Investment Management UNIT-2 SECURITIES MARKETS

Regulation of Primary Market 10/30/2017 Filing of Offer Documents Pricing securities Promoters’ contribution Pre-issue obligations and post-issue obligations V.Prabakaran, AP/MBA - Securities Market

Filing of Offer Document 10/30/2017 No company shall make any public issue of securities, unless a draft prospectus has been filed with the Board, through an eligible merchant banker at least 21 days prior to the filing of Prospectus with the Registrar of Companies. No listed company shall make any issue of securities through a rights issue where the aggregate value of securities, including premium, if any, exceeds Rs. 50 lacs, unless the letter of offer is filed with the Board, through an eligible merchant banker, at least 21 days prior to the filing of the letter of offer to the Regional Stock Exchange. V.Prabakaran, AP/MBA - Securities Market

Cont… 10/30/2017 No company shall make an issue of securities if the company has been prohibited from accessing the capital market No company shall make any public issue of securities unless it has made an application for listing of those securities in the stock exchange. No company shall make public or rights issue or an offer for sale of securities, unless the company enters into an agreement with a depository for dematerialization of securities, and the company gives an option to investors to receive the security certificates in dematerialized form with a depository. V.Prabakaran, AP/MBA - Securities Market

Pricing of Securities 10/30/2017 There is no restriction on the price at which shares can be issued. The price can be decided freely by the issuer company and the lead managers. A company may charge different prices for firm allotment and public offer, however price for firm allotment should be higher than the price at which public offer is made. A listed company making a composite issue of capital may issue securities at different prices in its public and rights issues. V.Prabakaran, AP/MBA - Securities Market

Cont… 10/30/2017 Issuer Company can mention a price bond of 20% in the offer documents with the Board and actual price can be determined at a later date before filing of the offer document with Registrar of Companies. T No payment, direct or indirect in the nature of a discount, commission, and allowance or otherwise shall be made either by the issuer company or the promoters in any public issue, to the persons who have received firm allotment in such public issue. The shares cannot be issued or altered to a denomination of decimal of a rupee. V.Prabakaran, AP/MBA - Securities Market

Promoters’ contribution 10/30/2017 V.Prabakaran, AP/MBA - Securities Market

Pre-issue obligations and post-issue obligations 10/30/2017 SEBI has issued detailed guidelines with regard to both pre issue obligations as well as post-issue obligations. Appointment of ‘lead merchant banker” to manage the public issue is compulsory. The lead merchant banker is responsible for following various guidelines issued by SEBI. He is expected to exercise due diligence and the standard of due diligence shall be such that the merchant banker shall satisfy himself about all aspects of offering, veracity and adequacy of disclosure in the offer documents. The liability of the merchant banker continues even after the completion of issue process. V.Prabakaran, AP/MBA - Securities Market

Documents to be submitted 10/30/2017 Memorandum of Understanding (MOU) between lead merchant banker and Issuer Company specifying their mutual rights, liabilities and obligations relating to the issue. Certificates signed by the company secretary or chartered accountant in case of listed companies making further issue of capital as regard to dispatch of all refund orders of previous years in time and in the prescribed manner,  dispatch of security certificates, and listing of securities on the stock exchanges. V.Prabakaran, AP/MBA - Securities Market

Cont… 10/30/2017 A list of persons who constitute the promoters group and their individual share holdings. Draft prospectus in computer floppy in prescribed format. Ten copies of draft offer document. The issuer shall submit an undertaking to the Board to the effect that transactions in securities by promoter, the promoter group and the immediate relatives of promoters between the date of filing of offer documents with Registrar of Companies or Stock Exchange as the case may be and the date of closure of issue will be reported to stock exchange within 24 hours of the transactions. V.Prabakaran, AP/MBA - Securities Market

Cont… 10/30/2017 Appointment of intermediaries. In case a public or rights issue is managed by more than one merchant banker, the rights obligations and responsibilities of each merchant banker shall be demarcated as specified in Schedule II Other intermediaries such as advisor, bankers to the issue, registrar, underwriters etc. shall be appointed in consultation with lead merchant banker.Underwriting. Underwriting of public issue is not mandatory V.Prabakaran, AP/MBA - Securities Market

SEBI Guidelines for Primary Market - IPO 10/30/2017 Disclosure of all material facts Encouragement to Initial Public 0ffers Increase of Popularity to Private Placement Market Underwriting has made Optional Issue of Due Diligence Certificate Conditions regarding application Size etc Regulation of Merchant Banking Imposition of Compulsory Deposit on Companies making Public Issues Reforms as to Mutual Funds Vetting of Offer Document V.Prabakaran, AP/MBA - Securities Market

Stock Exchanges in India 10/30/2017 Stock exchange means “any body of individuals whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities”. A centralized market for buying and selling stocks where the price is determined through supply demand mechanisms. V.Prabakaran, AP/MBA - Securities Market

Objectives of Stock Exchange To safeguard the interest of investing public having dealings on the exchange. To establish and promote honorable and just practices in securities transactions. To promote, develop and maintain well-regulated market for dealing in securities. To develop industrial development in the country through efficient resource mobilisation by the way of investment in corporate securities. 10/30/2017 V.Prabakaran, AP/MBA - Securities Market

Functions of stock exchange 1.Economic Barometer: A stock exchange is a reliable barometer to measure the economic condition of a country. 2. Pricing of Securities: The stock market helps to value the securities on the basis of demand and supply factors. The securities of profitable and growth oriented companies are valued higher. 3. Safety of Transactions: In stock market only the listed securities are traded and stock exchange authorities include the companies names in the trade list only after verifying the soundness of company. 10/30/2017 V.Prabakaran, AP/MBA - Securities Market

Functions of stock exchange - Contd 4. Contributes to Economic Growth: Process of disinvestment and reinvestment leads to capital formation 5.Spreading of Equity Cult: Stock exchange encourages people to invest in ownership securities by regulating new issues, better trading practices and by educating public about investment. 6. Providing Scope for Speculation: To ensure liquidity and demand of supply of securities the stock exchange permits healthy speculation of securities. 10/30/2017 V.Prabakaran, AP/MBA - Securities Market

Functions of stock exchange - Contd 7.Liquidity: Ready market for sale and purchase of securities. 8. Better Allocation of Capital: The shares of profit making companies are quoted at higher prices and are actively traded so such companies can easily raise fresh capital from stock market. 9. Promotes the Habits of Savings and Investment: The stock market offers attractive opportunities of investment in various securities. Investing in securities rather than investing in unproductive assets such as gold, silver, etc. 10/30/2017 V.Prabakaran, AP/MBA - Securities Market

10/30/2017 Thanks… V.Prabakaran, AP/MBA - Securities Market