NCERT Textbook: Primary Market | Financial Literacy for Class 10 PDF Download

 Page 1


Unit Code: 3 Unit  Title: Primary Market
Session-1 : New Issue Market
Location:
Class Room,
Stock
Exchange,
FMM Lab,
Learning 
Outcome
Knowledge 
Evaluation
Performance 
Evaluation
Teaching and 
Training Method
·
·
Who can bring 
new issue.
Role of Primary 
Market
· Different rates 
to bring new 
issue (Face 
value, 
premium, 
discount)
Interactive lecture: 
Discuss IPO Form.
Activity: 
Visit in Stock 
Exchange to collect 
Reports and IPO 
Forms.
·
·
·
Need for issue
Market 
Capitalization
Public Vs 
Private 
Placement
·
·
Pricing of new 
issue
Subscription
· Parties 
involved in 
new issues
Interactive lecture:
Procedure 
Discussion
Activity:
Learn how to fill 
IPO
Session-2 : Issue of Shares
·
·
·
Draft offer 
documents
Listing 
agreement
SEBI role
· Distinguish 
between 
Abridged 
Prospectus 
and Red 
Herring 
Prospectus
Interactive lecture:
Highlights of 
Prospectus
Activity:
Bring prospectus 
from the Stock 
Exchange
Session-3 : Saturated Prospectus
· Causes to 
bring issue 
on Face 
Value and 
Premium 
and 
Discount 
respectively.
·
·
Abridged 
Prospectus
Red-Herring 
Prospectus
What is the role of the ‘Primary Market’?
What is meant by Face Value of a share/debenture?
What do you mean by the term Premium and Discount in a Security Market?
Why do companies need to issue shares to the public?
What are the different kinds of issues?
The primary market provides the channel for sale of new securities. Primary market provides 
opportunity to issuers of securities; Government as well as corporates, to raise resources to meet 
their requirements of investment and/or discharge some obligation.
They may issue the securities at face value, or at a discount/premium and these securities may 
take a variety of forms such as equity, debt etc. They may issue the securities in domestic market 
and/or international market.
The nominal or stated amount (in Rs.) assigned to a security by the issuer. For shares, it is the 
original cost of the stock shown on the certificate; for bonds, it is the amount paid to the holder 
at maturity. Also known as par value or simply par. For an equity share, the face value is usually 
a very small amount (Rs.5, Rs.10) and does not have much bearing on the price of the share, 
which may quote higher in the market, at Rs.100 or Rs.1000 or any other price. For a debt 
security, face value is the amount repaid to the investor when the bond matures (usually, 
Government securities and corporate bonds have a face value of Rs.100). The price at which the 
security trades depends on the fluctuations in the interest rates in the economy.
Securities are generally issued in denominations of 5, 10 or 100. This is known as the Face Value 
or Par Value of the security as discussed earlier. When a security is sold above its face value, it is 
said to be issued at a Premium and if it is sold at less than its face value, then it is said to be 
issued at a Discount.
Most companies are usually started privately by their promoter(s). However, the promoters’ 
capital and the borrowings from banks and financial institutions may not be sufficient for setting 
up or running the business over a long term. So companies invite the public to contribute 
towards the equity and issue shares to individual investors. The way to invite share capital from 
the public is through a ‘Public Issue’. Simply stated, a public issue is an offer to the public to 
subscribe to the share capital of a company. Once this is done, the company allots shares to the 
applicants as per the prescribed rules and regulations laid down by SEBI.
Primarily, issues can be classified as a Public, Rights or Preferential issues (also known as private 
placements). While public and rights issues involve a detailed procedure, private placements or 
preferential issues are relatively simpler. The classification of issues is illustrated below:
3.1    Issue of Shares
PRIMARY MARKET
Chapter 3
10
Page 2


Unit Code: 3 Unit  Title: Primary Market
Session-1 : New Issue Market
Location:
Class Room,
Stock
Exchange,
FMM Lab,
Learning 
Outcome
Knowledge 
Evaluation
Performance 
Evaluation
Teaching and 
Training Method
·
·
Who can bring 
new issue.
Role of Primary 
Market
· Different rates 
to bring new 
issue (Face 
value, 
premium, 
discount)
Interactive lecture: 
Discuss IPO Form.
Activity: 
Visit in Stock 
Exchange to collect 
Reports and IPO 
Forms.
·
·
·
Need for issue
Market 
Capitalization
Public Vs 
Private 
Placement
·
·
Pricing of new 
issue
Subscription
· Parties 
involved in 
new issues
Interactive lecture:
Procedure 
Discussion
Activity:
Learn how to fill 
IPO
Session-2 : Issue of Shares
·
·
·
Draft offer 
documents
Listing 
agreement
SEBI role
· Distinguish 
between 
Abridged 
Prospectus 
and Red 
Herring 
Prospectus
Interactive lecture:
Highlights of 
Prospectus
Activity:
Bring prospectus 
from the Stock 
Exchange
Session-3 : Saturated Prospectus
· Causes to 
bring issue 
on Face 
Value and 
Premium 
and 
Discount 
respectively.
·
·
Abridged 
Prospectus
Red-Herring 
Prospectus
What is the role of the ‘Primary Market’?
What is meant by Face Value of a share/debenture?
What do you mean by the term Premium and Discount in a Security Market?
Why do companies need to issue shares to the public?
What are the different kinds of issues?
The primary market provides the channel for sale of new securities. Primary market provides 
opportunity to issuers of securities; Government as well as corporates, to raise resources to meet 
their requirements of investment and/or discharge some obligation.
They may issue the securities at face value, or at a discount/premium and these securities may 
take a variety of forms such as equity, debt etc. They may issue the securities in domestic market 
and/or international market.
The nominal or stated amount (in Rs.) assigned to a security by the issuer. For shares, it is the 
original cost of the stock shown on the certificate; for bonds, it is the amount paid to the holder 
at maturity. Also known as par value or simply par. For an equity share, the face value is usually 
a very small amount (Rs.5, Rs.10) and does not have much bearing on the price of the share, 
which may quote higher in the market, at Rs.100 or Rs.1000 or any other price. For a debt 
security, face value is the amount repaid to the investor when the bond matures (usually, 
Government securities and corporate bonds have a face value of Rs.100). The price at which the 
security trades depends on the fluctuations in the interest rates in the economy.
Securities are generally issued in denominations of 5, 10 or 100. This is known as the Face Value 
or Par Value of the security as discussed earlier. When a security is sold above its face value, it is 
said to be issued at a Premium and if it is sold at less than its face value, then it is said to be 
issued at a Discount.
Most companies are usually started privately by their promoter(s). However, the promoters’ 
capital and the borrowings from banks and financial institutions may not be sufficient for setting 
up or running the business over a long term. So companies invite the public to contribute 
towards the equity and issue shares to individual investors. The way to invite share capital from 
the public is through a ‘Public Issue’. Simply stated, a public issue is an offer to the public to 
subscribe to the share capital of a company. Once this is done, the company allots shares to the 
applicants as per the prescribed rules and regulations laid down by SEBI.
Primarily, issues can be classified as a Public, Rights or Preferential issues (also known as private 
placements). While public and rights issues involve a detailed procedure, private placements or 
preferential issues are relatively simpler. The classification of issues is illustrated below:
3.1    Issue of Shares
PRIMARY MARKET
Chapter 3
10
Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of 
securities or an offer for sale of its existing securities or both for the first time to the public. This 
paves way for listing and trading of the issuer’s securities.
