Placement Method Homework Help

Placement Method

Yet another method to float new issues of capital is the placing method defined by London Stock Exchange as sale by all issue house or broker to their out clients of securities previously purchased or subscribed = P Under this method, securities are acquired by the issue houses, as in offer for sale method, but instead of being subsequently offered to the public, they are placed with the clients of the issue houses, both individual and institutional investors. Each issue house has a list of large private and institutional investors who are always prepared to subscribe to any securities which are issued in this manner. Thus, the flotation in the securities involve two stages. In the stages ares are is required by the issuing houses the second stage, they are made available to their investor-clients. The Issue houses usually place the securities at a higher price than the price they pay and the difference, that is, the turn is their remuneration. Alternatively, though rarely, they may arrange the placing in return for  a fee and act merely as an agent and not principal.

Another feature of placing is that the placing letter and the other documents, when taken together, constitute a prospectus/offer document and the information concerning the issue has to be published. In this method, normal underwriting of the issue is required as the placement itself amounts to underwriting since the issue houses agree to place the issue with their clients. They end favor to ensure the success of the issue by carefully getting the issuing company concerned and offering generous subscription terms.

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