CHAPTER – 01

PRIMARY MARKET OR NEW ISSUE MARKET

New issue Market or primary market is a part of capital market where new
securities i.e. shares or bonds are offered to the investing public for the first
time.
Thus, the industrial securities market consists of
 New issue market (primary market) or
 Stock exchange (i.e. secondary market).
Stock exchange is a market for old securities that is those which have been
already issued and listed on stock exchange that is secondary market.
Stock exchange provides for not only free transferability of shares but also
makes continuous evaluation of securities traded in stock exchange.
Features of primary market
 It deals with new securities which are issued to public for the first time.
 It is a market where both new companies and existing companies enter
into raise capital by offering the securities to public.
 It facilitates transfer of funds from investors to the company for raising
fresh capital.
 It helps in capital formation in the economy.
 The pricing of securities is determined through various methods like fixed
price offerings book building process or through auctions.
 There is transparency in a dealing of securities in this market as it is
controlled by SEBI.
Functions of new issue market primary market
It places a vital role in mobilizing funds from investor and transfer them to
borrower that is corporate entities or governments for productive purpose which
is important for economic growth.
The new issue market can be classified as:
IPOs - where firms go to the public for the first time through initial public
offering.
SEOs - seasoned equity offering where firms already trading raise additional
capital through SEO.

1
The main functions of new issue market can be divided into three types of
service functions
1. Organization
2. Underwriting
3. Distribution
Organization: it refers to the work of investigation analysis and processing of
new project proposals.
It starts before an issue is actually floated in the market.
There are two aspects to the organization process
1. A careful study of technical economical and financial viability to ensure
soundness of the project this job is undertaken by sponsors of the issue.
2. Advisory service which improve the quality of capital issues and ensure
its success.
The function of organization is done by merchant bankers which includes
specialized division of commercial banks or specialized financial
institutions or private firms.
Underwriting: it is an agreement whereby underwriter promises to subscribe to
a specified number of shares or debentures or specified amount of stock in an
event of public not a subscribing to issue.
Methods of underwriting
a. Standing behind the issue: here the underwriter guarantees the sale of
specified number of shares within specified period.
If the public do not subscribe to the specified amount of shares the
underwriter buys the balance in the in the issue.
b. Outright purchase: the underwriter makes an outright purchase of shares
and resells them to investors.
c. Consortium method : underwriting is jointly done by a group of
underwrites for which they from an Syndicate this method is adopted
for large issues.
Advantages of underwriting
 The issuing company is relieved from the risk of finding buyers for the
issue offered to the public i.e. the company is assured of rising adequate
capital.
 The company is assured by getting minimum subscription within the
stipulated time which is statutory requirement.

2
  Underwriters take the burden of highly specialized function of
distributing securities.
 They provide expert advice with regard to timing of security issue pricing
of issue the size of the issue and the type of securities to be issued etc.
 Public confidence on the issue is enhanced when underwriting is done by
reputed underwriters.
Underwriters in India are classified into two types
I. Institutional underwriters: they underwriters with a view to holding
them on their own portfolio and they subscribe shares are large and well-
established firms.
Example - LIC, UTI, IDBI, ICICI, commercial banks and general
insurance company.
II. Non-institutional underwriters: they are mainly stock brokers who
underwrite with a view to earning commission.
Distribution: it is the function of sale of securities to the ultimate investors.
This service is performed by brokers and agents who maintain regular and direct
contact with the ultimate investors.
Methods of floating new issues
The various methods which are used in floating of securities in the new issue
market are:
 Public issues
 Offer for sale
 Placement
 Rights issue
 Auction based offer for sale
 Institutional placement programmed (IPP) Also known as
brought out deals
Public issues
Under this method the issuing company directly offers to the general public
institution a fixed number of shares at stated price through a document called
prospectus.
This is the most common method followed by JS company to raise capital
through issue of securities.