A follow on public offering (Further Issue) is when an already listed company makes either a 
fresh issue of securities to the public or an offer for sale to the public, through an offer 
document.
Rights Issue is when a listed company which proposes to issue fresh securities to its existing 
shareholders as on a record date. The rights are normally offered in a particular ratio to the 
number of securities held prior to the issue. This route is best suited for companies who would 
like to raise capital without diluting stake of its existing shareholders.
A Preferential issue is an issue of shares or of convertible securities by listed companies to a 
select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights 
issue nor a public issue. This is a faster way for a company to raise equity capital. The issuer 
company has to comply with the Companies Act and the requirements contained in the Chapter 
pertaining to preferential allotment in SEBI guidelines which inter-alia include pricing, 
disclosures in notice etc.
Classification of Issues
Issues
Public Rights Preferential
Further Public Offering Initial Public Offering
Fresh Issue Offer for Sale Fresh Issue Offer for Sale
What is meant by Issue price?
What is meant by Market Capitalisation?
The price at which a company’s shares are offered initially in the primary market is called as the 
Issue price. When they begin to be traded, the market price may be above or below the issue 
price.
The market value of a quoted company, which is calculated by multiplying its current share 
price (market price) by the number of shares in issue is called as market capitalization. E.g. 
Company A has 120 million shares in issue. The current market price is Rs. 100. The market 
capitalisation of company A is Rs. 12000 million.
When an issue is not made to only a select set of people but is open to the general public and 
any other investor at large, it is a public issue. But if the issue is made to a select set of people, it 
is called private placement. As per Companies Act, 1956, an issue becomes public if it results in 
allotment to 50 persons or more. This means an issue can be privately placed where an allotment 
is made to less than 50 persons.
An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is 
when an unlisted company makes either a fresh issue of securities or an offer for sale of its 
existing securities or both for the first time to the public. This paves way for listing and trading 
of the issuer’s securities. The sale of securities can be either through book building or through 
normal public issue.
Indian primary market ushered in an era of free pricing in 1992. Following this, the guidelines 
have provided that the issuer in consultation with Merchant Banker shall decide the price. There 
is no price formula stipulated by SEBI. SEBI does not play any role in price fixation. The 
company and merchant banker are however required to give full disclosures of the parameters 
which they had considered while deciding the issue price. There are two types of issues, one 
where company and Lead Merchant Banker fix a price (called fixed price) and other, where the 
company and the Lead Manager (LM) stipulate a floor price or a price band and leave it to 
market forces to determine the final price (price discovery through book building process).
Book Building is basically a process used in IPOs for efficient price discovery. It is a mechanism 
where, during the period for which the IPO is open, bids are collected from investors at various 
prices, which are above or equal to the floor price. The offer price is determined after the bid 
closing date.
Price at which securities will be allotted is not known in case of offer of shares through Book 
Building while in case of offer of shares through normal public issue, price is known in advance 
to investor. Under Book Building, investors bid for shares at the floor price or above and after the 
closure of the book building process the price is determined for allotment of shares.
In case of Book Building, the demand can be known everyday as the book is being built. But in 
case of the public issue the demand is known at the close of the issue.
In a Book building issue, the issuer is required to indicate either the price band or a floor price in 
the prospectus. The actual discovered issue price can be any price in the price band or any price 
above the floor price. This issue price is called “Cut-Off Price”. The issuer and lead manager 
decides this after considering the book and the investors’ appetite for the stock.
What is the difference between public issue and private placement?
What is an Initial Public Offer (IPO)?
Who decides the price of an issue?
What does ‘price discovery through Book Building Process’ mean?
What is the main difference between offer of shares through book building and offer of 
shares through normal public issue?
What is Cut-Off Price?
Introduction to Financial Markets
13
Page 3


Unit Code: 3 Unit  Title: Primary Market
Session-1 : New Issue Market
Location:
Class Room,
Stock
Exchange,
FMM Lab,
Learning 
Outcome
Knowledge 
Evaluation
Performance 
Evaluation
Teaching and 
Training Method
·
·
Who can bring 
new issue.
Role of Primary 
Market
· Different rates 
to bring new 
issue (Face 
value, 
premium, 
discount)
Interactive lecture: 
Discuss IPO Form.
Activity: 
Visit in Stock 
Exchange to collect 
Reports and IPO 
Forms.
·
·
·
Need for issue
Market 
Capitalization
Public Vs 
Private 
Placement
·
·
Pricing of new 
issue
Subscription
· Parties 
involved in 
new issues
Interactive lecture:
Procedure 
Discussion
Activity:
Learn how to fill 
IPO
Session-2 : Issue of Shares
·
·
·
Draft offer 
documents
Listing 
agreement
SEBI role
· Distinguish 
between 
Abridged 
Prospectus 
and Red 
Herring 
Prospectus
Interactive lecture:
Highlights of 
Prospectus
Activity:
Bring prospectus 
from the Stock 
Exchange
Session-3 : Saturated Prospectus
· Causes to 
bring issue 
on Face 
Value and 
Premium 
and 
Discount 
respectively.
·
·
Abridged 
Prospectus
Red-Herring 
Prospectus
What is the role of the ‘Primary Market’?
What is meant by Face Value of a share/debenture?
What do you mean by the term Premium and Discount in a Security Market?
Why do companies need to issue shares to the public?
What are the different kinds of issues?
The primary market provides the channel for sale of new securities. Primary market provides 
opportunity to issuers of securities; Government as well as corporates, to raise resources to meet 
their requirements of investment and/or discharge some obligation.
They may issue the securities at face value, or at a discount/premium and these securities may 
take a variety of forms such as equity, debt etc. They may issue the securities in domestic market 
and/or international market.
The nominal or stated amount (in Rs.) assigned to a security by the issuer. For shares, it is the 
original cost of the stock shown on the certificate; for bonds, it is the amount paid to the holder 
at maturity. Also known as par value or simply par. For an equity share, the face value is usually 
a very small amount (Rs.5, Rs.10) and does not have much bearing on the price of the share, 
which may quote higher in the market, at Rs.100 or Rs.1000 or any other price. For a debt 
security, face value is the amount repaid to the investor when the bond matures (usually, 
Government securities and corporate bonds have a face value of Rs.100). The price at which the 
security trades depends on the fluctuations in the interest rates in the economy.
Securities are generally issued in denominations of 5, 10 or 100. This is known as the Face Value 
or Par Value of the security as discussed earlier. When a security is sold above its face value, it is 
said to be issued at a Premium and if it is sold at less than its face value, then it is said to be 
issued at a Discount.
Most companies are usually started privately by their promoter(s). However, the promoters’ 
capital and the borrowings from banks and financial institutions may not be sufficient for setting 
up or running the business over a long term. So companies invite the public to contribute 
towards the equity and issue shares to individual investors. The way to invite share capital from 
the public is through a ‘Public Issue’. Simply stated, a public issue is an offer to the public to 
subscribe to the share capital of a company. Once this is done, the company allots shares to the 
applicants as per the prescribed rules and regulations laid down by SEBI.
Primarily, issues can be classified as a Public, Rights or Preferential issues (also known as private 
placements). While public and rights issues involve a detailed procedure, private placements or 
preferential issues are relatively simpler. The classification of issues is illustrated below:
3.1    Issue of Shares
PRIMARY MARKET
Chapter 3
10
Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of 
securities or an offer for sale of its existing securities or both for the first time to the public. This 
paves way for listing and trading of the issuer’s securities.
