Players of New Issue Market
In the olden days, issue of securities was managed by the company and its personnel. But at present, the stringent rules and regulations governing the new issue and the changing scenario of the capital market call for the support of many agencies to make the issue successful. The important parties involved in the new issue are:
- Managers to the issue,
- Registrar to the issue,
- Advertising agencies,
- Financial institutions; and
- Government or statutory agencies.
1. Managers to the issue
The issuing company appoints the managers to manage activities relating to the issue. The merchant banking division, subsidiary of commercial banks, foreign banks, private banks and private agencies are competent to act as managers to the issue. Generally, they perform the following duties:
1. Drafting of prospectus.
2. Preparing budgeted expenses related to the issue.
3. Determining the appropriate timing of the issue.
4. Advising the company on the matters related to the appointment of registrars, underwriters, brokers, bankers to the issue, advertising agencies, etc.
2. Registrar to the issue
Registrars are appointed in consultation with the lead managers to the issue. SEBI has laid down guidelines relating to the appointment of a registrar. Companies having competency and expertise, manpower, infrastructure and capital adequacy are allowed to appoint registrar to the issue.
A registrar is an important intermediary who performs all the activities connected with the new issue management. Usually, the registrar to the issue performs those functions connected with the allotment of securities.
Duties of the Registrar to the Issue
1. The registrars help in identifying the collection centres and collecting banker. They receive share applications from various collection centres.
2. They reclassify valid applications for allotment of securities.
3. They approach regional stock exchange and finalize the basis of allotment. Then they finalize the allotment of securities on the basis of approval by the stock exchange.
4. The registrars arrange for the despatch of the share certificates.
5. The registrars make arrangements to pay the brokerage and underwriting commission.
6. They also assist the company in getting the shares listed on the stock exchange.
Underwriting is a contract in which the underwriter guarantees subscription to the issue. Underwriters may be financial institutions, banks and approved investment companies.
While appointing an underwriter, his financial strength, experience in the primary market, past underwriting performance, outstanding underwriting commitment, investor clientele etc., are considered by the issuing company.
After the closure of subscription, the company furnishes the details of shares which are not subscribed to the underwriter. He would take up the agreed portion of the shares. If he fails to do so, the company may claim damages from the underwriter for any loss suffered by it.
The role of bankers in connection with issue is very important. They collect application money along with application forms. They charge commission in consideration of the services performed for the issuing company. If the issue is large, more than one banker may be appointed. The banker should have branches in those collection centres specified by the central government.
Bankers may be coordinating bankers or collecting bankers. Collecting bankers collect subscription, while coordinating bankers coordinate the collection work. They also monitor the issue and report to the registrars.
5. Advertising agencies
Advertising plays an important role in promoting the issue. So, while selecting an advertising agency, the competency and the past record of the advertising agency are the factors that are considered before its appointment. Moreover, the tentative programmes (proposals) and estimated costs of various advertising agencies are scrutinized before selecting one. Finally, a suitable advertising agency is appointed in consultation with the lead managers to the issue.
Advertising agencies undertake to give wide publicity to the issue through media such as newspapers, magazines, bill boards, television, etc.
6. Financial Institutions
In India, financial institutions also underwrite the issue. They also extend term loans to the issuing company. The lead manager a sends copy of the prospectus and the proposed programme for public issue to the financial institutions. On the strength of these documents, the financial institutions agree to underwrite and give financial help.
7. Government and Statutory agencies
The following are the some important government and statutory agencies related to the new issue in the primary market.
1. Securities Exchange Board of India (SEBI)
2. Registrar of Companies.
3. Reserve Bank of India in case of issue involving foreign investments.
4. Stock Exchange on which the issue is to be listed.
5. Industrial licensing authorities; and,
6. Pollution Control authorities, whose clearance is obtained for the project, is to be stated in the prospectus.