The new issue market, also known as the primary market, is where issuers raise funds by offering securities to investors. This market involves the issuance of new securities.
The primary market helps in the creation of financial assets, while the secondary market enables their tradeability, making these two segments of the financial markets interdependent and inseparable. The following section will provide a detailed overview of each of these markets.
There are various ways in which a company can issue securities.
A public issue is when securities are offered to the public, allowing anyone who is eligible to invest to participate.
A follow-on public offer (FPO) is when an already-listed company issues fresh securities to the public or offers shares for sale to increase public shareholding.
Private placement is when securities are offered to a select group of people, typically institutional investors. Qualified institutional placements (QIPs) are private placements of shares made by a listed company to qualified institutional buyers (QIBs).
Preferential issue is an issue of securities by a listed issuer to a select group of people on a private placement basis.
Rights and bonus issues are securities offered to existing shareholders in a specific ratio to the number of securities they hold. Onshore and offshore offerings are when capital is raised from either domestic or foreign markets, respectively.
An offer for sale (OFS) is when existing shareholders offer to sell shares that have already been allotted to them, without any fresh issuance of shares.
As previously mentioned, the primary market is utilized by issuers (companies) to obtain new capital from investors. These offerings can take the form of a public offering or a private placement program offered to a select group of investors.
The shares made available may consist of new shares issued by the company, or it may involve an offer for sale where a large existing investor, or the promoters, offer a portion of their holding to the public.
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