A follow on public offering (Further Issue) is when an already listed company makes either a 
fresh issue of securities to the public or an offer for sale to the public, through an offer 
document.
Rights Issue is when a listed company which proposes to issue fresh securities to its existing 
shareholders as on a record date. The rights are normally offered in a particular ratio to the 
number of securities held prior to the issue. This route is best suited for companies who would 
like to raise capital without diluting stake of its existing shareholders.
A Preferential issue is an issue of shares or of convertible securities by listed companies to a 
select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights 
issue nor a public issue. This is a faster way for a company to raise equity capital. The issuer 
company has to comply with the Companies Act and the requirements contained in the Chapter 
pertaining to preferential allotment in SEBI guidelines which inter-alia include pricing, 
disclosures in notice etc.
Classification of Issues
Issues
Public Rights Preferential
Further Public Offering Initial Public Offering
Fresh Issue Offer for Sale Fresh Issue Offer for Sale
What is meant by Issue price?
What is meant by Market Capitalisation?
The price at which a company’s shares are offered initially in the primary market is called as the 
Issue price. When they begin to be traded, the market price may be above or below the issue 
price.
The market value of a quoted company, which is calculated by multiplying its current share 
price (market price) by the number of shares in issue is called as market capitalization. E.g. 
Company A has 120 million shares in issue. The current market price is Rs. 100. The market 
capitalisation of company A is Rs. 12000 million.
When an issue is not made to only a select set of people but is open to the general public and 
any other investor at large, it is a public issue. But if the issue is made to a select set of people, it 
is called private placement. As per Companies Act, 1956, an issue becomes public if it results in 
allotment to 50 persons or more. This means an issue can be privately placed where an allotment 
is made to less than 50 persons.
An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is 
when an unlisted company makes either a fresh issue of securities or an offer for sale of its 
existing securities or both for the first time to the public. This paves way for listing and trading 
of the issuer’s securities. The sale of securities can be either through book building or through 
normal public issue.
Indian primary market ushered in an era of free pricing in 1992. Following this, the guidelines 
have provided that the issuer in consultation with Merchant Banker shall decide the price. There 
is no price formula stipulated by SEBI. SEBI does not play any role in price fixation. The 
company and merchant banker are however required to give full disclosures of the parameters 
which they had considered while deciding the issue price. There are two types of issues, one 
where company and Lead Merchant Banker fix a price (called fixed price) and other, where the 
company and the Lead Manager (LM) stipulate a floor price or a price band and leave it to 
market forces to determine the final price (price discovery through book building process).
Book Building is basically a process used in IPOs for efficient price discovery. It is a mechanism 
where, during the period for which the IPO is open, bids are collected from investors at various 
prices, which are above or equal to the floor price. The offer price is determined after the bid 
closing date.
Price at which securities will be allotted is not known in case of offer of shares through Book 
Building while in case of offer of shares through normal public issue, price is known in advance 
to investor. Under Book Building, investors bid for shares at the floor price or above and after the 
closure of the book building process the price is determined for allotment of shares.
In case of Book Building, the demand can be known everyday as the book is being built. But in 
case of the public issue the demand is known at the close of the issue.
In a Book building issue, the issuer is required to indicate either the price band or a floor price in 
the prospectus. The actual discovered issue price can be any price in the price band or any price 
above the floor price. This issue price is called “Cut-Off Price”. The issuer and lead manager 
decides this after considering the book and the investors’ appetite for the stock.
What is the difference between public issue and private placement?
What is an Initial Public Offer (IPO)?
Who decides the price of an issue?
What does ‘price discovery through Book Building Process’ mean?
What is the main difference between offer of shares through book building and offer of 
shares through normal public issue?
What is Cut-Off Price?
Introduction to Financial Markets
13
Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of 
securities or an offer for sale of its existing securities or both for the first time to the public. This 
paves way for listing and trading of the issuer’s securities.
A follow on public offering (Further Issue) is when an already listed company makes either a 
fresh issue of securities to the public or an offer for sale to the public, through an offer 
document.
Rights Issue is when a listed company which proposes to issue fresh securities to its existing 
shareholders as on a record date. The rights are normally offered in a particular ratio to the 
number of securities held prior to the issue. This route is best suited for companies who would 
like to raise capital without diluting stake of its existing shareholders.
A Preferential issue is an issue of shares or of convertible securities by listed companies to a 
select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights 
issue nor a public issue. This is a faster way for a company to raise equity capital. The issuer 
company has to comply with the Companies Act and the requirements contained in the Chapter 
pertaining to preferential allotment in SEBI guidelines which inter-alia include pricing, 
disclosures in notice etc.
Classification of Issues
Issues
Public Rights Preferential
Further Public Offering Initial Public Offering
Fresh Issue Offer for Sale Fresh Issue Offer for Sale
What is meant by Issue price?
What is meant by Market Capitalisation?
The price at which a company’s shares are offered initially in the primary market is called as the 
Issue price. When they begin to be traded, the market price may be above or below the issue 
price.
The market value of a quoted company, which is calculated by multiplying its current share 
price (market price) by the number of shares in issue is called as market capitalization. E.g. 
Company A has 120 million shares in issue. The current market price is Rs. 100. The market 
capitalisation of company A is Rs. 12000 million.
When an issue is not made to only a select set of people but is open to the general public and 
any other investor at large, it is a public issue. But if the issue is made to a select set of people, it 
is called private placement. As per Companies Act, 1956, an issue becomes public if it results in 
allotment to 50 persons or more. This means an issue can be privately placed where an allotment 
is made to less than 50 persons.
An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is 
when an unlisted company makes either a fresh issue of securities or an offer for sale of its 
existing securities or both for the first time to the public. This paves way for listing and trading 
of the issuer’s securities. The sale of securities can be either through book building or through 
normal public issue.
Indian primary market ushered in an era of free pricing in 1992. Following this, the guidelines 
have provided that the issuer in consultation with Merchant Banker shall decide the price. There 
is no price formula stipulated by SEBI. SEBI does not play any role in price fixation. The 
company and merchant banker are however required to give full disclosures of the parameters 
which they had considered while deciding the issue price. There are two types of issues, one 
where company and Lead Merchant Banker fix a price (called fixed price) and other, where the 
company and the Lead Manager (LM) stipulate a floor price or a price band and leave it to 
market forces to determine the final price (price discovery through book building process).
Book Building is basically a process used in IPOs for efficient price discovery. It is a mechanism 
where, during the period for which the IPO is open, bids are collected from investors at various 
prices, which are above or equal to the floor price. The offer price is determined after the bid 
closing date.
Price at which securities will be allotted is not known in case of offer of shares through Book 
Building while in case of offer of shares through normal public issue, price is known in advance 
to investor. Under Book Building, investors bid for shares at the floor price or above and after the 
closure of the book building process the price is determined for allotment of shares.
In case of Book Building, the demand can be known everyday as the book is being built. But in 
case of the public issue the demand is known at the close of the issue.
In a Book building issue, the issuer is required to indicate either the price band or a floor price in 
the prospectus. The actual discovered issue price can be any price in the price band or any price 
above the floor price. This issue price is called “Cut-Off Price”. The issuer and lead manager 
decides this after considering the book and the investors’ appetite for the stock.
