BROKERS TO THE ISSUE
Brokers are the persons
mainly concerned with the procurement of subscription to the issue from the
prospective investors. The appointment of brokers is not compulsory and the
companies are free to appoint any number of brokers. The managers to the issue
and the official brokers organize the preliminary distribution of securities
and procure direct subscriptions from as large or as wide a circle of investors
as possible. The stock exchange bye-laws prohibits the members from the acting
as managers or brokers to the issue and making preliminary arrangement in connection
with any flotation or new issue, unless the stock exchange of which they are
members gives its approval and the company conforms to the prescribed listing
requirements and undertakes to have its securities listed on a recognized stock
exchange. The permission granted by the stock exchange is also subject o other
stipulations which are set out in the letter of consent. Their active
assistance is indispensable for broad basing the issue and attracting
investors. By and large, the leading merchant bankers in India who act as
managers to the issue have particulars of the performance of brokers in the
country. The company in consultation with the stock exchange writes to all
active brokers of all exchanges and obtains their consent to act as brokers to the
issue. Thereby, the entry of experienced and unknown agencies in to the field
of new issue activity as issue managers, underwriters, brokers, and so on, is
discouraged. A copy of the consent letter should be filed along with the
prospectus to the ROC. The names and addresses of the brokers to the issue are
required to be disclosed in the prospectus. Brokerage may be paid within the
limits and according to other conditions prescribed. The brokerage rate
applicable to all types of public issue of industrial securities is fixed at
1.5 percent, whether the issue is underwritten or not. The mailing cost and
other out-of pocket expenses for canvassing of public issues have to be borne
by the stock brokers and no payment on that account is made by the companies. A
clause to this effect must be included in the agreement to be entered into
between the broker and the company. The listed companies are allowed to pay a
brokerage on private placement of capital at a maximum rate of 0.5 percent.
Brokerage is not
allowed in respect of promo directors, their friends and employees, and in
respect of the rights issues taken by or renounced
by the existing
shareholders. Brokerage is not payable when the applications are made by the
institutions/bankers against their underwriting commitments or on the amounts
devolving on them as underwriters consequent to the under subscription of the
issues. The issuing company is expected to pay brokerage within two months from
the date of allotment and furnish to the broker, on request, the particulars of
allotments made against applications bearing their stamp, without any charge.
The Cheques relating to brokerage on new issues and underwriting commission, if
any, should be made payable at par at all centre where the recognized stock exchanges
are situated. The rate of brokerage payable must be is enclosed in the
(i) Banking All
types of foreign exchange transactions including advice on exchange, imports,
exports finance, financing the movement of goods through acceptance credits,
the handling of commercial letters of credit, the negotiation and collection of
foreign bills, accepting call or term deposits, short or medium term finance,
bridging finance, leading; corporate banking, treasury/trading services,
discount/guarantee facilities. Issuing and underwriting. Public issues;
underwriting of issues, preparation of prospectuses; new equity; obtaining
stock exchange listings/broking services.
Corporate Finance New
issues; development capital; negotiation of mergers and takeovers; capital
reconstruction; bridging finance, medium term loans; public sector finance.
Management Services Economic
planning; trusts administration; share secretarial services; primary
capital market participation.
Product Knowledge Foreign
exchange, import finance; export finance; commercial LCs; FBCSs; Call/
Term deposits; medium term loans (MTL); Bridging finance; leasing, treasury
services, discount/guarantees, Acceptance credits, public issues, underwriting,
equity, broking, estate planning, trusts, share transfers. Marketing the public
issue arises because of the highly competitive nature of the capital market.
Moreover, there is a plethora of companies, which knock at the doors of
investors seeking to sell their securities. Above all the media bombards the
modern investors with eye catching advertisement to
sell their concepts to prospective investors.
Merchant Banking And Marketing of New
Issues Following are the steps
involved in the marketing of the issue of securities to be undertaken by the
Target market: The
first step towards the successful marketing of securities is the identification
of a target market segment where the securities can be offered for sale. This
ensures smooth marketing of the issue. Further, it is possible to identify
whether the market comprises of retail investors, wholesale investors or
Target concentration: After
having chosen the target market for selling the securities, steps are to
be taken to assess the maximum number of subscriptions that can be expected
from the market. It would work to the advantage of the company if it
concentrates on the regions where it is popular among prospective investors.
assessing market expectations, the kind and level of price to be charged for
the security must be decided. Pricing of the issue also influences the
design of capital structure. The offer has to be made more attractive by
including some unique features such as safety net, multiple options for
conversion, attaching warrants, etc.
Mobilizing intermediaries: For
successful marketing of public issues, it is important that efforts are
made to enter into contracts with financial intermediaries such as an
underwriter, broker/sub-broker, fund arranger, etc.
Information contents: Every
effort should be mad3e to ensure that the offer document for issue is
educative and contains maximum relevant information. Institutional investors
and high net worth investors should also be provided with detailed research on
the project, specifying its uniqueness and its advantage over other existing or
upcoming projects in a similar field.
advertisement campaign: In order to push the public issue,
the lead manager should undertake a high voltage advertisement campaign.