3
Contents of prospectus
1. Name of the company
2. Address of registered office and place of business / factories
3. Existing and proposed activities
4. Names of directors’ address and qualification
5. Authorized capital and proposal issue capital
6. Date of opening and closing of public issue
7. Minimum subscription expected
8. Name of brokers / underwriters / bankers and registrars to issue
9. Statement by the company that will apply for listing of shares in the stock
exchange
According to the companies act 1956 every share application must be
accompanied by a prospectus but as per the company’s amendment act
1988 it is the sufficient to annex an abridged prospectus to the
share application
Merits of issue through prospectus
 Large section of investing public can be invited through advertisement.
 It is a direct method and no intermediaries is are involved.
 Share are allotted to large section of investors on a nondiscriminatory
basis.
Demerits of issue through prospectus
 It is an expensive method because it has to incur experts and printing of
prospectus advertisement banks commission underwriting commission
legal charges stamp duty listing fees etc.
 This method is suitable for large issues.
Offer for sale: also known as brought out deals
This method consist of outright sale of securities through the intermediaries is
of issue houses or share brokers.
In other words, shares are not offered to the public directly.
This method consists of two steps
 Direct sale by issuing company to the issue house and brokers at agreed
and negotiated prices.
 In turn the intermediaries at a later date resells the above securities in the
ultimate investors at a higher price.

4
  The difference in the purchase price and sale price for the intermediaries
is known as turn or spread
 This method is also known as brought out deals (BOD)
Advantages of offer for sale
A. It enables an issuing company with good project to obtain funds with
minimum cost without fear of undersubscriptions.
B. The company is relieved from the problem of printing and advertisement
of prospectus and making allotment of shares.
This method is not common in India this method is used generally in the
two instances
C. Offer by a foreign company of a part of its share capital to Indian investor
D. Promoters diluting their stake to comply with the requirements of stock
exchange at the time of listing of share.
New provision: now SEBI permitted promoters or large investors in companies
with market capitalization of Rs 1000 crores and above to opted for this route in
case they want to dilute their stakes in listed companies example SAIL as
tapped the share market through this route.
Placement: this method is also known as private placement
Here the issue houses or brokers buy the securities outright with the intention of
placing them with their clients afterwards the brokers act as almost like
wholesaler selling them in a retail to public.
The issue houses or brokers maintain their own list of clients and through
customer contacts sell the securities.
There is no need for formal prospectus and also underwriting agreements.
Advantages of private placements
A. Timing of the issue is important for successful flotation of shares.
B. In a depressed market condition when the issue is not likely to get public
response through prospectus private placement is useful for issue of
shares.
C. It is a useful for small companies to issue their shares.
D. It avoids delays involved in public issue and also reduces the expenses
involved in public issue.
E. This route is useful for unlisted and closely held public companies.
F. The procedure formalities for private placement is minimal.
G. The issuing company has to deal with only a few institutional investors
and hence negotiating the terms of issues easy.
5
Disadvantages of private placement
A. The securities are not widely distributed to a large section of investors.
B. Selected group of small investors are able to buy a large number of shares
and get majority holdings in a company.
This method of private placement is used to limited extent in India
usually promoters sell the shares to their friend’s relatives and well-
wishers to get minimum subscription which is pre-condition for issue of
shares to the public.
Rights issue: rights issue is a method of raising funds in a market by an existing
company a right issue means an option to buy certain securities at a certain
privileged price within a certain specified period the proposed issue of shares so
offered to the existing shareholders are called right shares.
There rights share is offered to the existing shareholders on a prorate basis to
their existing share holdings.
The rights option themselves are transferable and saleable in the market.
As per section 81 of the companies act it is obligatory for the issuing company
to offer the subsequent issue of shares on a prorate basis two existing
shareholders as rights issue.
Advantages of right issue
 The cost of issue is minimum as there is no underwriting brokerage
advertising and printing of prospectus.
 It ensures equitable distribution of shares to all existing shareholders so
that the control of the company remains undisturbed.
 It prevents directors from issuing new shares to their own relatives and
friends at a lower price and get controlling right.
Auction based offer for sale: SEBI as introduced this new method to allow
promoters in leading listed company to off load a small portion of their shares
through a fast track offer via stock exchange.
Under this method the issuing company promoters simply auction shares at the
different prices subject to a floor price and with a provision to allocate
additional shares to investor offer higher bids.
This method does not require regular formats and procedures and hence the cost
of placement is less.