What is the difference between public issue and private placement?
What is an Initial Public Offer (IPO)?
Who decides the price of an issue?
What does ‘price discovery through Book Building Process’ mean?
What is the main difference between offer of shares through book building and offer of 
shares through normal public issue?
What is Cut-Off Price?
12
Page 4


Unit Code: 3 Unit  Title: Primary Market
Session-1 : New Issue Market
Location:
Class Room,
Stock
Exchange,
FMM Lab,
Learning 
Outcome
Knowledge 
Evaluation
Performance 
Evaluation
Teaching and 
Training Method
·
·
Who can bring 
new issue.
Role of Primary 
Market
· Different rates 
to bring new 
issue (Face 
value, 
premium, 
discount)
Interactive lecture: 
Discuss IPO Form.
Activity: 
Visit in Stock 
Exchange to collect 
Reports and IPO 
Forms.
·
·
·
Need for issue
Market 
Capitalization
Public Vs 
Private 
Placement
·
·
Pricing of new 
issue
Subscription
· Parties 
involved in 
new issues
Interactive lecture:
Procedure 
Discussion
Activity:
Learn how to fill 
IPO
Session-2 : Issue of Shares
·
·
·
Draft offer 
documents
Listing 
agreement
SEBI role
· Distinguish 
between 
Abridged 
Prospectus 
and Red 
Herring 
Prospectus
Interactive lecture:
Highlights of 
Prospectus
Activity:
Bring prospectus 
from the Stock 
Exchange
Session-3 : Saturated Prospectus
· Causes to 
bring issue 
on Face 
Value and 
Premium 
and 
Discount 
respectively.
·
·
Abridged 
Prospectus
Red-Herring 
Prospectus
What is the role of the ‘Primary Market’?
What is meant by Face Value of a share/debenture?
What do you mean by the term Premium and Discount in a Security Market?
Why do companies need to issue shares to the public?
What are the different kinds of issues?
The primary market provides the channel for sale of new securities. Primary market provides 
opportunity to issuers of securities; Government as well as corporates, to raise resources to meet 
their requirements of investment and/or discharge some obligation.
They may issue the securities at face value, or at a discount/premium and these securities may 
take a variety of forms such as equity, debt etc. They may issue the securities in domestic market 
and/or international market.
The nominal or stated amount (in Rs.) assigned to a security by the issuer. For shares, it is the 
original cost of the stock shown on the certificate; for bonds, it is the amount paid to the holder 
at maturity. Also known as par value or simply par. For an equity share, the face value is usually 
a very small amount (Rs.5, Rs.10) and does not have much bearing on the price of the share, 
which may quote higher in the market, at Rs.100 or Rs.1000 or any other price. For a debt 
security, face value is the amount repaid to the investor when the bond matures (usually, 
Government securities and corporate bonds have a face value of Rs.100). The price at which the 
security trades depends on the fluctuations in the interest rates in the economy.
Securities are generally issued in denominations of 5, 10 or 100. This is known as the Face Value 
or Par Value of the security as discussed earlier. When a security is sold above its face value, it is 
said to be issued at a Premium and if it is sold at less than its face value, then it is said to be 
issued at a Discount.
Most companies are usually started privately by their promoter(s). However, the promoters’ 
capital and the borrowings from banks and financial institutions may not be sufficient for setting 
up or running the business over a long term. So companies invite the public to contribute 
towards the equity and issue shares to individual investors. The way to invite share capital from 
the public is through a ‘Public Issue’. Simply stated, a public issue is an offer to the public to 
subscribe to the share capital of a company. Once this is done, the company allots shares to the 
applicants as per the prescribed rules and regulations laid down by SEBI.
Primarily, issues can be classified as a Public, Rights or Preferential issues (also known as private 
placements). While public and rights issues involve a detailed procedure, private placements or 
preferential issues are relatively simpler. The classification of issues is illustrated below:
3.1    Issue of Shares
PRIMARY MARKET
Chapter 3
10
Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of 
securities or an offer for sale of its existing securities or both for the first time to the public. This 
paves way for listing and trading of the issuer’s securities.
A follow on public offering (Further Issue) is when an already listed company makes either a 
fresh issue of securities to the public or an offer for sale to the public, through an offer 
document.
Rights Issue is when a listed company which proposes to issue fresh securities to its existing 
shareholders as on a record date. The rights are normally offered in a particular ratio to the 
number of securities held prior to the issue. This route is best suited for companies who would 
like to raise capital without diluting stake of its existing shareholders.
A Preferential issue is an issue of shares or of convertible securities by listed companies to a 
select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights 
issue nor a public issue. This is a faster way for a company to raise equity capital. The issuer 
company has to comply with the Companies Act and the requirements contained in the Chapter 
pertaining to preferential allotment in SEBI guidelines which inter-alia include pricing, 
disclosures in notice etc.
Classification of Issues
Issues
Public Rights Preferential
Further Public Offering Initial Public Offering
Fresh Issue Offer for Sale Fresh Issue Offer for Sale
What is meant by Issue price?
What is meant by Market Capitalisation?
The price at which a company’s shares are offered initially in the primary market is called as the 
Issue price. When they begin to be traded, the market price may be above or below the issue 
price.
The market value of a quoted company, which is calculated by multiplying its current share 
price (market price) by the number of shares in issue is called as market capitalization. E.g. 
Company A has 120 million shares in issue. The current market price is Rs. 100. The market 
capitalisation of company A is Rs. 12000 million.
When an issue is not made to only a select set of people but is open to the general public and 
any other investor at large, it is a public issue. But if the issue is made to a select set of people, it 
is called private placement. As per Companies Act, 1956, an issue becomes public if it results in 
allotment to 50 persons or more. This means an issue can be privately placed where an allotment 
is made to less than 50 persons.
An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is 
when an unlisted company makes either a fresh issue of securities or an offer for sale of its 
existing securities or both for the first time to the public. This paves way for listing and trading 
of the issuer’s securities. The sale of securities can be either through book building or through 
normal public issue.
Indian primary market ushered in an era of free pricing in 1992. Following this, the guidelines 
have provided that the issuer in consultation with Merchant Banker shall decide the price. There 
is no price formula stipulated by SEBI. SEBI does not play any role in price fixation. The 
company and merchant banker are however required to give full disclosures of the parameters 
which they had considered while deciding the issue price. There are two types of issues, one 
where company and Lead Merchant Banker fix a price (called fixed price) and other, where the 
company and the Lead Manager (LM) stipulate a floor price or a price band and leave it to 
market forces to determine the final price (price discovery through book building process).
Book Building is basically a process used in IPOs for efficient price discovery. It is a mechanism 
where, during the period for which the IPO is open, bids are collected from investors at various 
prices, which are above or equal to the floor price. The offer price is determined after the bid 
closing date.
Price at which securities will be allotted is not known in case of offer of shares through Book 
Building while in case of offer of shares through normal public issue, price is known in advance 
to investor. Under Book Building, investors bid for shares at the floor price or above and after the 
closure of the book building process the price is determined for allotment of shares.
In case of Book Building, the demand can be known everyday as the book is being built. But in 
case of the public issue the demand is known at the close of the issue.
In a Book building issue, the issuer is required to indicate either the price band or a floor price in 
the prospectus. The actual discovered issue price can be any price in the price band or any price 
above the floor price. This issue price is called “Cut-Off Price”. The issuer and lead manager 
decides this after considering the book and the investors’ appetite for the stock.
