Here is an essay on ‘Primary Market Reforms’ for class 11 and 12. Find paragraphs, long and short essays on ‘Primary Market Reforms’ especially written for school and college students. 

Essay on Primary Market

Essay Contents:

  1. Essay on the Disclosure and Investor Protection Guidelines in Primary Market
  2. Essay on the Issuing of Securities in Primary Market
  3. Essay on the Pricing of Securities in Primary Market
  4. Essay on the Book Building Process in Primary Market
  5. Essay on the Promoters’ Contribution in Primary Market
  6. Essay on the Preferential Allotment and Obligations of Lead Manager in Primary Market
  7. Essay on the Dematerialisation and Application for Listing of Securities in Primary Market
  8. Essay on the Regulatory Framework for Primary Market

Essay # 1. Disclosure and Investor Protection Guidelines in Primary Market:


After the repeal of the CCI Act in 1992, SEBI issued guidelines for disclosure and investor protection for all issues of capital made to the public. The primary issuances are governed by SEBI in terms of SEBI Disclosures and Investor Protection (DIP) guidelines. SEBI framed its DIP guidelines in 1992.

Many amendments have been carried out in the same in line with the market dynamics and requirements. In 2000, SEBI issued “Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000” which is a compilation of all circulars organized. These guidelines and amendments thereon are issued by SEBI India under section 11 of the Securities and Exchange Board of India Act, 1992.

The Disclosure and Investor Protection (DIP) Guidelines of SEBI provides a comprehensive framework for issuances by the companies. The guidelines provide norms relating to eligibility for companies issuing securities, pricing of issues, listing and disclosure requirements, lock-in period for promoters’ contribution, contents of offer documents, pre and post issue obligations, etc.

The issuers complying with the eligibility criteria were allowed freedom to issue the securities at market determined rates. The market shifted formally and completely from merit based regulation to disclosure based regulation. Domestic issuers and investors were allowed the freedom to raise resources or invest within or across the borders. Overseas issuers and investors were granted access to Indian market.


Essay # 2. Issuing of Securities in Primary Market:

A company not listed on any stock exchange is an unlisted or a private company. It may have share capital (with a membership of not less than two shareholders, and not more than 50 shareholders), but is prohibited from making an invitation to the public to subscribe to shares.

An unlisted company can make public issue of equity shares or any other security, convertible into equity shares, on fixed price basis or on book building basis, provided:

(i) It has net tangible assets of at least Rs. 3 crore in each of the preceding 3 years,


(ii) It has a pre-issue net worth of not less than Rs. 1 crore in each of the preceding 3 years,

(iii) It has a pre-issue net worth of not less than Rs. 1 crore is each of the preceding 5 years, and

(iv) The aggregate size of the issues made during the same financial year and the proposed issue does not exceed five times its pre-issue net worth.

Further, an unlisted company cannot make allotment if the number of prospective allottees is less than 1000.


A listed company is one whose shares are listed in any of the stock exchanges of the country. Listing means the admission of securities of a company to trading privileges on the floor of a stock exchange. A listed company can access market in a financial year to raise resources up to five times of its pre-issue net worth.

If the company listed or unlisted, does not meet the above criteria, the issue can be made only if it satisfies two conditions:

(i) The issue is made through book building with minimum offer of 50% of the issue size to ‘Qualified Institutional Buyers’ or the project has participation of atleast 15% from Financial Institutions and 10% is allotted to Qualified Institutional Bidders; and

(ii) The minimum post issue face value of capital of the company is Rs. 10 crore or there is market making for at least 2 years from the date of listing.


These provisions do not apply to a banking company, an infrastructure company and rights issue by a listed company. Infrastructure companies are exempt from the eligibility norms if their project has been appraised by a public financial institution and not less than 5% of the project cost is financed by any of the institutions, jointly or severally, by way of loan and/or subscription to equity.

Similarly, the eligibility and pricing requirements do not apply to a company making IPO of equity shares and proposing to list them on Over the Counter Exchange of India (OTCEI), if it complies with OTCEI requirements of listing.

Essay # 3. Pricing of Securities in Primary Market:

Pricing of issues no longer required any approval and SEBI only ensured the adequacy of disclosures in the offer documents. An eligible company is free to make public/rights issue of securities of any denomination and at any price. It can issue the equity shares in the firm allotment category at a different price than the price at which net offer is made to public, provided the former price is higher than the latter.


It has the option to determine the price and justify the same in the prospectus or may allow investors to determine the price through the book building process. In the former case, the price is known in advance to the investor and the demand is, known at the close of the issue.

In case of public issue through book building, demand can be known at any time when the issue is open but price is known at the close of the issue. An eligible company is free to make public or rights issue of equity shares in any denomination. However, in case of IPO by an unlisted company, the face value can be less than Rs. 10 (but not less than Re. 1) if the issue price is Rs. 500 or more. If the issue price is less than Rs. 500, the face value shall be Rs. 10.

Following the above norms and with the enormous expansion of the stock market in the 1990s, the Indian corporations were able to raise large amount of capital in a very active primary market.

According to the Report on Currency and Finance of the RBI, the proportion of paid up capital in the total sources of funds of the companies had increased from 7 percent during the 1980s, to 17 percent during the 1990s. Much of this increase has been due to the share of the premium account rising up from 4 percent to 12 percent during the same period.


