New Issue Market in Finance

Questions and Answers

What is the main characteristic of a right issue?

A right issue is made to existing shareholders in proportion to the number of shares they possess.

What is the minimum period for which a right issue should be open?

30 days

What is the treatment of extra bonus received in a company?

Extra bonus received is treated as a part of Profit under Share Capital.

What is the primary purpose of the book-building process?

To take feedback from investors for the fixation of the price of the shares. Signup and view all the answers

What is the main objective of SEBI's guidelines on disclosure and investor protection?

To ensure transparency and protect investor interests in the securities market. Signup and view all the answers

What is the purpose of Listing Obligations and Disclosure Requirements (LODR) Regulations?

To mandate listed companies to disclose material information to the public in a timely and accurate manner. Signup and view all the answers

What type of information must companies disclose under the LODR regulations?

Quarterly and annual financial results, material events, and corporate governance reports. Signup and view all the answers

Why is immediate disclosure of material events necessary under the LODR regulations?

To inform the public of any events or information that could affect the company's stock price. Signup and view all the answers

What is the primary market often referred to as?

The new issue market. Signup and view all the answers

What is the process of a company issuing new equity to the public for the first time called?

An Initial Public Offering (IPO). Signup and view all the answers

What is the process of a company issuing new debt instruments to the public for the first time called?

Issuing bonds or debentures. Signup and view all the answers

What is the main function of the new issue market?

To facilitate the transfer of resources from savers to users. Signup and view all the answers

Who are some examples of savers in the new issue market?

Individuals, commercial banks, and insurance companies. Signup and view all the answers

Who are some examples of users in the new issue market?

Public limited companies and the government. Signup and view all the answers

What is a seasoned equity offering (SEO)?

An SEO is when a company that is already publicly traded raises additional capital by issuing more stock. Signup and view all the answers

What does "origination" refer to in the context of the new issue market?

Origination is the work involved in investigating, analyzing, and processing new project proposals. Signup and view all the answers

What is the primary purpose of Credit Rating Agencies (CRA) Regulations?

To ensure transparent and unbiased ratings Signup and view all the answers

What type of information must Alternative Investment Funds (AIFs) disclose to investors?

Detailed information about the AIF's investment strategy, risk factors, and performance. Signup and view all the answers

What is the purpose of the SCORES platform established by SEBI?

To provide an online platform for investors to lodge complaints against listed companies and market intermediaries. Signup and view all the answers

What is the primary objective of Corporate Governance Guidelines?

To promote ethical corporate behavior and transparency in the management of companies. Signup and view all the answers

What is the purpose of Audit Committees in companies?

To oversee financial reporting and disclosure. Signup and view all the answers

What must companies disclose under Risk Management and Internal Controls guidelines?

Their risk management policies and internal control systems. Signup and view all the answers

What must companies identify and disclose under Risk Management guidelines?

Key risks that could impact the company's operations. Signup and view all the answers

What must companies disclose about their internal control framework?

The internal control mechanisms and their effectiveness. Signup and view all the answers

What are the primary roles of SEBI in regulating intermediaries?

SEBI registers and regulates the working of intermediaries such as brokers, merchant bankers, and mutual funds. Signup and view all the answers

How does insider trading affect a company's performance?

Insider trading leads to significant losses for companies, as insiders may sell shares on foreknowledge of upcoming losses. Signup and view all the answers

What key information must be included in a company's prospectus?

A prospectus must include the company's name, address, promoters' details, and information about the project. Signup and view all the answers

What is meant by Initial Public Offering (IPO)?

An IPO refers to the first public issue of shares by a company to raise capital. Signup and view all the answers

What is SEBI's role in the process of issuing securities?

SEBI approves the prospectus issued by the company before shares can be offered to the public. Signup and view all the answers

How does SEBI address the issue of insider trading?

SEBI regulates insider trading through inquiries and audits to ensure fair trading practices. Signup and view all the answers

What percentage of shares must a company offer to the public during an IPO?

A company must offer a minimum of 49 percent of its shares to the public during an IPO. Signup and view all the answers

Who are considered intermediaries in the context of securities issuance?

Intermediaries include brokers, underwriters, merchant bankers, and share transfer agents. Signup and view all the answers

What is the primary purpose of the Prohibition of Insider Trading (PIT) Regulations?