What is the difference between public issue and private placement?
What is an Initial Public Offer (IPO)?
Who decides the price of an issue?
What does ‘price discovery through Book Building Process’ mean?
What is the main difference between offer of shares through book building and offer of 
shares through normal public issue?
What is Cut-Off Price?
Introduction to Financial Markets
13
Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of 
securities or an offer for sale of its existing securities or both for the first time to the public. This 
paves way for listing and trading of the issuer’s securities.
A follow on public offering (Further Issue) is when an already listed company makes either a 
fresh issue of securities to the public or an offer for sale to the public, through an offer 
document.
Rights Issue is when a listed company which proposes to issue fresh securities to its existing 
shareholders as on a record date. The rights are normally offered in a particular ratio to the 
number of securities held prior to the issue. This route is best suited for companies who would 
like to raise capital without diluting stake of its existing shareholders.
A Preferential issue is an issue of shares or of convertible securities by listed companies to a 
select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights 
issue nor a public issue. This is a faster way for a company to raise equity capital. The issuer 
company has to comply with the Companies Act and the requirements contained in the Chapter 
pertaining to preferential allotment in SEBI guidelines which inter-alia include pricing, 
disclosures in notice etc.
Classification of Issues
Issues
Public Rights Preferential
Further Public Offering Initial Public Offering
Fresh Issue Offer for Sale Fresh Issue Offer for Sale
What is meant by Issue price?
What is meant by Market Capitalisation?
The price at which a company’s shares are offered initially in the primary market is called as the 
Issue price. When they begin to be traded, the market price may be above or below the issue 
price.
The market value of a quoted company, which is calculated by multiplying its current share 
price (market price) by the number of shares in issue is called as market capitalization. E.g. 
Company A has 120 million shares in issue. The current market price is Rs. 100. The market 
capitalisation of company A is Rs. 12000 million.
When an issue is not made to only a select set of people but is open to the general public and 
any other investor at large, it is a public issue. But if the issue is made to a select set of people, it 
is called private placement. As per Companies Act, 1956, an issue becomes public if it results in 
allotment to 50 persons or more. This means an issue can be privately placed where an allotment 
is made to less than 50 persons.
An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is 
when an unlisted company makes either a fresh issue of securities or an offer for sale of its 
existing securities or both for the first time to the public. This paves way for listing and trading 
of the issuer’s securities. The sale of securities can be either through book building or through 
normal public issue.
Indian primary market ushered in an era of free pricing in 1992. Following this, the guidelines 
have provided that the issuer in consultation with Merchant Banker shall decide the price. There 
is no price formula stipulated by SEBI. SEBI does not play any role in price fixation. The 
company and merchant banker are however required to give full disclosures of the parameters 
which they had considered while deciding the issue price. There are two types of issues, one 
where company and Lead Merchant Banker fix a price (called fixed price) and other, where the 
company and the Lead Manager (LM) stipulate a floor price or a price band and leave it to 
market forces to determine the final price (price discovery through book building process).
Book Building is basically a process used in IPOs for efficient price discovery. It is a mechanism 
where, during the period for which the IPO is open, bids are collected from investors at various 
prices, which are above or equal to the floor price. The offer price is determined after the bid 
closing date.
Price at which securities will be allotted is not known in case of offer of shares through Book 
Building while in case of offer of shares through normal public issue, price is known in advance 
to investor. Under Book Building, investors bid for shares at the floor price or above and after the 
closure of the book building process the price is determined for allotment of shares.
In case of Book Building, the demand can be known everyday as the book is being built. But in 
case of the public issue the demand is known at the close of the issue.
In a Book building issue, the issuer is required to indicate either the price band or a floor price in 
the prospectus. The actual discovered issue price can be any price in the price band or any price 
above the floor price. This issue price is called “Cut-Off Price”. The issuer and lead manager 
decides this after considering the book and the investors’ appetite for the stock.
What is the difference between public issue and private placement?
What is an Initial Public Offer (IPO)?
Who decides the price of an issue?
What does ‘price discovery through Book Building Process’ mean?
What is the main difference between offer of shares through book building and offer of 
shares through normal public issue?
What is Cut-Off Price?
12
What is the floor price in case of book building?
What is a Price Band in a book built IPO?
Who decides the Price Band?
What is minimum number of days for which a bid should remain open during book 
building?
Can open outcry system be used for book building?
How does one know if shares are allotted in an IPO/offer for sale? What is the 
timeframe for getting refund if shares not allotted?
How long does it take to get the shares listed after issue?
What is the role of a ‘Registrar’ to an issue?
Floor price is the minimum price at which bids can be made.
The prospectus may contain either the floor price for the securities or a price band within which 
the investors can bid. The spread between the floor and the cap of the price band shall not be 
more than 20%. In other words, it means that the cap should not be more than 120% of the floor 
price. The price band can have a revision and such a revision in the price band shall be widely 
disseminated by informing the stock exchanges, by issuing a press release and also indicating the 
change on the relevant website and the terminals of the trading members participating in the 
book building process. In case the price band is revised, the bidding period shall be extended for 
a further period of three days, subject to the total bidding period not exceeding ten days.
It may be understood that the regulatory mechanism does not play a role in setting the price for 
issues. It is up to the company to decide on the price or the price band, in consultation with 
Merchant Bankers.
The Book should remain open for a minimum of 3 days.
No. As per SEBI, only electronically linked transparent facility is allowed to be used in case of 
book building.
Can the individual investor use the book building facility to make an application?
Yes.
As per SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 the Basis of 
Allotment should be completed with 8 days from the issue close date. As soon as the basis of 
allotment is completed, within 2 working days the details of credit to demat account / allotment 
advice and despatch of refund order needs to be completed. So an investor should know in about 
11 days time from the closure of issue, whether shares are allotted to him or not.
It takes 12 working days after the closure of the book built issue.
The Registrar finalizes the list of eligible allottees after deleting the invalid applications and 
ensures that the corporate action for crediting of shares to the demat accounts of the applicants 
is done and the dispatch of refund orders to those applicable are sent. The Lead Manager 
coordinates with the Registrar to ensure follow up so that that the flow of applications from 
collecting bank branches, processing of the applications and other matters till the basis of 
allotment is finalized, dispatch security certificates and refund orders completed and securities 
listed.
Does NSE provide any facility for IPO?
What is a Prospectus?
What does ‘Draft Offer document’ mean?
What is an ‘Abridged Prospectus’?
Yes. NSE’s electronic trading network spans across the country providing access to investors in 
remote areas. NSE decided to offer this infrastructure for conducting online IPOs through the 
Book Building process. NSE operates a fully automated screen based bidding system called 
NEAT IPO that enables trading members to enter bids directly from their offices through a 
sophisticated telecommunication network.
Book Building through the NSE system offers several advantages:
The NSE system offers a nation wide bidding facility in securities
It provide a fair, efficient & transparent method for collecting bids using the latest 
electronic trading systems
Costs involved in the issue are far less than those in a normal IPO
The  system  reduces  the  time  taken  for completion  of the  issue process
The IPO market timings are from 10.00 a.m. to 5.00 p.m.