6
Institutional placement programmed (IPP)
This is another method authorized by SEBI to access capital market.
This method helps in the company avoid the procedure for listing of shares
guidelines.
Red Herring prospectus (RHP)
It is a prospectus which does not have details of either price or number of shares
offered or the amount of issue of capital normally the price will not be disclosed
but the number of shares and price and will be disclosed however all details are
made available to the investors on a day just prior to date of issue open.
Pricing of new issues and SEBI guidelines
General guidelines for new issue: all issues by a new company have to be
make at par.
For existing company, the issue price should be justified as per Male gam
committee (ex-president of CA institute and board of trustee of RBI) as per the
committee the issue price should be justified by:
i. The EPS for the last 3 years and comparison of issue price to the P/E ratio
of the industry.
ii. Latest NAV.
iii. The minimum return on increased net worth should be at least equal to
pre-issue EPS.
iv. A company main also raise funds from the international markets by
issuing GDRs and ADRs.
The SEBI does not play any role in price fixation it as only issued guidelines for
issue price fixation to EPS and PE ratio of industry before issue and after issue
based on Male gam report.
It is the issuing corporate entity in the consultation with the merchant bankers
will decide the issue price but they have to fully disclose the parameters used to
decide the issue price to the SEBI.
Infect in practice this are two types of issue pricing viz
a. The company and the lead managers fix the price which is called fixed
pricing method.
b. The company and the lead managers stipulate a floor price or a price and
leave it to market forces to determine the final price which is called book
building price.

