connected withthe rights issue are easier as only a limited number ofapplications are to be handled.

Advantage to shareholders: Issue of rights shares doesnot involve any dilution of ownership of existingshareholders.


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Bonus Issues Method

Where the accumulated reserves and surplus of profitsof a company are converted into paid up capital, ittakes the form of issue of bonus shares. It merelyimplied capitalization of existing reserves and surplusof a company.


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Book-building Method

A method of marketing the shares of a companywhereby the quantum and the price of the securities tobe issued will be decided on the basis of the bidsreceived from the prospective shareholders by the leadmerchant bankers is known as book-building method


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The book-building process involves

the following steps Appointment of book-runners

A syndicate member should be a member of National StockExchange (NSE) or Over-the-Counter Exchange of India

(OTCEI). Offers of bids are to be made by investors to thesyndicate members, who register the demands of investors.

Drafting prospectus

Circulating draft prospectus

Maintain offer records

contd


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Intimation about aggregate orders Bid analysis

An appropriate final price is arrived at after a careful evaluation

of demands at various prices and the quantity Mandatory underwriting Filling with ROC (Registrar of Companies ) Bank accounts

one for the private placement portion and the other for the

public subscription. Collection of completed applications Allotment of securities Payment schedule and listing

Under-subscription-(preference is given to the individualinvestors.)


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Stock Option or employees Stock

Option Scheme (ESOP)A method of marketing the securities of a company

whereby its employees are encouraged to take upshares and subscribe to it is known as stock option


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SEBI Guidelines Issue at discount

Approval Maximum limit

Minimum period

Superindence direction of a Compensation Committee of the Board of

Directors in which there would be a majority ofindependent directors.

Eligibility

Directors report


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Bought-out Deals

A method for marketing of securities of a bodycorporate whereby the promoters of an unlistedcompany make an outright sale of a chunk of equityshares to a single sponsor or the lead sponsor is knownas bought-out deals.

Documents

Different Methods of Marketing of Securities