The Primary Market mops up resources from the public (investors) and makes available to meet the long term capital requirements of corporate business & industry in the form of equity/debt capital, while the secondary market provides liquidity to the investments made by the individual investors. It is primary market that is in the center-stage of the capital market bringing together the two principal segments of the market that of investors and the seekers of capital. Regular growth of the economy of the country is possible only through a robust and vibrant primary market. The secondary market provides captive dealings amongst investors themselves, who trade/speculate in the stock markets. Operations in the secondary market do not result in the accretion of capital resources of the country, but it indirectly promotes savings and investment, by providing the unique quality of liquidity to investment in securities.

Primary Market is the medium for floating pubic issues. Public issue means an invitation by a company to the public to subscribe to the securities offered through a prospectus. Similarly the Primary market infuses new listed securities in the market generated through new public issues floated regularly and thus enlarges the security base traded in the secondary market. There is thus an inter-dependency between the two markets.

1. Mobilises risk capital to the Issuers. Resources mobilsed are not repayable except in the case of winding up or buy back of shares.

2. No committed payment of charge/interest. Payment of dividend is optional and subject to availability of disposable profits, after meeting all other overheads/obligations

3. A well managed and profitable company enhances shareholders' wealth. In fact the company functions with this goal as its main corporate objective.

4. The shareholders enjoy the benefit of liquidity of their investment, when the shares are listed and traded in the stock-exchange.

5. Brisk trading of the securities of a well-managed and high profit earning company serves as an index of the reputation of the company's promoters, its products /services.

1. Raising capital/funds through the primary market is time consuming, expensive.

2. The Issuer has to engage the services of a number of intermediaries and comply with complex legal and other formalities

3. Listing agreement with the stock exchange burdens the company with recurring disclosure obligations.

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4. The company may suffer directly on account of operations by unscrupulous speculators & gamblers in the market

5. Dispersed ownership with recourse for easy transferability of shares may lead to attempts by corporate predators to take over the company

The investor faces limited risk in the secondary market, but he needs much more protection and safeguards in the primary market. This is because in an initial public issue, except for the offer documents/prospectus he has no other source of information about the bonafides of the issue-raisers. Instances of vanishing companies and fly-by-night promoters act as a deterrent to investor confidence. Further secondary market deals are isolated transactions involving sale/purchase of individual lots of shares/bonds, while in the primary market news issues are for very large amounts sometimes even hundreds of crores of rupees. Fraudulent promoters may try to dupe the entire community of investors, who opt to invest in a new issue.

Upto 1992, the capital/primary market was controlled by the Controller of Capital Issue (CCI) formed under the Capital Issues Control Act. During that period, the pricing of capital issues was controlled by CCI. The premium on issue of equity shares issued through the primary markets was done in accordance with the Capital Issues Control Act. The CCI guidelines were abolished with the introduction of Securities & Exchange Board of India (SEBI) formed under the SEBI Act, 1992 with the prime objective of protecting the interests of investors in securities, promoting the development of, and regulating, the securities market and for matters connected therewith or incidental thereto.' All public issues since January, 1992 are governed by the rules & regulations issued by SEBI.

SEBI was formed to promote fair dealing in issue of securities and to ensure that the capital markets function efficiently, transparently and economically in the better interests of both the issuers and the investors. The promoters should be able to raise funds at a relatively low cost. At the same time, investors must be protected from unethical practices and their rights must be safeguarded so that there is a steady flow of savings into the market. There must be proper regulation and code of conduct and fair practice by intermediaries to make them competitive and professional.

The regulation of primary issues thus poses an acid test for SEBI. On the one hand in view of the leading role of these issues in the development and economic growth of the country, SEBI in view of its responsibility for development of the market has to do every thing to promote new issues and make it easier for bonafide promoters to raise funds for productive ventures, and on the other hand SEBI has to ensure that the interests of the investors are protected to the best possible extent.

To fulfill its objectives relating to responsibility for regulation and responsibility for market development, which may not overlap at all times, SEBI while opening up the market to the Issuers, regulates the issue process providing for full safeguards and transparency through disclosure of all relevant information by the issuers so that the investor can make an informed decision.

