Notes On Marketing Of Securities:

       A company has to float a large number of securities to gather funds for the business. The different ways of distributing securities among the buyers can be described into two:

I Private Placement:

       Private Placement of securities refers to the placement of securities to one or few institutional buyers rather than going through the security markets. In this method, the company's securities are brought in closely held circle comprising of promoters, directors, their relatives and friends. This method is usually adopted by private companies. Even the public companies can adopt this method for raising funds for limited circle.

       A private sale of securities does not require a issuing company if it is a private one to file a prospectus or statement in lieu of prospectus with the Registrar of Joint Stock Companies for Registration. In case of a public limited company, a statement in lieu of prospectus has to be filed for registration. The essence of private placement is that the issuing company and the investor directly negotiate the transaction.

Advantages Marketing Of Securities:
  1. It is relatively more flexible with respect to timing, amount of funds to be obtained, certainty of commitments and other characteristics. The issuing companies can get the desired funds in advance or in a number of installments schedules by the investors in accordance with the production schedule of the company.
  2. The issuing company can obtain the funds easily because it need not comply with the legal formalities regarding preparation and issue of prospectus and its registration
  3. Another advantage pf private placement is that it can avoid the uncertainty associated with the new issue.
  4. Private placement is an economical method of distribution of securities. Since it does not require intermediaries, the cost of issuing can be minimized.
Disadvantages Of Marketing Of Securities:

       The most serious limitation of private placement lies in its limited marketability of securities. Since privately placed securities are not listed in the stock exchange, they cannot be traded openly. As such, a company requiring large amount of money may not find it useful.

       Another drawback is that it encourages monopolistic practices because ownership of securities can be brought up by a few wealthy investors.

II Public Placement:

       When the issuing company decides to raise funds by offering its securities to the public at large, the step is called public placement. Public placement may take place in any of the two forms:

1. Direct Offer:

      Under this method, the issuing company approaches the general potential investors through its investors. The investors are invited to apply with application money and they are allotted shares. The success of this method depends upon the efficiency of the issuing company and the utility of services.


       The greatest advantage of this method is that it is economical. Since the company does not employ the services of brokers, underwriters and other intermediaries, the cost of selling of securities is reduced to a considerable extent.


       However, there are some disadvantages also. It is very difficult to contact the individual investors who are scattered in different places all over the country. Moreover, the company does not get certain about the collection of funds and as a result the company cannot proceed with the plans unless the desired amount is raised.

2. Indirect Offer:

       When the company desires to raise large amount of money and is not sure about the raising of the required amount of capital through direct offer, they approach the intermediaries who deal with securities such as share brokers, underwriters, and investing companies. Indirect offer may take any of the form:

a) Best Selling Effort:

       Under this method, a share broker on commission agrees to sell as many securities as he can either directly or through associated dealers. He does not purchase the issue and makes no commitment. He does not the responsibility of shares that are unsold.

       The main advantage of this method is that it is less costly and the disadvantage is that the issuer has no assurance of a successful sale nor he can anticipate the timing of the process.

b) Underwriting:

       Under this, the underwriter enters into an agreement with the issuing company and undertakes the responsibility of selling the securities to the public. If the market fails to absorb the issue, it is the underwriter and not the issuing company who bears the losses. The company is thus relieved of the risk of not being able to sell the securities. However the arrangement proves costly.

c) Outright Purchase:

       Under this arrangement, the entire securities of the company are bought out rightly by a financial institution alone or with other institutions who arrange to sell them to the investors. Thus the company gets the funs in one lump sum. The institutions profit is the difference between the price it pays for the security and the selling price.