OFFERS FOR SALE METHOD
Where the marketing of securities takes place through intermediaries, such as issue houses, stockbrokers and others, it is a case sale of securities takes place in two stages. Accordingly, in the first stage, the issuer company makes an end-block sale of securities to intermediaries such as the issue houses and share brokers at an agreed price. Under the second stage, the securities are re-sold to ultimate investors at a market-related price. The difference between the purchase price and the issue price constitutes profit for the intermediaries. The intermediaries are responsible for meeting various expenses such as underwriting commission, prospectus cost, advertisement expenses, etc. The issue is also underwritten to ensure total subscription of the issue. The biggest advantage of this method is that it saves the issuing company the hassles involved in selling the shares to the public directly through prospectus. This method is, however, expensive for the investor as it involves the offer of securities by issue houses at very high prices.
Brokers To The Issue
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.
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