7
Principal steps involved in public issue
Public issue refers to the issue of new shares to the public
The new shares/ debentures may be offered either directly to the public through
prospectus (i.e. after document) or indirectly through and after for sale
involving financial institutions or through issuing houses.
The main tape steps involved in public issue are as follow
1. Draft prospectus: any company or a listed company making a public
issue or rights issue of value >rupees 50 lakhs as to file draft prospectus
with SEBI further scrutiny.
The company can proceed further only after getting clearance from SEBI
the company as to open its issue within 3 months from the date of getting
clearance from SEBI.
2. Fulfillment of entry norms (ENS): the SEBI has issued certain norms
for accessing entry norms in order to meet the genuine requirements of
issuing companies the SEBI has issued 3 types of entry norms the issuing
company without satisfying entering norms cannot enter into primary
market.
Entry norms 1
 The company should have net tangible assets of at least rupees 3 crores
for past 3 years.
 It should have distributable profits in a last 3 years.
 It should have net worth of minimum rupees 1 crore in the last 3 years.
 If the company wants to change its name at least 50% of revenue in the
proceeding 1 year should come from new activity.
 The issue size should not exceed 5 times the pre-issue net worth.
To help genuine companies do not suffered due to rigidity of above norms SEBI
has issued two more alternatives for accessing the primary market.
Entry norms 2
 If the issue is through book building route at least 50% of issue should be
allotted qualified institutional buyers (QIB).
 QIB means public financial institution or a commercial bank or a mutual
fund or foreign institutional investor (FII) or venture capitalist or an
insurance company or any other such body corporate apply or bids for
securities under book building process.
 The minimum post issue face value capital shall be Rs 10 crore or
 There shall be a compulsory market making for at least 2 years.
8
Market making: the share brokers display buys and sell quotes for a guarantee
number of shares by taking orders from buyers and the sell shares from their
stock holdings to complete the order the difference in price of buy and sell is
there profit.
Green shoe option: it is an option of allocating shares in excess of the shares
floated in the public issue and issue can be over allotted to extent of minimum
15% of issue price.
From the investors point of view an issue of green shoe option provides more
chances of getting shares allotted to him it also ensures that the post listing price
will be more stable than the market price.
It is a provision is an underwriting agreement that gives the underwriters the
right to sell additional shares of IPO if demand conditions warrant.
GSO provide additional prices stability to an IPO because they allow
underwriters to increase supply and smooth out price fluctuations.
Entry norms 3
If a company cannot satisfy requirements as per either EN 1, or EN 2 it can
enter into primary market to through EN3 route.
 The company should have at least 1000 prospective allotters.
 The project should be subscribed to the extent of 15% by financial
institution and scheduled commercial banks.
 The minimum post issue face value capital shall be Rs 10 crores.
 There shall be a compulsory market making for the least two years.
The above entry forms are not applicable for private and public sector banks
listed companies’ rights issue and infrastructure companies whose project has
been apprised by financial institution or banks who have financial 5% of the
project cost.
3. Appointment of underwriter: underwriters take the responsibility to a
subscribed the shortfall in case the public issue is unsubscribed
They are entitled to get a maximum commission of 2.5% on the amount
of underwriting as per SEBI but the companies act allows a maximum of
5% commission.
4. Appointment of bankers: the issuing company nominates its own
banker to act as share proceed collecting agent and process the funds
procured during the public issue.
5. Imitating allotment procedure: the registers to the public issue
nominated in the prospectus process the application form and tabulate the
9
 amount collected and imitate the allotment procedure the allotment can be
done only when the minimum subscription obtained.
6. Brokers to the issue: the recognized member of the stock exchange are
appointed as brokers to the issue for marketing the public issue there are
eligible for maximum brokerage of 1.5%
7. Filing of documents: the draft prospectus along with the copies of
agreements entered into with lead manager underwriters’ bankers’
brokers registers for issue have to be filed with the ROC of the state
where the registered office of companies located.
8. Printing of prospectus and share application forms to be printed and
sent to all merchant bankers under brokers to the issue.
9. Letter to be sent to stock exchange where the issue is proposed to listed
stating the intention of the company to get the shares listed on the stock
exchange.
10. Publication in newspapers an abridged version of prospectus in major
English diaries and local language papers.
11. Allotment of shares: after the close of public issue all the application
forms are proceed and share allotted.
12. Underwriters liability: in case the subscription is not fully subscribe the
liability of underwriters to be ascertained.
13. Optional listing of shares : the shares after allotment have to be listed
compulsory in the regional stock exchange and optionally at
other stock exchange.
Central listing authority (CLA)
CLA has been setup under regulation number 8 of SEBI regulations of 2003
The main functions of CLA are
 Processing applications for listing from applicant companies.
 Making recommendations to SEBI on issue pertaining to the protection of
interest of investors in securities.
 Making suggestions for the regulation of the securities market and the
disclosure to be made in the after documents.
 Undertaking any other function as delegated by SEBI.
Grading of IPO mandatory
SEBI has made grading of all IPOs mandatory to obtain grading from at least
one credit rating agency.
The issue document should disclose all the grading obtained by it in the
prospectus abridged prospectus issue advertisement etc. for the IPO.
10
Principal steps in private placement
Usually private placement is done in respect of equity shares preference share
bonds and debenture the following are important steps for bonds and debentures
1. Terms and conditions of the issue: like value of the investment maturity
period yield rate issue and redemption details etc. should be clearly
specified in the issue document.
2. Mandatory credit rating: from a recognized credit rating agency who
will evaluate various aspects of the instruments proposed for issue.
3. Confidential information memorandum (CIM): just like the after
document in case of shares this document contains all details about the
company and the instrument an investor can have a thorough knowledge
about the issue by going through this document.
4. Trustees to the issue: to appoint trustees to the issue to protect the
interest of investors generally banks or other financial institutions are
appointed as trustees.
5. Pre-launching formality: a couple of days before the launching date of
issue the CIM is sent to the prospective investors inviting them to
subscribe to the issue.
6. Post issue steps: after the closing date of issue decision is taken an
allotment and certificate are issued to the allotters the oversubscriptions
are refunded the details are sent to stock exchange where it is likely to be
listed.
The above steps are common even for shares experts the sl no 7 which are
decided by the shareholders at their meeting and sl no 4 there is no need
to appoint trustees.
Principal steps involved in the case of offer for sale or bought out deals
Generally, the merchant bankers Play a dominant role between the issuing
company and the ultimate investors even promoters or sponsors may also offer
shares to the public at appropriate time
Important steps are:
A. Agreement with the merchant bankers or sponsor specifying the terms
and conditions of the issue.
B. The agreement has to be registered with the concerned stock exchange
C. Default by sponsor in case of default by sponsor it will be referred to an
arbitration committee of the stock exchange.

