Securities Market 3

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Securities Market


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Structure of Securities Market

Securities

Market

Equity

MarketDebt

Market

Derivatives

Market

Government

Securities

Market

Corporate

Debt

Market

Money

Market

Options

Market

Futures

Market


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Money market It is the market for short term financial

assets with maturities of one year or less.

Treasury bills, commercial paper,certificate of deposits.

In India, the money market has a narrow

base with limited number of participantswho are mostly financial institutions.


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Capital Market It is the market segment where securities

with maturities of more than one year are

bought and sold.

Equity shares, preference shares,

debentures or bonds are long term

securities traded in capital market.


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Types of Financial Market Primary market

Secondary Market


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Primary Market This is the market for new long term capital. The

primary market is the market where thesecurities are sold for the first time. Therefore itis also called New Issue Market (NIM).

Primary issues are used by companies for thepurpose of setting up new business or for

expanding or modernizing the existing business.


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Functions1.Origination

Time of floating the issue

Type of issue

Price of the issue


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2. Underwriting

An underwriter is an individual or institution

which gives an undertaking to the stock

issuing company to purchase a specified

number of shares of the company in the event

of a shortfall in the subscription to the new

issue.

LIC, UTI, IDBI, general insurance companies,

commercial banks and also by brokers.


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3. Distribution

Publicity through newspapers, magazines,

television internet etc.


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Methods of floating New Issues Public Issue

Rights Issue

Private Placement


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Public Issue

Public issue involves sale of securities to

the public at large.

Process Involved: Approval by the board

Appointment of lead managers

Appointment of intermediaries like co-

managers, underwriters, bankers, brokers andregistrars


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Process Involved (contd..) Preparation of the prospectus

Printing and despatch of prospectus and applicationform

Promotion of the issue Statutory announcement

Collection of applications

Processing of applications

Determination of the liability of underwriters Allotment of securities

Listing of the issue


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Parties involved in the Public

Issue Lead Managers

Registrar to an issue

Banker to an issue


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Lead Managers Duties

Drafting of prospectus

Preparing the budget of expenses related to theissue.

Suggesting the appropriate timings of the public issue

Assisting in marketing the public issue successfully

Advising the company in the appointment of registrarsto the issue, underwriters, bankers to the issue,

financial institutions, public and private sector banks

act as lead managers


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Registrar to an issue Registrar receives all application forms & cheques.

They feed applicant data & additional biddinginformation on computer systems.

Send the cheques for clearance.

- Finalize the pattern for share allotment based on allvalid bid received.

Prepare 'Basis of Allotment'.

Transfer shares in the demat account of investors. Refund the remaining money


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Banker to an issue Collect application and application money

Forward to registrar of issue.


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Non-institutional bidders Individual investors, NRI's, companies

who bid for more than Rs 1 lakhs are

known as Non-institutional bidders.

Non-institutional bidders have an

allocation of 15% of shares of the total

issue size IPO's.


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Qualified Institutional Bidders

(QIB's) Financial Institutions, Banks, FII's and Mutual

Funds who are registered with SEBI are calledQ

IB's. They usually apply in very highquantities.

QIBs are mostly representatives of smallinvestors who invest through mutual funds,ULIP schemes of insurance companies andpension schemes.

QIB's have an allocation of50% of shares ofthe total issue size in Book Build IPO's.


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Issue Received -NHPC

Category No. of Applications

No. of Shares No. of timessubscription

Retail

Individual

Bidders

13,34,906 1858938893 3.68

NonInstitutional

Bidders

6033 9146916338 55.93

Qualified

Institutional

Bidders

381 28568754025 29.11

Eligible

Employees

5530 28063000 0.66

Total 1346850 39602672256 23.61

Basis of allotment


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Final Demand

(Price band 30-36)Bid price No. of shares % to total

30 29191225 0.07

31 94325 0.0002

32 22690850 0.06

33 21280350 0.05

34 22981525 0.06

35 1648325 0.004

36 39701996775 99.75


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Allocation to Retail Individual Investors

No. of Shares

applied for

No. of

Sharesallocated

Ratio

175 175 14:51

350 175 6:11

525 175 9:11

700 190 Firm

875 238 Firm

1050 285 Firm

1225 333 Firm

1400 380 Firm

: :

2450 5201 Firm

2625 472654 Firm


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Rights issue When an issue of securities is made by an

issuer to its existing shareholders it is

called an rights issue. The rights are offered in a particular ratio

to the number of securities held as on therecord date.

Rights issue shall be kept open for at least30 days and not more than 60 days.


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P

rivate placement When an issuer makes an issue of

securities to a select group of persons not

exceeding 49, and which is neither a rightsissue nor a public issue, it is called

a private placement.


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SEBIs Role in the Primary Market

Entry norms

A company should have a track record of

dividend payments for a minimum period of 3years preceding the issue.

A company whose shares are already listed

would fulfill the entry level requirement only if

the post issue net worth becomes more than

five times the pre issue networth.


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Promoters contribution

Promoters contribution should not be less

than 20% of the issued capital irrespective ofthe issue size

The entire promoters contribution should be

received before the public issue.

At least 20% of the promoters contribution

would be locked in for5 years


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Disclosure

The draft prospectus filed with SEBI should

disclose all the needed information to theinvestor regarding

The present position of the company

The future prospects and risk factors associated

with the investment of the company.


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Book building:

SEBI recommended a two-tier underwriting

system for book built issues.

The syndicate members would be responsible

for the primary underwriting and the book

runners would take on their liability in case of

default.

Documents

Securities Market 3