Securities are investments traded on a secondary market. Different types of securities are traded in financial markets. The most well-known examples include stocks and bonds. Marketing of securities is a process of approaching a large number of investors, both individual and institutional, to invest their savings and surpluses in the shares or debentures of a company. Securities allow you to own the underlying asset without taking possession.
Methods of Selling Securities
A company can sell its shares to raise funds by different methods as follows:
- Public Offering
A large-scale company generally raises funds through a public offering. Under public offering, common stocks are sold to large numbers of investors. Normally, when a company wishes to issue new securities and sell them to the public, it makes an arrangement with an investment banker. The investment banker acts as a middleman who brings together suppliers and users of the long-term funds in capital market. Its major function is to buy the securities from the company and then resell them to investors at a higher price. This difference in the purchasing price and selling price also called ‘spread’ is a commission to the investment banker.
- Private Placement
A company can sell its shares directly or privately to a few/ a group of the individual investor or institutional investors instead of having them underwritten and sold to the public. Private placement has a number of advantages as follows:
- Flotation costs can be reduced by eliminating underwriting costs.
- It takes less time to raise funds through private placement.
- It is suitable for a small-scale company to raise funds.
This type of sale is called private or direct placement. In private placement, the company negotiates directly with the investors over the terms of the offering.
- Right Offering
Instead of selling common stocks to new investors, the company can offer the new common stocks to the existing shareholders at a subscribed price on a pro-rata basis. This method of issuance is called right offering. Right offering is also called privileged subscription. This right offering helps to reduce flotation costs. It also protects existing shareholders from dilution in wealth and control power.
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