11
 D. Offloading: the sponsor can off load his position provided the promoters
post issue holding should not be less than 20% of the issue with 3 years
lock in period.
E. Market maker: the sponsor should agree to act as a market maker for the
companies share for 18 months and also identify another market maker
for such compulsory market making.
SEBI guidelines for IPOs
The SEBI has been issuing guidelines from time to time with regard to IPO so
as to protect the interest of investors and two promote healthy capital market in
the country.
Some important guidelines relating to IPO are
a. All the allotments are to be made within 30 days of the closure of public
issue and 42 days in case of rights issue.
b. The quantum of offer to the general public should be at least of 25% of
the total issue size for listing stock exchange.
c. For listing an IPO on the NSE
 The paid-up capital should be Rs 20 crores.
 The issuing company should have track record of profitability.
 The project should be appraised by any recognized financial institution or
commercial bank or by merchant bankers.
d. In case the issue total exits rupees 100 crores it has to be placed through
book building process.
e. A minimum of 50% of public issue should be reserved for investors
applying for less than 1000 share.
f. There should be at least 5 investors for every rupee 1 lakh of equity
offered.
g. All listing formalities for public issue as to be completed within 70 days
from the date of closure of subscription list.
h. investors PAN number is mandatory for investment value about rupees
50000.
i. The subscription list for public issues shall be kept open for at least 3
working days and not more than 10 working days.
SEBI guidelines for bonus issue
Bonus shares: these are additional shares given to the existing shareholders
without any additional cost based upon the number of shares that the existing
share holder owns.

12
The bonus shares are issued out of accumulated reserves of the company instead
of declaring dividends this reserve is converted into free shares or bonus shares.
SEBI guidelines for bonus issue
1) The articles of association of the company should provide for issue of
bonus shares are if articles of association do not provide for bonus issue
amendment to articles of association should be made for allowing issue of
bonus shares.
2) Proposal for issue of bonus shares to be recommended by board of
directors and approved in the general body meeting.
3) The bonus issue can be made out of free reserves built out of genuine
profits are out of shares premiums collected in cash only.
4) Reserves created by revaluation of fixed assets are not permitted to be
capitalized.
5) Bonus shares cannot be issued in lien of dividend.
6) All pastly paidup shares should be fully paid up before issue of bonus
shares.
7) No bonus shares can be issued if company as defaulted in making
payment of statutory dues like PF, gratuity, ESI, contribution etc. and
also interest on debentures.
8) No bonus issue can be made within 12 months of any public issue / rights
issue.
9) The proposed bonus issue of shares should not exceed the authorized
capital of the company if required the authorized capital to be amended
suitably.
10. The company should file a declaration with ROC that all legal formalities
in respect of bonus issue has been complied with.
Preferential issue of shares
Preferential issue is a method of raise funds from the capital market by issuing
warrants to the shareholders of selected class.
Here the company issues new shares to pre-selected investors like financial
institutions commercial banks or industrial development banks or to strategic
partners.
But the choice of rights issue at preferential price is given only two existing
shareholders of the company before they are sold to general public.

13
Some important new instruments dealt in primary market
A. Secured premium notes (SPN) with detachable warrants
Where in the warrants attached to SPN gives rights to holder to apply for
equity shares after a notified period provided by SPN are fully paid up.
The SPN is issued at face value and does not carry any interest.
The SPN is redeemed by repayment in several installments at a premium
over the face value over the maturity period of instruments.
There is a lock in period for SPN during which no interest is paid for the
invested amount.
The SPN instrument is a secured by a mortgage of all immovable
properties of the company.
The investor can a dispose of the SPN on allotment at premium if the
shares of the issuing company commands a high premium in the market.
B. Zero interest bonds: these bonds are sold at discounted price from their
ultimate maturity value and carries no of interest this bond is converted to
equity shares either at par or at premium on the expiry of maturity period.
C. Other types of instruments with detachable warrants
 Equity shares with detachable warrants
 Preferential shares with warrants
 Non-convertible debentures with detachable equity warrants
 Fully convertible cum differential shares into equity after lock in period
 Zero interest fully convertible debenture into equity shares
 Bonds with equity warrants
 All the above cases are similar to SPN as stated above
D. Deep discount bond: these bonds are sold at huge discount to their face
value.
There are no interest payments on this bond and the investors get a return
as a certain to the par value of the instrument over its life.
Example the IDBI issued in February 1996 deep discount bonds with face
value of rupees 2 lakhs and issued for rupees 53000 with a maturity
period of 25 years the IFCI issued deep discount bonds rupees 2500 and
promises to pay rupees 100000 after 25 years.
Indian depository receipt
An IDR is a document representing underlying shares of a foreign company
denominated in Indian currency.
i.e. when a foreign company wants to raise capital from Indian investors it
issues IDRs.

