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?
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What is the main objective of SEBI's guidelines on disclosure and investor protection?
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What is the purpose of Listing Obligations and Disclosure Requirements (LODR) Regulations?
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What type of information must companies disclose under the LODR regulations?
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Why is immediate disclosure of material events necessary under the LODR regulations?
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What is the primary market often referred to as?
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What is the process of a company issuing new equity to the public for the first time called?
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What is the process of a company issuing new debt instruments to the public for the first time called?
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What is the main function of the new issue market?
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Who are some examples of savers in the new issue market?
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Who are some examples of users in the new issue market?
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What is a seasoned equity offering (SEO)?
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What does "origination" refer to in the context of the new issue market?
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What is the primary purpose of Credit Rating Agencies (CRA) Regulations?
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What type of information must Alternative Investment Funds (AIFs) disclose to investors?
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What is the purpose of the SCORES platform established by SEBI?
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What is the primary objective of Corporate Governance Guidelines?
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What is the purpose of Audit Committees in companies?
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What must companies disclose under Risk Management and Internal Controls guidelines?
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What must companies identify and disclose under Risk Management guidelines?
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What must companies disclose about their internal control framework?
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What are the primary roles of SEBI in regulating intermediaries?
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How does insider trading affect a company's performance?
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What key information must be included in a company's prospectus?
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What is meant by Initial Public Offering (IPO)?
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What is SEBI's role in the process of issuing securities?
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How does SEBI address the issue of insider trading?
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What percentage of shares must a company offer to the public during an IPO?
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Who are considered intermediaries in the context of securities issuance?
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What is the primary purpose of the Prohibition of Insider Trading (PIT) Regulations?
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What information must insiders disclose regarding their trades?
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What is the significance of Unpublished Price Sensitive Information (UPSI) under the PIT regulations?
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What do the Issue of Capital and Disclosure Requirements (ICDR) Regulations govern?
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What must a prospectus include according to ICDR Regulations?
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What obligation arises under the Substantial Acquisition of Shares and Takeovers (SAST) Regulations?
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What is the purpose of the Scheme Information Document (SID) in Mutual Funds Regulations?
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What does the Key Information Memorandum (KIM) summarize?
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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.