Primary Market

Primary market it the market for new issuers. It is the important component of the capital market. Many financial intermediaries such as merchant bankers and issue manager serve in capacity of investment bankers and underwriters. They play a major role in promotion of primary market. This is the first issue market attracts investors to invest in the shares of the issuing companies. The success of the capital market depends on primary market and this ultimately provides a basis for multiple transactions in secondary market.
Even in our country, many public limited companies have been successful enough to raise capital from primary market with over whelming confidence of investors on the performance of the companies. At present, the loan facility provided by many financial institutions with certain percentage of margin money on loan to investor have bought over subscription of shares in primary market. This has created risk from the primary market for which Nepal Rastra Bank is trying to control on use of trading to minimize default of the bank loan. There is also a control on use of foreign passport in primary market applications from banks. SEBON has already informed investors about the non-professional players in the market and thinking them to control gradually. As a result, BON has taken various measures after automation in stock trading requiring investors to provide full descriptions of the status and filling the other timely by attaching date of birth and citizenship certification number. Warning has been issued for public notice not to use others citizenship certificate in buying the shares in primary market to avoid misuse of investors' rights.

The Primary Market: Size and scope
Primary market is the market for new issue of securities. Securities are issued for the first time in the market to raise funds to serve the specific purpose. The government, companies, business firms and industries tap the needed funds from the market issue these securities. Sometimes, the responsibility to manage the new issue is entrusted to the security dealers and underwriter of securities under different terms and conditions of the issues. To issue securities in the primary market, a company in Nepal, should follow company Act. The Act has briefly specified the process of issuing prospectus. This is a legal document containing the various financial corporate and business information that will help investors make rational investment decisions. Moreover, the various guidelines developed by SEBON have to be followed and issue managers have to obtain Due Diligence Certificate in dealing in the primary market issues.

Size of the primary market
The volume of transactions conducted on the primary market determines the size of the market cannot make the primary market viable because the costs of the transactions not only in terms of commissions but also the logistic support including administrative costs should justiry the size of the market. In advanced countries, primary market became efficient and successful due to satisfactory and optimal size ot the market. In Nepal, the size of the primary market is still considered to be small although it is increasing at present.
Having stated and explained about the size of the primary market, it is also important to know the scope of the primary market. There is great scope for primary market since resource mobilization in the economy for the development of the companies is not possible without the presence of the primary market. Even the development of the secondary market cannot take place without primary market. The primary market has a greater scope for financing the new projects, providing investing opportunities to the investing public for better growth with the help of primary market. Even infrastructure of the economy like development of hydro-electric project and service sectors come from the financial support of the primary market.
The process of issuing securities
Process of issuing new securities describes the process by which a corporate issuer organization brings new securities to the market. Financial manager should develop the good relationship with an investment banker. Investment bankers have to follow the various steps in completing the process of issuing securities because it is to be made systematic for efficient issuing of securities. The various steps to be followed in the issue of securities are explained below:

Originating the securities
Investment bankers are the originators in the issuing of securities. They take initiations to advise how to sell securities to the issuing company. They provide the signals of success or failure in the management of new issues to the issuers. Their counseling is important in the origination of securities issues. They provide advice regarding issue price, volume of issue and timing of issues.
Underwriting the securities
Another important step, which the investor bankers have to consider, is the underwriting the securities. For this, they develop different modalities like underwriting through Best effort selling, stand by agreement and guarantee of the issues. In Best effort selling, underwriting do not guarantee of issue simply provide assurance of selling to the best of his effort. In case of stand by agreement, the issuers sell the shares but the underwriter agrees to undertake all unsold portions. The underwriter provide guarantee to the issue by taking risk by himself for which he charges underwriting fee.
Formation of syndicate
The underwriter forms the syndicate in which he becomes a lead investment banker and there is other selling group participating in issue according to their quotas allotted in the given region. The syndicate is dissolved once the purpose of issue is fulfilled.

Risk diversification
Investment banker may not take all the risks of issue if the size of transactions is beyond his financial limit. In such situation, he will diversify the risk through the help of other investment bankers to share the risk of issue because they have got the networks to minimize the risk.
Distribution of securities
Investment bankers have developed infrastructure and the networks to distribute the securities on a wider scale. They can manage to distribute the securities efficiently because of their connections and networks with various organizations and the areas making it easy to distribute the securities quickly and efficiently.

Stabilization of the stock market
The responsibility of investment bankers does not end just after distribution of securities. He has added responsibility to maintain secondary stock market to purchase the shares if there excess supply and make the shares available if there is excess demand. This is how they are champions in stabilization of the stock prices. They are capable to develop and maintain strong secondary market for future issues.