New Issue Market: Types, Features, Functions

New issue market

Many investors look for new shares of the company for investment. Many new and old companies issue their shares in the market to raise capital. Many brokers earn huge profits through interest. Read the full blog to know everything about the new issue market.  

What is the New Issue Market?

When a company issues their new stocks or bonds in the market for selling, it is called a new issue market. The stocks are issued in the market, and investors buy those stocks from the online or offline market. The companies issue their stocks to get some capital to run their business. The stocks can be issues of old or new companies. 

Types of New Issue Market

  1. Public Issue- The company that issues their stocks offers them directly to the public. The company offers a fixed number of shares, and capital is mentioned in the company’s prospectus. When the company issues their share in the market, interested investors take the company’s prospectus. In the prospectus, investors can see details of the company, which will help the investor to decide. The organization guarantees the issue shares at the market value. The public can know everything about the company in the prospectus, such as authorized capital, name of brokers, underwriters, and bankers. 
  2. Offer for sale- The company sells their shares through brokers or issue houses. The sale of shares of the company is guaranteed by the underwriters. The companies offer shares to the brokers at lower prices, and brokers earn huge interest by selling the shares. There is a difference in the price of the company shares and the price at which investors buy. It is because the brokers offer shares to the public at high prices. 
  3. Private Placement- Some investors are involved in private placements, such as insurance companies, mutual funds, and banks. In the public issue, the shares are issued to the public, but it doesn’t happen in a private placement. In private placement, there is no role of underwriters and prospectus. The brokers and issue houses take responsibility for selling the company’s shares.  
  4. Right Issue- When an old company that already has shareholders wants to release more shares in the market is called the right issue. The company takes permission from SEBI and then issues their right shares in the market. 
  5. Book Building- The underwriter analyzes the demand and supply of the company shares during the initial public offering. In book building, the company invites bids from merchants to sell their shares instead of offering shares to the public. After buying the shares, it is the responsibility of the merchant to sell the shares of the company. The companies sell their shares to professional and qualified merchant bidders. 

Functions of New Issue Market

  1. Origination- The agencies investigate, analyze and process new proposals. The agencies study the legal, technical and economical aspects of issuing companies. To succeed in issuing shares, specialized agencies analyze the time of floating of an issue, price and types of issues.
  2. Underwriting- It is a kind of guarantee taken by the company that they are issuing fixed numbers of shares in the market. The subscription gets guaranteed even if the public does not buy the shares. 
  3. Distribution and mechanics of floating new issues- The role of a new issue market is to sell their shares to the brokers, and brokers sell them in the market. The brokers maintain the list of clients who invest in the company shares. 

Features of New Issue Market

1. The new issue market is related to new issues. When an old or new company sells a fixed number of shares which is called Initial public offering(IPO).

 2. Another feature of the new issue market is new issues are offered in the market, but there is no specific place to issue the shares.

3. New issue market has numerous methods of floating capital such as an offer for sale, public issue and private placement.

Conclusion 

The new issue market is also known as the primary market. Many companies issue their shares in the market to get extra capital to get more cash to increase their business. They contact the intermediators to sell their shares to the public.