A large number of new companies float public issues. While a large number of these companies 
are genuine, quite a few may want to exploit the investors. Therefore, it is very important that an 
investor before applying for any issue identifies future potential of a company. A part of the 
guidelines issued by SEBI (Securities and Exchange Board of India) is the disclosure of 
information to the public. This disclosure includes information like the reason for raising the 
money, the way money is proposed to be spent, the return expected on the money etc. This 
information is in the form of ‘Prospectus’ which also includes information regarding the size of 
the issue, the current status of the company, its equity capital, its current and past performance, 
the promoters, the project, cost of the project, means of financing, product and capacity etc. It 
also contains lot of mandatory information regarding underwriting and statutory compliances. 
This helps investors to evaluate short term and long term prospects of the company.
‘Offer document’ means Prospectus in case of a public issue or offer for sale and Letter of Offer in 
case of a rights issue which is filed with the Registrar of Companies (ROC) and Stock Exchanges 
(SEs). An offer document covers all the relevant information to help an investor to make his/her 
investment decision.
‘Draft Offer document’ means the offer document in draft stage. The draft offer documents are 
filed with SEBI, atleast 30 days prior to the registration of red herring prospectus or prospectus 
with ROC. SEBI may specify changes, if any, in the draft Offer Document and the issuer or the 
lead merchant banker shall carry out such changes in the draft offer document before filing the 
Offer Document with ROC. The Draft Offer Document is available on the SEBI website for public 
comments for a period of 21 days from the filing of the Draft Offer Document with SEBI.
‘ Abridged Prospectus’ is a shorter version of the Prospectus and contains all the salient features 
of a Prospectus. It accompanies the application form of public issues.
¦
¦
¦
¦
Introduction to Financial Markets
15
Page 5


Unit Code: 3 Unit  Title: Primary Market
Session-1 : New Issue Market
Location:
Class Room,
Stock
Exchange,
FMM Lab,
Learning 
Outcome
Knowledge 
Evaluation
Performance 
Evaluation
Teaching and 
Training Method
·
·
Who can bring 
new issue.
Role of Primary 
Market
· Different rates 
to bring new 
issue (Face 
value, 
premium, 
discount)
Interactive lecture: 
Discuss IPO Form.
Activity: 
Visit in Stock 
Exchange to collect 
Reports and IPO 
Forms.
·
·
·
Need for issue
Market 
Capitalization
Public Vs 
Private 
Placement
·
·
Pricing of new 
issue
Subscription
· Parties 
involved in 
new issues
Interactive lecture:
Procedure 
Discussion
Activity:
Learn how to fill 
IPO
Session-2 : Issue of Shares
·
·
·
Draft offer 
documents
Listing 
agreement
SEBI role
· Distinguish 
between 
Abridged 
Prospectus 
and Red 
Herring 
Prospectus
Interactive lecture:
Highlights of 
Prospectus
Activity:
Bring prospectus 
from the Stock 
Exchange
Session-3 : Saturated Prospectus
· Causes to 
bring issue 
on Face 
Value and 
Premium 
and 
Discount 
respectively.
·
·
Abridged 
Prospectus
Red-Herring 
Prospectus
What is the role of the ‘Primary Market’?
What is meant by Face Value of a share/debenture?
What do you mean by the term Premium and Discount in a Security Market?
Why do companies need to issue shares to the public?
What are the different kinds of issues?
The primary market provides the channel for sale of new securities. Primary market provides 
opportunity to issuers of securities; Government as well as corporates, to raise resources to meet 
their requirements of investment and/or discharge some obligation.
They may issue the securities at face value, or at a discount/premium and these securities may 
take a variety of forms such as equity, debt etc. They may issue the securities in domestic market 
and/or international market.
The nominal or stated amount (in Rs.) assigned to a security by the issuer. For shares, it is the 
original cost of the stock shown on the certificate; for bonds, it is the amount paid to the holder 
at maturity. Also known as par value or simply par. For an equity share, the face value is usually 
a very small amount (Rs.5, Rs.10) and does not have much bearing on the price of the share, 
which may quote higher in the market, at Rs.100 or Rs.1000 or any other price. For a debt 
security, face value is the amount repaid to the investor when the bond matures (usually, 
Government securities and corporate bonds have a face value of Rs.100). The price at which the 
security trades depends on the fluctuations in the interest rates in the economy.
Securities are generally issued in denominations of 5, 10 or 100. This is known as the Face Value 
or Par Value of the security as discussed earlier. When a security is sold above its face value, it is 
said to be issued at a Premium and if it is sold at less than its face value, then it is said to be 
issued at a Discount.
Most companies are usually started privately by their promoter(s). However, the promoters’ 
capital and the borrowings from banks and financial institutions may not be sufficient for setting 
up or running the business over a long term. So companies invite the public to contribute 
towards the equity and issue shares to individual investors. The way to invite share capital from 
the public is through a ‘Public Issue’. Simply stated, a public issue is an offer to the public to 
subscribe to the share capital of a company. Once this is done, the company allots shares to the 
applicants as per the prescribed rules and regulations laid down by SEBI.
Primarily, issues can be classified as a Public, Rights or Preferential issues (also known as private 
placements). While public and rights issues involve a detailed procedure, private placements or 
preferential issues are relatively simpler. The classification of issues is illustrated below:
3.1    Issue of Shares
PRIMARY MARKET
Chapter 3
10
Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of 
securities or an offer for sale of its existing securities or both for the first time to the public. This 
paves way for listing and trading of the issuer’s securities.
A follow on public offering (Further Issue) is when an already listed company makes either a 
fresh issue of securities to the public or an offer for sale to the public, through an offer 
document.
Rights Issue is when a listed company which proposes to issue fresh securities to its existing 
shareholders as on a record date. The rights are normally offered in a particular ratio to the 
number of securities held prior to the issue. This route is best suited for companies who would 
like to raise capital without diluting stake of its existing shareholders.
A Preferential issue is an issue of shares or of convertible securities by listed companies to a 
select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights 
issue nor a public issue. This is a faster way for a company to raise equity capital. The issuer 
company has to comply with the Companies Act and the requirements contained in the Chapter 
pertaining to preferential allotment in SEBI guidelines which inter-alia include pricing, 
disclosures in notice etc.
Classification of Issues
Issues
Public Rights Preferential
Further Public Offering Initial Public Offering
Fresh Issue Offer for Sale Fresh Issue Offer for Sale
What is meant by Issue price?
What is meant by Market Capitalisation?
The price at which a company’s shares are offered initially in the primary market is called as the 
Issue price. When they begin to be traded, the market price may be above or below the issue 
price.
The market value of a quoted company, which is calculated by multiplying its current share 
price (market price) by the number of shares in issue is called as market capitalization. E.g. 
Company A has 120 million shares in issue. The current market price is Rs. 100. The market 
capitalisation of company A is Rs. 12000 million.
When an issue is not made to only a select set of people but is open to the general public and 
any other investor at large, it is a public issue. But if the issue is made to a select set of people, it 
is called private placement. As per Companies Act, 1956, an issue becomes public if it results in 
allotment to 50 persons or more. This means an issue can be privately placed where an allotment 
is made to less than 50 persons.
An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is 
when an unlisted company makes either a fresh issue of securities or an offer for sale of its 
existing securities or both for the first time to the public. This paves way for listing and trading 
of the issuer’s securities. The sale of securities can be either through book building or through 
normal public issue.
