The New Issue Market

The mere buying of securites traded on the Stock Exchange does not create new capital. The stock exchange does not itself issue new shares to the public. Fresh capital is provided through the mechanism known as the New Issue Market.

The Market has no outward formal organization or fixed place of business. Nevertheless it functions efficiently on the basis of a number of institutions working together: issuing houses, joint-stock banks, merchant bankers, insurance companies, stockbrokers, underwriters and others.

Issuing houses have become very active in the New Issue Market recently. An issuing house is a financial firm specializing in the issuing or floating of new securities for governments, municipalities and companies. Although this activity is not directly connected with the Stock Exchange, the Exchange is vitally interested in the activities of issuing houses; and the people who own and operate issuing houses have often been members of stock exchanges. The issuing house undertakes that the whole of a new issue of securities should be sold and makes all necessary arrangements for it.

It is charged with the entire "handling" procedure of the issue: this includes the arrangements for banks, other financial houses to share in the underwriting (only in a few cases do issuing houses underwrite the entire amount themselves); arrangements for the drawing up and publication of the prospectus.

Yet, even the most careful and competent handling will not guarantee the success of an issue. This depends on the attitude of the investing public, who will be guided very much by the reputation of the issuing house itself.

Issuing houses make arrangements with underwriters, who guarantee, for a commission, that if the public does not subscribe fully to the new issue the underwriters take up the remaining shares or stock.

Underwriting is a process whereby a group of investment bankers agree to purchase a new security issue at a set price and then offer it for sale to the general public.

Words you may need:

new issue market рынок новых эмиссий

mere adj простой

outward adj внешний

issuing house эмиссионный дом

underwriter n гарант размещения ценных бумаг

floating n выпуск (акций через биржу)

"handling" procedure (зд.) выполнение всех формальностей

Unit 10. Investment activity a. Text

Investments

In economic science, investment is capital expenditure on physical productive assets, e.g. machinery, factory buildings, roads, bridges, houses, and stocks.

Real investments generally involve some kind of tangible asset.

As a financial term investment embraces purchases of stock exchange securities or deposits of money in banks, building societies, or other financial institutions, with a view to income and, in appropriate cases, capital gains.

Users of capital, from governments to every kind of industrial or commercial joint-stock company, all depend for the supply of their financial resources on those who are willing to invest their funds, on investors.

Investment is closely associated with other aspects of economic order such as the role of financial centres, labour migration, and the regime of international trade prevailing at the time.

Technological advances, the removal of exchange controls and financial deregulation have all contributed to the expansion of international capital flows. As a result foreign investment has become a fundamental feature of international economic development.

There are two main channels for international investment: foreign direct investment (FDI) and foreign indirect investment, or portfolio investment.

Foreign direct investment (FDI) occurs when citizens of one nation (the "home" nation) acquire managerial control of economic activities in some other nation (the "host" nation). Setting up a foreign operation through a joint venture, establishment of a foreign branch or the purchase or formation of a foreign subsidiary are examples of foreign direct investment.

Firms controlling activities in several nations have become known as "multinational enterprises" (MNSs), "transnational corporations" (TNCs) and, more recently, "global corporations".

The reasons why effects of FDI are generally assessed as positive can be summarized as follows: first, FDI speeds the international diffusion of new technologies and other efficiency enhancing intangible assets, such as organizational skills. Then, FDI in many national markets will stimulate competition among firms.

The process of supplying capital to a foreign institution, through a loan or purchase of stock, without sharing in the institutions management is foreign indirect investment.

In financial circles, individuals or households that own securities are known as individual investors. Along with them, there are institutional investors.

Institutional investors are a group of investors who have funds to invest as a consequence of the conduct of their business. The group includes insurance companies, banks, investment trusts, financial and industrial companies.

The past 30 years have witnessed a concentration of financial power in the hands of institutional investors. In 1990 they controlled over $6 trillion hi assets, the majority invested in common stock and corporate and government bonds.

An investor, when confronted with a list of investment possibilities, will want to assess the risks and general advantages and disadvantages connected with putting his or her money into this or that security. To receive higher return, investors must be prepared to accept a higher level of risk. Trying to limit or minimize the risk investors construct and diversify portfolios and spread their foreign investments among a number of different countries.

Institutional investors have contributed to development of new types of investment management techniques, sophisticated portfolio monitoring, have pioneered the application of quantitative security valuation techniques, such as dividend discount models.

In spite of the existing obstacles, recent years have seen a growing interest of foreign investors in the Russian market.