FUNCTIONS OF NEW ISSUES/PRIMARY MARKET
The main function of NIM is to facilitate the transfer of resources from savers to entrepreneurs seeking to establish new enterprise or to expand/diversify existing ones. Such facilities are of crucial importance in the context of the dichotomy of funds available for capital uses from those in whose hands they accumulate, and those by whom they are applied to productive uses. Conceptually, the NIM should not, however, be conceived as exclusively serving the purpose of raising finance for new capital expenditure. In fact, the organisation and facilities of the market are also utilized for selling concerns to the public as going concerns through the conversion of existing proprietary enterprises or private companies into public companies. The NIM is a complex of institutions through which funds can be obtained directly or indirectly by those who require them from investors who have savings.
New issues can he classified in various ways. The first category of new issues are by new companies and old companies. This classification was first suggested by R,F, Henderson. The distinction between also called initial and old also known as further, does not bear any relation to the age of the company, The securities issued by companies for the first time either after the incorporation or conversion from private to public companies are designated as initial issues, while those issued by companies which already have stock exchange quotation, either by public issue or by rights to existing shareholders, are referred to as further or old.
The new issues by corporate enterprise can also be classified on the basis of companies seeking quotation, namely new money issues and no issues. The terms money issues refers to the issues of capital involving newly created shares, no new money Issues represent the sale of similarities already in existence and sold by their holders. The new money issues provide funds to enterprises for additional capital investment. According to meter and others, money refers to the money equivalent to the number of newly created shares multiplied by the price per share minus all the administrative cost associated with the issue. This money may not be used for additional capital investment, it may be used wholly or partly to repay debt. Henderson uses the term in a rather limited sense to that it is the net of repayment of long-term debt and sums paid to vendors of existing securities. The differences in the approaches by Meter and others, on the one hand, and Henderson, on the other, arise because of the fact that while the concern of the former is with both flow of funds into the market as well as now of money, Henderson was interested only in the latter.
The general function of the NIM, namely, the channeling of invest-able funds into industrial enterprises, can be split from the operational stand point, into three services? (i) Origination, (ii) Underwriting, and (iii) Distribution. The institutional set-up dealing with these can be Slid to constitute the NIM organisation. In other words, the NIM facilitates the transfer of resources by providing specialist institutional facilities to perform the triple-service function.