Indian primary market ushered in an era of free pricing in 1992. Following this, the guidelines 
have provided that the issuer in consultation with Merchant Banker shall decide the price. There 
is no price formula stipulated by SEBI. SEBI does not play any role in price fixation. The 
company and merchant banker are however required to give full disclosures of the parameters 
which they had considered while deciding the issue price. There are two types of issues, one 
where company and Lead Merchant Banker fix a price (called fixed price) and other, where the 
company and the Lead Manager (LM) stipulate a floor price or a price band and leave it to 
market forces to determine the final price (price discovery through book building process).
Book Building is basically a process used in IPOs for efficient price discovery. It is a mechanism 
where, during the period for which the IPO is open, bids are collected from investors at various 
prices, which are above or equal to the floor price. The offer price is determined after the bid 
closing date.
Price at which securities will be allotted is not known in case of offer of shares through Book 
Building while in case of offer of shares through normal public issue, price is known in advance 
to investor. Under Book Building, investors bid for shares at the floor price or above and after the 
closure of the book building process the price is determined for allotment of shares.
In case of Book Building, the demand can be known everyday as the book is being built. But in 
case of the public issue the demand is known at the close of the issue.
In a Book building issue, the issuer is required to indicate either the price band or a floor price in 
the prospectus. The actual discovered issue price can be any price in the price band or any price 
above the floor price. This issue price is called “Cut-Off Price”. The issuer and lead manager 
decides this after considering the book and the investors’ appetite for the stock.
What is the difference between public issue and private placement?
What is an Initial Public Offer (IPO)?
Who decides the price of an issue?
What does ‘price discovery through Book Building Process’ mean?
What is the main difference between offer of shares through book building and offer of 
shares through normal public issue?
What is Cut-Off Price?
Introduction to Financial Markets
13
Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of 
securities or an offer for sale of its existing securities or both for the first time to the public. This 
paves way for listing and trading of the issuer’s securities.
A follow on public offering (Further Issue) is when an already listed company makes either a 
fresh issue of securities to the public or an offer for sale to the public, through an offer 
document.
Rights Issue is when a listed company which proposes to issue fresh securities to its existing 
shareholders as on a record date. The rights are normally offered in a particular ratio to the 
number of securities held prior to the issue. This route is best suited for companies who would 
like to raise capital without diluting stake of its existing shareholders.
A Preferential issue is an issue of shares or of convertible securities by listed companies to a 
select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights 
issue nor a public issue. This is a faster way for a company to raise equity capital. The issuer 
company has to comply with the Companies Act and the requirements contained in the Chapter 
pertaining to preferential allotment in SEBI guidelines which inter-alia include pricing, 
disclosures in notice etc.
Classification of Issues
Issues
Public Rights Preferential
Further Public Offering Initial Public Offering
Fresh Issue Offer for Sale Fresh Issue Offer for Sale
What is meant by Issue price?
What is meant by Market Capitalisation?
The price at which a company’s shares are offered initially in the primary market is called as the 
Issue price. When they begin to be traded, the market price may be above or below the issue 
price.
The market value of a quoted company, which is calculated by multiplying its current share 
price (market price) by the number of shares in issue is called as market capitalization. E.g. 
Company A has 120 million shares in issue. The current market price is Rs. 100. The market 
capitalisation of company A is Rs. 12000 million.
When an issue is not made to only a select set of people but is open to the general public and 
any other investor at large, it is a public issue. But if the issue is made to a select set of people, it 
is called private placement. As per Companies Act, 1956, an issue becomes public if it results in 
allotment to 50 persons or more. This means an issue can be privately placed where an allotment 
is made to less than 50 persons.
An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is 
when an unlisted company makes either a fresh issue of securities or an offer for sale of its 
existing securities or both for the first time to the public. This paves way for listing and trading 
of the issuer’s securities. The sale of securities can be either through book building or through 
normal public issue.
Indian primary market ushered in an era of free pricing in 1992. Following this, the guidelines 
have provided that the issuer in consultation with Merchant Banker shall decide the price. There 
is no price formula stipulated by SEBI. SEBI does not play any role in price fixation. The 
company and merchant banker are however required to give full disclosures of the parameters 
which they had considered while deciding the issue price. There are two types of issues, one 
where company and Lead Merchant Banker fix a price (called fixed price) and other, where the 
company and the Lead Manager (LM) stipulate a floor price or a price band and leave it to 
market forces to determine the final price (price discovery through book building process).
Book Building is basically a process used in IPOs for efficient price discovery. It is a mechanism 
where, during the period for which the IPO is open, bids are collected from investors at various 
prices, which are above or equal to the floor price. The offer price is determined after the bid 
closing date.
Price at which securities will be allotted is not known in case of offer of shares through Book 
Building while in case of offer of shares through normal public issue, price is known in advance 
to investor. Under Book Building, investors bid for shares at the floor price or above and after the 
closure of the book building process the price is determined for allotment of shares.
In case of Book Building, the demand can be known everyday as the book is being built. But in 
case of the public issue the demand is known at the close of the issue.
In a Book building issue, the issuer is required to indicate either the price band or a floor price in 
the prospectus. The actual discovered issue price can be any price in the price band or any price 
above the floor price. This issue price is called “Cut-Off Price”. The issuer and lead manager 
decides this after considering the book and the investors’ appetite for the stock.
What is the difference between public issue and private placement?
What is an Initial Public Offer (IPO)?
Who decides the price of an issue?
What does ‘price discovery through Book Building Process’ mean?
What is the main difference between offer of shares through book building and offer of 
shares through normal public issue?
What is Cut-Off Price?
12
What is the floor price in case of book building?
What is a Price Band in a book built IPO?
Who decides the Price Band?
What is minimum number of days for which a bid should remain open during book 
building?
Can open outcry system be used for book building?
How does one know if shares are allotted in an IPO/offer for sale? What is the 
timeframe for getting refund if shares not allotted?
How long does it take to get the shares listed after issue?
What is the role of a ‘Registrar’ to an issue?
Floor price is the minimum price at which bids can be made.
The prospectus may contain either the floor price for the securities or a price band within which 
the investors can bid. The spread between the floor and the cap of the price band shall not be 
more than 20%. In other words, it means that the cap should not be more than 120% of the floor 
price. The price band can have a revision and such a revision in the price band shall be widely 
disseminated by informing the stock exchanges, by issuing a press release and also indicating the 
change on the relevant website and the terminals of the trading members participating in the 
book building process. In case the price band is revised, the bidding period shall be extended for 
a further period of three days, subject to the total bidding period not exceeding ten days.
It may be understood that the regulatory mechanism does not play a role in setting the price for 
issues. It is up to the company to decide on the price or the price band, in consultation with 
Merchant Bankers.
The Book should remain open for a minimum of 3 days.
No. As per SEBI, only electronically linked transparent facility is allowed to be used in case of 
book building.
Can the individual investor use the book building facility to make an application?
Yes.
As per SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 the Basis of 
Allotment should be completed with 8 days from the issue close date. As soon as the basis of 
allotment is completed, within 2 working days the details of credit to demat account / allotment 
advice and despatch of refund order needs to be completed. So an investor should know in about 
11 days time from the closure of issue, whether shares are allotted to him or not.
It takes 12 working days after the closure of the book built issue.
The Registrar finalizes the list of eligible allottees after deleting the invalid applications and 
ensures that the corporate action for crediting of shares to the demat accounts of the applicants 
is done and the dispatch of refund orders to those applicable are sent. The Lead Manager 
coordinates with the Registrar to ensure follow up so that that the flow of applications from 
collecting bank branches, processing of the applications and other matters till the basis of 
allotment is finalized, dispatch security certificates and refund orders completed and securities 
listed.