14
It is just the opposite of GDR/ADR.
A GDR is used when an Indian company decide to raise money in capital
market of a foreign country.
Example Tata Steel raised USD 500 million through GDR which has listed in
London stock exchange.
Each GDR represented one shares in Tata Steel and each GDR was priced at
USD 7.6 at the time of issue which is presently trading at USD 15 per GDR.
An IDR is listed on Indian stock exchange that is BSE or NSE etc. an investor
can buy and sell IDRs just like regular shares.
Example the standard chartered banks is the first company to make use of IDRs
to raise capital in India.
Differences in IDR versus shares
 A share is a direct holding in a company but IDR is a representation of
share in the company in an indirect way.
 Multiple IDRs maybe required to hold a single stone.
 Shareholders are automatically entitled to certain rights but such rights
have to be specifically conferred on IDR holders example issue of bonus
shares rights shares etc.
 IDRs maybe converted into shares subject to certain restrictions.
 Taxation rules are different for shares and IDRs example LTCG rates.
Conclusion IDRs provide an opportunity to diversifying once own investment
portfolio by investing in foreign company but IDRs will have certain lock in
period before it can be converted into equity or to liquidate it.
Blue bonds: these are the instrument issued for various blue economy related
activities including oceanic resource mining and fishery activities.
Anchor investor: an anchor investor is the main investor to an issue as per
SEBI only banks and financial institutions could become anchor investor for
IPOs.
An anchor investor is the first investor to make substantial capital commitment
to the IPO of a company.
As per SEBI the net worth of the anchor investor should be rupees 1000 cross
and a maximum number of such anchor investors fixed at 25 per IPO issues up
to Rs 250 crores.

15
The anchor investors help to gather the momentum for the IPO through their
credibility and with their network they attract other investors.
Crowd funding: it is a way of raising money to finance new projects and
businesses like a startup.
Crowd funding enables fund raisers to collect money from a large number of
people via online platforms.
in other words when a project is in entirely financial by a group of individual
instead of professional financial institutions or venture capitalist or Angel
investors it is referred to as crowd funding.
Players in the new issue market or parties involved in the new issue market
There are many players in the new issue market some important players are
parties of the new issue market are as follows
 Merchant bankers
 Registers to the issue
 Collecting and coordinating bankers
 Printing advertising agencies and mailing agents
 Underwriters and brokers
i. Merchant bankers: they are also known as issue manager lead manager
co manager they are responsible to the issuing company and the SEBI.
ii. Registers to the issue: they are very important category of intermediaries
is who undertake all activities connected with the new issue management.
They are appointed by the company consultation with the merchant
bankers to the issue.
The registers have a major role to play next to the merchant bankers in a
process of issue the shares some of the important major activities for
formed by them are:
 Drafting the application forms to the merchant bankers.
 Identifying collection bankers and monitor the remittances of money.
 Keep informed the merchant bankers and the issuing company of the
progress of total subscription.
 Inform stock exchange about the closure of issue.
 Scrutinize the share application forms and finalize the shares allotment as
per SEBI norms.
 The most important work of the registers to issue the finance final
allotment of shares as per norms approved by stock exchange from time
to time.

16
  Send the letters of allotment to the eligible applicants and also send
refund orders to the unsuccessful applicants.
 Assist the company in getting allotted shares listed on the stock exchange
Eligibility criteria to become register for issue registration with SEBI is
essential SEBI will be examining the competency and expertise track
record of proposed register infrastructure facilities etc. before approving
any agency as register for issue.
iii. Collection bankers and coordinating bankers: collecting banker collect
the share application money from investors.
Coordinating bankers coordinate the collection work and regularly inform
the registers to the issue and to the merchant bankers.
The above both the work usually done by the same bank
iv. Underwriters and brokers: the job of printing advertising and mailing
are done by a network of underwriter’s brokers and sub brokers.
They send their own circulars and applications to the clients and do
follow up with investor to market the securities.
Investors: they are ultimate players in the issue market investors can be
following types
Real investors
Speculative investors
Investors affiliated to the issuing company
JS company and corporate bodies
Institutional investors like LIC, IDBI, ICICI, etc.
SEBI and the investor protection measures
Need for investors protection
1. The instill confidence in investor mind it is required for smooth
functioning of capital market.
2. To create a conducive atmosphere for investment so that capital can be
raised at affordable minimum cost by the corporate entities.
3. To ensure transparency in a dealing of companies and all the
intermediaries is connected to stock market.
4. Investors protection measures are aimed at bringing transparency and full
discloses in all key areas of corporate reporting.
5. To create vibrant capital market investors would freely enter into the
capital market in large numbers only when their interest is fully protected
large number of investors make the create market vibrant.

