Learn about the new issue market: You've probably heard of the Primary and Secondary markets. The primary market is also known as the new issue market. But, exactly, what is the new issue market?
This article will go into detail about what the new issue market is. Continue reading to learn more about this market.
New Issue Market Definition
A new issue market is one in which a stock or bond is sold to an individual for the first time. This new issue could be an Initial Public Offering (IPO) or a new issue floated by a company that has previously floated several issues. The new issue market is a market that focuses on these new issues. The secondary market, on the other hand, deals with existing stocks and bonds. The process of offering shares of a private company to the public for the first time in a new stock issuance is known as an IPO. Simply put, the primary market is also known as the new issue market because it is where securities are sold for the first time.
Now that you have a good understanding of what the new issue market is all about, let's take a look at three bodies that are directly involved in this transaction. The entire transaction in the new issue market works like this: a company raises funds through an IPO by selling some of its shares to interested investors.
If you want to understand what is new issue market, you must first understand the functions they perform. The new issue market is responsible for both private and public issues.
The new issue market is where new and fresh stocks or bonds are first offered to the general public. Aside from these asset classes, companies can also issue bills, notes, and so on.
However, a few strict rules must be followed during this process. The Security Exchange Board of India regulates such rules and markets to protect the interests of both major and minor investors (SEBI).
The underwriters begin by issuing shares of the company that do not trade on any exchanges. These underwriters are frequently investment banks or merchant bankers.
They play an important role in the new issue market. These underwriters take on the responsibility of guaranteeing a portion of the proposed issue's fundraising. They are compensated with commissions for these services. These underwriters then sell the securities to investors seeking an IPO in the primary market.
The primary market can serve as a distribution channel for new issues. Merchant bankers make distributions using the Draft Red Herring Prospectus (DHRP). The proposed issue is heavily promoted through investor roadshows.
Read more on: What is New Issue Market?
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