Financial Markets: How Do Primary Issuances Work?
Primary issuance is the first public sale of its stock by a private company. Private firms are able to raise equity capital in the financial markets. The firms are thus able to expand their business. The firms are also able to issue debt and in this case, it would be classified as debt issuance. The primary issuance is normally in the form of IPO (Initial Public Offering). Investors purchase the securities on the primary capital markets here the issuing firm hires an underwriter to prepare a prospectus detailing the pricing and other related matters of the offering.
Euroclear Group specializes in offering primary issuance services to cater to client needs for financing and can access predictable cash flow for the client firm. Euroclear focuses on lead managers, issuers, arrangers, legal counsels and issuer agents aptly and facilitates the access to a diverse range of investors thus raising funds for its client’s needs. The process is both cost-effective and quick and covers multiple currencies, jurisdictions, and instruments.
Euroclear provides ICSD issuance and broadens the reach to the investors internationally, allows for a choice in the governing laws in various jurisdictions, lets the client choose from a wide range of instruments, and provides settlements in over 100 currencies in 50 countries — at no cost at all to the client. The company supports the client before, during and after the primary issuance process and builds an optimal structure for its client’s security and meets the needs of both the client and the investors. The client is thus able to build an investor loyalty with the help of collateral management and asset servicing and leading secondary market access.
Markets in Financial Instruments Directive
From the beginning of 2018 (initially planned to be effective in January 2017), the Markets in Financial Instruments Directive (MiFID II) comes into effect across the European Union. These rules are aimed at regulating the secondary markets but would also have an impact on the primary markets. The European Securities and Markets Authority (ESMA) has indicated how the rules would be applicable to the primary markets but no indications have, however, been given for areas such as product governance and inducements.
However, some experts and trade bodies believe that the understanding of the primary market businesses on which these are based is not very vivid. As an example, they mention that the rules against under/overpricing are her ‘fanciful’. They insist that as issuance is priced based on investor demand and issuance need, the primary market would be affected negatively.
With the MiFID II and MiFIR, ESMA is assisting many market participants in understanding the Level 2 text ahead of the January 3, 2018, implementation date. MiFID I has been effective since November 1, 2018, to ease the investment process across the borders in Europe. The International Capital Markets Association (ICMA) has worked on MiFID I and is now engaging with MiFID II and MiFIR on aspects related to product governance, underwriting, and placing, inducements, costs and charges. MiFID has a direct impact on the secondary bond markets as well and the information on that is also available at the ICMA website in the secondary markets section.