primary market 1
TRANSCRIPT
-
7/27/2019 Primary Market 1
1/21
PRIMARY MARKET
-
7/27/2019 Primary Market 1
2/21
Primary Market
Meaning :The primary market provides the channel for sale of new securities.
Primary market provides opportunity to issuers of securities, Govt. as
well as corporates, to raise resources to meet their requirement of
investment &/or discharge some obligation.
DefinitionThe market for new securitiesissues. In the primary market the security
is purchased directly from the issuer. This differs from the secondarymarket.
http://www.investorwords.com/2962/market.htmlhttp://www.investorwords.com/5954/securities.htmlhttp://www.investorwords.com/2651/issue.htmlhttp://www.investorwords.com/4446/security.htmlhttp://www.investorwords.com/2654/issuer.htmlhttp://www.investorwords.com/4422/secondary_market.htmlhttp://www.investorwords.com/4422/secondary_market.htmlhttp://www.investorwords.com/4422/secondary_market.htmlhttp://www.investorwords.com/4422/secondary_market.htmlhttp://www.investorwords.com/2654/issuer.htmlhttp://www.investorwords.com/4446/security.htmlhttp://www.investorwords.com/2651/issue.htmlhttp://www.investorwords.com/5954/securities.htmlhttp://www.investorwords.com/2962/market.html -
7/27/2019 Primary Market 1
3/21
Significance of Primary Market
This is the market for new long term capital. The primary market is themarket where the securities are sold for the first time. Therefore it is alsocalled the new issue market (NIM).
In a primary issue, the securities are issued by the company directly to
investors.
The company receives the money and issues new security certificates tothe investors.
Primary issues are used by companies for the purpose of setting up new
business or for expanding or modernizing the existing business.
-
7/27/2019 Primary Market 1
4/21
Significance of Primary Market (Contd.)
The primary market performs the crucial function of facilitating capitalformation in the economy.
The new issue market does not include certain other sources of new long
term external finance, such as loans from financial institutions. Borrowersin the new issue market may be raising capital for converting privatecapital into public capital; this is known as "going public."
The financial assets sold can only be redeemed by the original holder.
-
7/27/2019 Primary Market 1
5/21
Development In Primary Market
New products or services to existing customers,
Existing products or services to new customers, or
New products or services to new customers
-
7/27/2019 Primary Market 1
6/21
Role of Primary Market
Channel for sale of new securities.
Opportunity to issuers of securities (Govt.,corporates)
To raise resources to meet their requirements of investment/
Discharge obligation
Issue securities at face value
Issue the securities in domestic & international market.
-
7/27/2019 Primary Market 1
7/21
I P O
-
7/27/2019 Primary Market 1
8/21
IPO (Initial Public offering)
Meaning: IPO is when an unlisted company makes either a fresh issue of securities
or an offer for sale of existing securities or both for the first time to the
public. This paves way for listing and trading of the issuers securities.
IPO is selling of the securities to the public in the primary market. The sale
of securities can be either through book building or through normal public
issue.
-
7/27/2019 Primary Market 1
9/21
Does NSE provide any facility for IPO
Yes, NSE electronic trading network spans across the country providing
access to investors in remote areas. NSE decided to offer this
infrastructure for conducting online IPOs through the book buildingprocess. NSE operates a fully automated screen based bidding system
called NEAT IPO that enables trading members to enter bids directly from
their offices through a sophisticated telecommunication network.
-
7/27/2019 Primary Market 1
10/21
Advantages of IPO
Book Building through the NSE system offers several advantages.
The NSE system offers a nation wide bidding facility in securities.
It provides a fair, efficient & transparent method for collecting bids using
the latest electronic trading systems.
Costs involved in the issue are far less than those in normal IPO
The system reduces the time taken for completion of the issue process.
-
7/27/2019 Primary Market 1
11/21
F P O
-
7/27/2019 Primary Market 1
12/21
Meaning
The basic difference between Initial Public Offer (IPO) and Follow onPublic Offer (FPO) is as the names suggest IPO is for the companies whichhave not listed on an exchange and FPO is for the companies which havealready listed on exchange but want to raise funds by issuing some moreequity shares.
Companies usually go to debt market for raising their short term needs.
Either they issue bonds or get loans. But if they have massive expansionplans they may not raise sufficient funds in the debt market and even ifthey could it costs more. Companies come with follow on offer torestructure the business or to raise funds for new business or to expandthe existing business.