17
 6. To regulate the market on sound lines so that capital markets work
efficiently resulting in increasing investors’ confidence
7. To create discipline in the market by minimize unhealthy practices under
speculation etc. which brings good discipline among all the market
players
8. To create accountability among market players by laying down strict
investor’s norms and disclosure requirements.
9. To create awareness among inverters of their own rights and liabilities
grey areas of fraud and types of frauds that can take place etc. this would
enable the investors to protect themselves for all unhealthy and
fraudulent practices.
Factors affecting investor interest
1. Price rigging: it is a method of artificial manipulation of prices of
securities by forming cartels. by stock market players bulls and bears.
2. They do not allow the market forces of demand and supply to play their
role this artificial prices create a market wind in either direction to which
innocent investors fall as victims.
3. Insider trading: it refers to the purchase are sale of securities by person
who have access to price sensitive information about the company due to
their fiduciary relationship with that company.
Thus, the insider informers get regular profits at the expense of majority
of an informed investor.
4. Excessive speculative trading by bulls and bears: leading to market
crash because of their non-fulfillment of settlement promises affecting
innocent investors to suffer loss.
5. Lack of transparency and manipulative corporate reporting practices by
company affect investors.
6. Short selling: it refers to selling of scripts without owning them in
anticipation to buy them at lesser price in future without making actually
delivery of scripts this makes market extremely volatile.
7. Dominance of few stock exchange: through many stock exchanges are
functioning in India a lion shares of the dealing are held by BSE and NSE
only the regional of exchanges are gradually losing their importance.
8. Dominations of institutional and foreign institutional investors by about
80% of shares in the new issue market and thus the ownership of equity
by individual and household sector is gradually coming down.
9. Grievances of individual investor against listed companies’ members of
stock exchanges.

18
Example non-receipt of shares certificate non-receipt of refund orders in case of
non-allotment of shares non-receipt of dividend etc.
Various investors protection measures
a. Measures taken by stock exchanges
b. Measures taken by National company law tribunal
c. Measures taken by SEBI
d. Measures taken by court
e. Measures taken by central government
f. Measures taken by department of company affairs
Measures taken by SEBI to protect investors interest
1. SEBI has issued detailed guidelines regarding rights and responsibility of
investors and various respects of dealing in capital market to create
awareness to investors.
2. It has created separated investors grievances and guidance division at its
head office.
3. An automated complaint handling system has been introduced to deal
with all types of investors complaints.
4. In order to curb the speculation all speculation prone products such as
Badla trading c/f scheme etc. have either been banned or allowed with
restrictions.
5. The disclosure norms for public issue have been made more stringent.
6. Two simplify issue process and abridged prospectus has been permitted.
7. The promoter’s contribution for each public issue has been fixed by SEBI
the minimum promoter’s contribution should be 20% of total issue.
8. All risk factors involved in an issue should be disclosed permanently in
the prospectus so that an investor can evaluate that issue before taking
investment decision.
9. A transparent and flexible pricing method through book building process
has been introduced.
10. To avoid all Malpractices connected with allotment of shares a
representative of SEBI supervises the allotment process.
11. It has been made mandatory for the brokers to disclose the transaction
price and their brokerage in the contract notes issued by them to their
clients.
12. Demat of shares has been introduced to away with the problem of
handling physical mode of shares.
13. To bring financial discipline in the derivative market various guidelines
have been issued to deal with various derivative products.

19
14. E complaint system has been introduced for the benefit of investors.
15. To protect the interest of investors and to promote investor education and
awareness the central government as established investors education
and protection fund and all the unclaimed amount of shareholder in the
hands of companies must be treated to this fund account (with Central
Government) this fund is administrated by a trust.

20