Essay # 4. Book Building Process in Primary Market:

Book Building is basically a capital issuance process used in Initial Public Offer (IPO), which aids price and demand discovery. It is a process used for marketing a public offer of equity shares of a company. It is a mechanism where, during the period for which the book for the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price.

The floor price is the minimum price expected by the issuer below which the bids will not be accepted. The process aims at tapping both wholesale and retail investors. The offer/issue price is then determined after the bid closing date based on certain evaluation criteria. The book building has become very popular these days.

Almost all the equity offerings from 2004 were made through book building. A company making a public offer of equity shares can avail of green shoe option for stabilizing post-listing price of its shares. The issuer exercising green shoe option may issue more shares in case of oversubscription.

These shares are taken from the pre-issue shareholders or promoters and are issued to the investors who have come in through the public offer on a pro-rata basis. The green shoe option can be a maximum of 15% of the public offer.

An issuer company proposing to issue capital through book building has two options viz., 75% book building route and 100% book building route. In case 100% book building route is adopted, not more than 50% of net offer to public can be allocated to QIBs, not less than 25% to retail individual investors (an investor who applies or bids for securities of or for a value of not more than Rs. 50,000) and not less than 25% to non-institutional investors.


In case 75% of net public offer is made through book building, in the book built portion and not more than 50% of the net offer can be allocated to QIBs. The balance 25% of the net offer to public, offered at a price determined through book building, is available to retail investors who have either not participated in book building or not have received any allocation in the book built portion.

In case of under subscription for any category, the undersubscribed portion can be allocated to bidders in other categories. The underwriting is compulsory if the issue is made through book building. Underwriting is making a commitment by an intermediary in the new issue market called underwriter, to get the issue subscribed either by others or by themselves.

A company can use the on-line system of exchanges for making public issues (called E-IPO). In such cases, the specified brokers collect application and application moneys from their clients and place orders with the company to buy its securities.

Essay # 5. Promoters’ Contribution in Primary Market:

The promoters’ contribution in case of public issues by unlisted companies and promoters’ shareholding in case of ‘offers for sale’ should not be less than 20% of the post issue capital. In case of public issues by listed companies, promoters should contribute to the extent of 20% of the proposed issue or should ensure post-issue holding to the extent of 20% of the post-issue capital.

The promoters should bring in the full amount of the promoters contribution including premium at least one day prior to the issue opening date. The minimum promoters’ contribution is locked in for a period of 3 years. The contribution in excess of minimum contribution is locked in for one year.


The requirement of promoter contribution does not apply in case of public issues of securities by a company, which is listed on a stock exchange for at least 3 years and has a track record of dividend payment for at least 3 preceding years.

Essay # 6. Preferential Allotment and Obligations of Lead Manager in Primary Market:

A listed company can make preferential issue of equity shares or other instruments convertible to equity to any select group of persons on private placement basis. Such shares can be issued at a price not less than the higher of the average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the preceding six months or the average of same during the last two weeks.

The instruments allotted to promoters on preferential basis are locked in for three years. The instruments allotted to others or promoters in excess of 20% of the capital of the company are locked in for one year.

Obligations of Lead Manager:

The lead merchant banker discharges most of the pre-issue and post issue obligations. He satisfies himself about all aspects of the offering and adequacy of the disclosures in the offer document. He issues a due diligence certificate stating that he has examined the prospectus, he finds it in order that it brings out all the facts and does not contain anything wrong or misleading. He also takes care of allotment, refund and dispatch of certificates.


Essay # 7. Dematerialisation and Application for Listing of Securities in Primary Market:

The admission to a depository for dematerialisation of securities is a prerequisite for making a public or rights issue or an offer for sale. The investors however, have the option of subscribing to securities in either physical form or dematerialised form. All new IPOs are compulsorily traded in dematerialised form. Every public listed company making IPO of any security for Rs. 10 crore or more is required to do so only in dematerialised form.

Application for Listing:

A company cannot make a public issue unless it has made an application for listing of those securities with stock exchange(s).

Essay # 8. Regulatory Framework for Primary Market:

Regulatory Framework Before, 1992:


Before 1992, the three principal Acts governing the securities market were:

i. Capital Issues (Control) Act, 1947:

The Act was used as a means of controlling the raising of capital by companies and to ensure that national resources were channeled in to proper lines, i.e., for desirable purposes, to serve goals and priorities of the government, and to protect the interests of investors. Under the Act any firm wishing to issue securities had to obtain approval from the Central Government. The latter also determined the amount, type and price of the issue.

ii. Securities Contracts (Regulation) Act, 1956:

The previously self-regulated stock exchanges were brought under statutory regulation through passage of the SCR Act in 1956 which provided for direct and indirect control of virtually all aspects of securities trading and the running of stock exchanges.

This gave Central Government regulatory jurisdiction over:


a. Stock exchanges, through a process of recognition and continued supervision,

b. Contracts in securities, and

c. Listing of securities on stock exchanges.

iii. Companies Act, 1956:

It dealt with issue, allotment and transfer of securities and various aspects relating to company management. It provided for standard of disclosure in public issues of capital, particularly in the fields of company management and projects, information about other listed companies under the same management, and management perception of risk factors.

It also regulated underwriting, the use of premium and discounts on issues, rights and bonus issues, substantial acquisitions of shares, payment of interests and dividends, supply of annual report and other information etc.

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