Since, its formation, SEBI has been instrumental in bringing greater transparency in capital issues. Under the umbrella of SEBI, companies issuing shares are free to fix the premium provided adequate disclosure is made in the offer documents. Focus being the greater investor protection, SEBI has become a vigilant watchdog. Over a period of nearly a decade of its existence, SEBI has established itself as a 'regulator of consequence'. Today, if the Indian economy has grown into robust and strong economy – strong enough to successfully swim against the currents of global competition, it is due, in no small measure, to the contribution of the Indian capital market. The capital market has proved to be an effective medium of canalising the savings of the investors from every nook and corner of the country, for investment needed for capital formation and economic growth.

SEBI in the year 1992 issued detailed guidelines to standardise disclosure obligations and make it incumbent for corporates floating public issues to disclose all relevant information affecting investors' interest. Based on experience gained these regulations were reviewed and revised in the year 2000 and presently "The Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000" as amended subsequently from time to time are operative and in force now.

SEBI constantly reviews its guidelines to make them more market/ investor friendly. In this direction, SEBI has set up two committees to deliberate on the issues pertaining to Primary Market. One under the chairmanship of Shri Y.H.Malegam, Managing Partner, S B Billimoria & Co. (Referred as Malegam Committee) and the other under the Chairmanship of Sh M S Varma, Chairman, TRAI (referred as Primary Market Advisory Committee (PMAC). These committees comprise of representatives of merchant bankers, investor associations, ICAI, ICSI etc.

The Primary Market Advisory Committee advises SEBI on various issues relating to development of primary Market whereas the Malegam Committee mainly focuses on the disclosure requirements in the offer documents. Besides this, various issues are examined by SEBI internally. These reports are displayed on the website of SEBI for eliciting public comments and decision taken by SEBI in due course based on the feedback from the market.

The strategy to deal with complexities in a given task is to analyse and break the complex task into a number of simple one-step processes or jobs and further group them as per sequential time-schedules. It is part of this strategy that jobs needing specialised knowledge/job skills are out-sourced to competent professionals or service-providers qualified and experienced in the particular line. A public issue is kept open by the issuer and issue-managers soliciting subscription by investors over a period between three days (minimum) and ten days (maximum). This is the core or principal segment of the whole task. Whatever steps to be complied with, prior to this are preparatory steps/legal obligations to be complied with and whatever is to be done subsequent to the closure of the issue are identified as 'post-issue obligations' to complete the process and realise benefits thereof (capital to the Issuer and tradable investment (edquity shares) to the investor. We can therefore identify three distinct stages in the successful completion of a public issue, as under:

1. Pre-issue Preparatory tasks

2. Issue opens and at the expiry of the stipulated period closes

3. Post-issue obligations.

The tasks to be attended at this stage are:

• Drafting & Finalisation of the Prospectus

• Selecting & entering into agreements with the Intermediaries

• Attending to preliminary formalities (getting approvals) from SEBI/stock exchange.

This is the essential document that addresses all the data/information, which a prospective investor would like to know to arrive at an informed decision to subscribe to the issue of the company. It is thus a communication from the issuer to the investors. The Companies Act 1956 defines a prospectus as - "any document described or issued as a prospectus and includes any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in, or debentures of, a body corporate."

As earlier stated prospectus is a document by way of which the investor gets all the information pertaining to the company in which they are going to invest. It gives the detailed information about the Company, Promoter / Directors, group companies, Capital Structure, Terms of the present issue, details of proposed project, particulars of the issue etc. There are certain mandatory disclosures, which have to be made in the prospectus. The mandatory disclosures to be made in the prospectus includes in Schedule II of the Companies Act, 1956. SEBI has issued guidelines, SEBI (Disclosure for Investor and Protection), Guidelines, 2000 which gives details about the contents of prospectus. (Chapter VI)

Guidelines relating to appointment of intermediaries are set out in Chapter V Clause 4 of the DIP Guidelines. All intermediaries connected with the public issue (primary market) are registered with SEBI. Brief information about them and their functions are discussed in the module dealing with Intermediaries.