The advertising agency must be carefully selected for this purpose. The task of
advertising the issue shall be entrusted to those agencies that specialize in
launching capital offerings. The theme of the advertisement should be finalized
keeping in view SEBI guidelines. An ideal mix of different advertisement
vehicles such as the press, the radio and the television, the hoarding, etc.
should be used. Press meets, brokers and investor’s conference, etc. shall be
arranged by the lead manager at targeted in carrying out opinion polls. These
services would useful in collecting data on investors’ opinion and reactions
relating to the public issue of the company, such a task would help develop an
appropriate marketing strategy. This is because; there are vast numbers of
potential investors in semi-urban and rural areas. This calls for sustained
efforts on the part of the company to educate them about the various avenues
available for investment.
7. Brokers and
investors conferences: As part of the issue campaign, the lead
manager should arrange for brokers‘ and investors‘ conferen centre which
have sufficient investor population. In order to make such endeavors more
successful, advance planning is required. It is important that conference
materials such as banners, brochures, application forms, posters, etc. reach
the conference venue in time. In
addition, invitation to all the important people, underwriters, bankers
at the respective places, investors‘ associations should also be sent.
critical factor that could make or break the proposed pu8blic issue is its
timing. The market conditions should be favorable. Otherwise, even
issues from a company with an excellent track record, and whose shares are
highly priced, might flop. Similarly, the number and frequency of issues should
also be kept to a minimum to ensure success of the public issue.
are the various methods being adopted by corporate entities for marketing the
securities in the new Issues Market: 1. Pure Prospectus Method 2. Offer for
Sale Method 3. Private Placement Method 4. Initial Public Offers Method 5.
Rights Issue Method 6. Bonus Issue Method 7. Book-building Method 8. Stock
Option Method and 9. Bought-out Deals Method
• PPM Pure Prospectus
Method • OSM Offer for Sale Method • PPM Private Placement Method • IPOM Initial Public Offers
Method • RIM Right Issue Method • BIM Bonus
Issue Method • BBM Book Building Method • SOM Stock Option Method • BODM
BroughtOut Deals Method
1. Pure Prospectus Method The
method whereby a corporate enterprise mops up capital funds
from the general public
by means of an issue of a prospectus, is called ‘Pure Method’. It is the most
popular method of m enterprises. The features of this method are
Exclusive subscription: Under
this method, the new issues of a company are offered for exclusive
subscription of the general public. According to the SEBI norms, a minimum of
49 percent of the total issue at a time is to be offered to public.
Issue price: Direct
offer is made by the issuing company to the general public to subscribe to the
securities at a staged price. The securities may be issued either at par, of at
a discount or at a premium.
c. Underwriting: Public
issue through the pure prospectus method‘s usually underwritten. This is to
safeguard the interest of the issuer in the event of an unsatisfactory response
from the public.
d. Prospectus: A
document that information relating to the various aspects of the Issuing
company, besides other details of the issue is called a Prospectus’. The
document is circulated to the public. The general details include the company’s
name and address of the registered office, the names and addresses of the
company’s promoters, manager, managing director, directors, company secretary,
legal adviser, auditors, bankers, brokers, etc. the date of opening and closing
of subscription list, contents of Articles, the names and addresses of
underwriters, the amount underwritten and the underwriting commission, material
details regarding the project, i.e. Location, plant and machinery, technology,
collaboration, performance guarantee, infrastructure facilities etc. nature of
products, marketing set-up, export potentials and obligations, past performance
and future prospects, management’s perception regarding risk factor, credit
rating obtained from any other recognized rating agency, a statement regarding
the fact that the company will make an application to specified stock
exchange(s) for listing its securities and so on.
a. Benefits to
Investors: The pure prospectus method of marketing
the securities serves as an excellent mode of disclosure of all the
information pertaining to the issue. Besides, it also facilitates satisfactory
compliance with the legal requirements of transparency etc.. It also allows for
good publicity for the issue. The method promotes confidence of investors
through transparency and non-discriminatory basis of allotment. It prevents
artificial packing up of prices as the issue is made public.
b. Benefits to Issuers:
pure prospectus method is the most popular method among the large issuers.
In addition, it provides for wide diffusion of ownership of securities
contributing to reduction in the concentration of economic and social power.
High Issue Costs: A
major drawback of this method is that it is an expensive mode of raising funds
from the capital market. Costs of various hues are incurred in mobilizing
capital. Such costs as underwriting expenses, brokerage, administrative costs,
publicity costs, legal costs and other costs are incurred for raising funds.
Due to the high cost structure, this type of marketing of securities is
followed only for large issues.
b. Time consuming: The issue of securities through prospectus takes more time, as it requires the due compliance with various formalities before an issue could take place. For instance, a lot of work such as underwriting, etc. should be formalized before the printing and the issue of a prospectus.