To prevent insider trading and ensure fair market practices. Signup and view all the answers

What information must insiders disclose regarding their trades?

Insiders must disclose their trades in the company’s securities to the company and stock exchanges. Signup and view all the answers

What is the significance of Unpublished Price Sensitive Information (UPSI) under the PIT regulations?

UPSI must be kept confidential and disclosed on a need-to-know basis. Signup and view all the answers

What do the Issue of Capital and Disclosure Requirements (ICDR) Regulations govern?

They govern the process of public issues, rights issues, and preferential allotment of shares. Signup and view all the answers

What must a prospectus include according to ICDR Regulations?

It must include detailed disclosures such as financial statements and risk factors. Signup and view all the answers

What obligation arises under the Substantial Acquisition of Shares and Takeovers (SAST) Regulations?

There is a requirement to disclose any substantial acquisition of shares to the company and stock exchanges. Signup and view all the answers

What is the purpose of the Scheme Information Document (SID) in Mutual Funds Regulations?

It provides detailed disclosure about the mutual fund scheme, including investment objectives and risk factors. Signup and view all the answers

What does the Key Information Memorandum (KIM) summarize?

The KIM summarizes essential information about the mutual fund scheme. Signup and view all the answers

Study Notes

New Issue Market

Also known as the primary market, where companies issue new securities to the public for the first time
Deals with new securities that were not previously available to the investing public
Makes available a new block of securities for public subscription

Functions of New Issue Market

Facilitates transfer of resources from savers to users (individuals, commercial banks, insurance companies, etc. to public limited companies and government)
Raises finance for establishing new enterprises and expansion/diversification/modernization of existing units
Classified into two categories:
- Market where firms go to the public for the first time through initial public offering (IPO)
- Market where firms that are already trading raise additional capital through seasoned equity offering (SEO)

Triple Service Functions of New Issue Market

Origination: investigation, analysis, and processing of new project proposals
Areas of concern:
- Rules and regulations to regulate intermediaries (brokers, underwriters, etc.)
- Registers and regulates the working of merchant bankers, sub-brokers, stock-brokers, share transfer agents, trustees, etc.
- Registers the working of mutual funds
- SEBI regulates turnover of companies
- Conducts inquiries and audits
- Regulates insider trading

Process of Issuance of Securities

Preparation of Prospectus: must contain company information, project details, and financial information
Intermediaries: underwriters and brokers are appointed by the company to sell a minimum number of shares
Prospectus must be approved by SEBI
Company offers a minimum of 49% of the amount of shares to the public

Ways of Issuing Stocks in the Market

Initial Public Offering (IPO): when a company makes a public issue of shares for the first time
Right Issue: made by a company to its existing shareholders in proportion to the number of shares they possess
Bonus Issue: extra shares received are treated as part of profit under share capital and are divided among shareholders
Book-Building: feedback from investors is taken for the fixation of the price of shares

SEBI Guidelines for Disclosure & Investor Protection

Listing Obligations and Disclosure Requirements (LODR) Regulations:
- Periodic financial disclosures
- Material events disclosure
- Corporate governance reports
Prohibition of Insider Trading (PIT) Regulations:
- Disclosure of trades by insiders
- Trading plans
- Confidentiality of unpublished price-sensitive information (UPSI)
Issue of Capital and Disclosure Requirements (ICDR) Regulations:
- Prospectus and offer documents
- Pricing and allocation guidelines
Substantial Acquisition of Shares and Takeovers (SAST) Regulations:
- Disclosure of share acquisition
- Open offer obligations
Mutual Funds Regulations:
- Scheme information document (SID)
- Key information memorandum (KIM)
Credit Rating Agencies (CRA) Regulations:
- Rating rationale
- Monitoring and review
Alternative Investment Funds (AIFs) Regulations:
- Fund information disclosure
- Periodic reporting
Investor Grievance Redressal Mechanism:
- SCORES platform
- Arbitration and mediation
Corporate Governance Guidelines:
- Board composition and functioning
- Audit committees
Risk Management and Internal Controls:
- Risk factors
- Internal control framework

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Description

Explore the primary market where companies issue new securities to the public for the first time, including IPOs and bond issuances. Learn about the new issue market and its role in finance.