Does NSE provide any facility for IPO?
What is a Prospectus?
What does ‘Draft Offer document’ mean?
What is an ‘Abridged Prospectus’?
Yes. NSE’s electronic trading network spans across the country providing access to investors in 
remote areas. NSE decided to offer this infrastructure for conducting online IPOs through the 
Book Building process. NSE operates a fully automated screen based bidding system called 
NEAT IPO that enables trading members to enter bids directly from their offices through a 
sophisticated telecommunication network.
Book Building through the NSE system offers several advantages:
The NSE system offers a nation wide bidding facility in securities
It provide a fair, efficient & transparent method for collecting bids using the latest 
electronic trading systems
Costs involved in the issue are far less than those in a normal IPO
The  system  reduces  the  time  taken  for completion  of the  issue process
The IPO market timings are from 10.00 a.m. to 5.00 p.m.
A large number of new companies float public issues. While a large number of these companies 
are genuine, quite a few may want to exploit the investors. Therefore, it is very important that an 
investor before applying for any issue identifies future potential of a company. A part of the 
guidelines issued by SEBI (Securities and Exchange Board of India) is the disclosure of 
information to the public. This disclosure includes information like the reason for raising the 
money, the way money is proposed to be spent, the return expected on the money etc. This 
information is in the form of ‘Prospectus’ which also includes information regarding the size of 
the issue, the current status of the company, its equity capital, its current and past performance, 
the promoters, the project, cost of the project, means of financing, product and capacity etc. It 
also contains lot of mandatory information regarding underwriting and statutory compliances. 
This helps investors to evaluate short term and long term prospects of the company.
‘Offer document’ means Prospectus in case of a public issue or offer for sale and Letter of Offer in 
case of a rights issue which is filed with the Registrar of Companies (ROC) and Stock Exchanges 
(SEs). An offer document covers all the relevant information to help an investor to make his/her 
investment decision.
‘Draft Offer document’ means the offer document in draft stage. The draft offer documents are 
filed with SEBI, atleast 30 days prior to the registration of red herring prospectus or prospectus 
with ROC. SEBI may specify changes, if any, in the draft Offer Document and the issuer or the 
lead merchant banker shall carry out such changes in the draft offer document before filing the 
Offer Document with ROC. The Draft Offer Document is available on the SEBI website for public 
comments for a period of 21 days from the filing of the Draft Offer Document with SEBI.
‘ Abridged Prospectus’ is a shorter version of the Prospectus and contains all the salient features 
of a Prospectus. It accompanies the application form of public issues.
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Introduction to Financial Markets
15
What is the floor price in case of book building?
What is a Price Band in a book built IPO?
Who decides the Price Band?
What is minimum number of days for which a bid should remain open during book 
building?
Can open outcry system be used for book building?
How does one know if shares are allotted in an IPO/offer for sale? What is the 
timeframe for getting refund if shares not allotted?
How long does it take to get the shares listed after issue?
What is the role of a ‘Registrar’ to an issue?
Floor price is the minimum price at which bids can be made.
The prospectus may contain either the floor price for the securities or a price band within which 
the investors can bid. The spread between the floor and the cap of the price band shall not be 
more than 20%. In other words, it means that the cap should not be more than 120% of the floor 
price. The price band can have a revision and such a revision in the price band shall be widely 
disseminated by informing the stock exchanges, by issuing a press release and also indicating the 
change on the relevant website and the terminals of the trading members participating in the 
book building process. In case the price band is revised, the bidding period shall be extended for 
a further period of three days, subject to the total bidding period not exceeding ten days.
It may be understood that the regulatory mechanism does not play a role in setting the price for 
issues. It is up to the company to decide on the price or the price band, in consultation with 
Merchant Bankers.
The Book should remain open for a minimum of 3 days.
No. As per SEBI, only electronically linked transparent facility is allowed to be used in case of 
book building.
Can the individual investor use the book building facility to make an application?
Yes.
As per SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 the Basis of 
Allotment should be completed with 8 days from the issue close date. As soon as the basis of 
allotment is completed, within 2 working days the details of credit to demat account / allotment 
advice and despatch of refund order needs to be completed. So an investor should know in about 
11 days time from the closure of issue, whether shares are allotted to him or not.
It takes 12 working days after the closure of the book built issue.
The Registrar finalizes the list of eligible allottees after deleting the invalid applications and 
ensures that the corporate action for crediting of shares to the demat accounts of the applicants 
is done and the dispatch of refund orders to those applicable are sent. The Lead Manager 
coordinates with the Registrar to ensure follow up so that that the flow of applications from 
collecting bank branches, processing of the applications and other matters till the basis of 
allotment is finalized, dispatch security certificates and refund orders completed and securities 
listed.
Does NSE provide any facility for IPO?
What is a Prospectus?
What does ‘Draft Offer document’ mean?
What is an ‘Abridged Prospectus’?
Yes. NSE’s electronic trading network spans across the country providing access to investors in 
remote areas. NSE decided to offer this infrastructure for conducting online IPOs through the 
Book Building process. NSE operates a fully automated screen based bidding system called 
NEAT IPO that enables trading members to enter bids directly from their offices through a 
sophisticated telecommunication network.
Book Building through the NSE system offers several advantages:
The NSE system offers a nation wide bidding facility in securities
It provide a fair, efficient & transparent method for collecting bids using the latest 
electronic trading systems
Costs involved in the issue are far less than those in a normal IPO
The  system  reduces  the  time  taken  for completion  of the  issue process
The IPO market timings are from 10.00 a.m. to 5.00 p.m.
A large number of new companies float public issues. While a large number of these companies 
are genuine, quite a few may want to exploit the investors. Therefore, it is very important that an 
investor before applying for any issue identifies future potential of a company. A part of the 
guidelines issued by SEBI (Securities and Exchange Board of India) is the disclosure of 
information to the public. This disclosure includes information like the reason for raising the 
money, the way money is proposed to be spent, the return expected on the money etc. This 
information is in the form of ‘Prospectus’ which also includes information regarding the size of 
the issue, the current status of the company, its equity capital, its current and past performance, 
the promoters, the project, cost of the project, means of financing, product and capacity etc. It 
also contains lot of mandatory information regarding underwriting and statutory compliances. 
This helps investors to evaluate short term and long term prospects of the company.
‘Offer document’ means Prospectus in case of a public issue or offer for sale and Letter of Offer in 
case of a rights issue which is filed with the Registrar of Companies (ROC) and Stock Exchanges 
(SEs). An offer document covers all the relevant information to help an investor to make his/her 
investment decision.
‘Draft Offer document’ means the offer document in draft stage. The draft offer documents are 
filed with SEBI, atleast 30 days prior to the registration of red herring prospectus or prospectus 
with ROC. SEBI may specify changes, if any, in the draft Offer Document and the issuer or the 
lead merchant banker shall carry out such changes in the draft offer document before filing the 
Offer Document with ROC. The Draft Offer Document is available on the SEBI website for public 
comments for a period of 21 days from the filing of the Draft Offer Document with SEBI.
‘ Abridged Prospectus’ is a shorter version of the Prospectus and contains all the salient features 
of a Prospectus. It accompanies the application form of public issues.
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14