Similar to an IPO a price band is fixed (usually with the help of Investment
banks) for the issue and interested investors can apply for it. Unlike thecorporate actions (such as bonus, rights issue; they are applicable only tothe existing stake holders) FPO is open to all investors. The price band forthe FPO depends on the market value of the existing company shares andthe reason for raising funds.
http://lastbull.com/what-is-ipohttp://lastbull.com/what-is-ipohttp://lastbull.com/what-is-ipo -
7/27/2019 Primary Market 1
13/21
Private Placement Market
-
7/27/2019 Primary Market 1
14/21
Defination
Private placement definition - finance
A group of people or institutions providing equity or debtcapital to a company. Private placements are privately offered
and are restricted to qualified individuals, which typicallymeans individuals with a net worth of at least $1 million.Those investing in the private placement consist of a relativelysmall group of people or companies, in contrast with publicofferings that are sold to thousands of investors. Privateplacements don't have to be registered by the Securities and
Exchange Commission. One advantage of the privateplacement market is that it offers confidentiality.
-
7/27/2019 Primary Market 1
15/21
Book Building
-
7/27/2019 Primary Market 1
16/21
Definition of Book Building
The process of determining the price at which
an Initial Public Offering will be offered. The
book is filled with the prices that investors
indicate they are willing to paypershare, andwhen the book is closed, the issue price is
determined by an underwriter by analyzing
these values.
http://www.businessdictionary.com/definition/process.htmlhttp://www.investorwords.com/3807/price.htmlhttp://www.investorwords.com/2475/Initial_Public_Offering.htmlhttp://www.investorwords.com/2630/investor.htmlhttp://www.investorwords.com/3626/pay.htmlhttp://www.investorwords.com/5714/per.htmlhttp://www.investorwords.com/4525/share.htmlhttp://www.investorwords.com/2651/issue.htmlhttp://www.investorwords.com/5134/underwriter.htmlhttp://www.investorwords.com/5209/value.htmlhttp://www.investorwords.com/5209/value.htmlhttp://www.investorwords.com/5134/underwriter.htmlhttp://www.investorwords.com/2651/issue.htmlhttp://www.investorwords.com/4525/share.htmlhttp://www.investorwords.com/5714/per.htmlhttp://www.investorwords.com/3626/pay.htmlhttp://www.investorwords.com/2630/investor.htmlhttp://www.investorwords.com/2475/Initial_Public_Offering.htmlhttp://www.investorwords.com/3807/price.htmlhttp://www.businessdictionary.com/definition/process.html -
7/27/2019 Primary Market 1
17/21
Concept Of Book Building
Recently, the Securities and Exchange Commission (SEC)
proposed to make new rules, and subsequently invited capital
market operators to send their comments on the proposednew rules. In this era of reduction in transaction costs, Book
Building is viewed as a less expensive and less time consuming
process of offering securities to the public in such a way that
the true value of the issuer is reflected.
-
7/27/2019 Primary Market 1
18/21
Process Of Book Building
The Issuer who is planning an offer nominates an investment banking
institution as 'book runners'.
The Issuer specifies the number of securities to be issued and the priceband for the bids It is not unusual for the upper price of the band to be a
maximum of 1.2 times the floor price.
The Issuer also appoints syndicate members with whom orders are to be
placed by the investors.
-
7/27/2019 Primary Market 1
19/21
The syndicate members input the orders into an 'electronic book'.- This
process is called 'bidding' and is similar to open auction.
The book normally remains open for a period of say! 5 days.
Bids have to be entered within the specified price band, else would berejected.
Bids can be revised by the bidders before the book closes.
On the close of the book building period, the book runners evaluate thebids
On the basis of the demand at various price levels.
-
7/27/2019 Primary Market 1
20/21
-
7/27/2019 Primary Market 1
21/21
Limitations of Book Building
Book building is appropriate for mega issue only. In the case of the potentialinvestor the companies can adjust the attributes of the offer according to thepreference of the potential investors. It may not be possible in big issues sincethe risk-return preference of the investor cannot be estimated easily.
The issuer company should be fundamentally strong & well known to the
investors.
The book building system works very efficiently in matured market condition.
The investors are aware of the various parameters affecting the market price ofthe securities, But such conditions are not commonly found in practice.
There is possibility of price rigging on listing as promoters may try to bail outsyndicate members.