Question

Identify the method of flotation in the Primary Market wherein a company sells securities en bloc. at an agreed price to a broker.

• A. Rights issue
• B. Offer for sale
• C. e-IPOs
• D. Offer through Prospectus

Answer 1

The Correct Option is B

The method of flotation in the Primary Market wherein a company sells securities en bloc at an agreed price to a broker is identified as "Offer for sale". This method involves the following key steps: 

1. Initial Agreement: The company agrees to sell its securities to a financial intermediary, often a broker or underwriting firm.
2. En Bloc Sale: The entire block of securities is sold in one transaction as opposed to multiple smaller transactions, providing the company with immediate capital.
3. Resale to the Public: The broker or intermediary then offers these securities to the public. This separates the company from the process of marketing these securities to different investors, as the intermediary undertakes this responsibility.
4. Price Determination: The original sale's price is agreed upon between the company and the intermediary, while the resale price to the public is set by the intermediary to ensure demand and cover costs/profit margins.

By using the "Offer for sale" method, companies can efficiently offload the risk associated with the direct sale of securities while securing capital and allowing specialized intermediaries to handle public offerings.

Answer 2

To identify the method of floatation in the Primary Market where a company sells securities en bloc (in bulk) at an agreed price to a broker, let's analyze each option in detail:

Options Analysis

Rights Issue (1)

Definition: A rights issue is a type of securities offering where companies provide their existing shareholders the right to purchase additional shares directly from the company at a specified price. This is typically done to raise capital from existing investors.

Why Not: In a rights issue, the company sells securities directly to existing shareholders, not to brokers in bulk.

Offer for Sale (2)

Definition: An offer for sale is a method where the company sells its securities to a broker or a group of brokers at a predetermined price. The brokers then sell these securities to the public. This method is often used when the company wants to sell a large number of securities quickly.

Why Correct: This method matches the description of selling securities en bloc at an agreed price to a broker.

e-IPOs (3)

Definition: An electronic Initial Public Offering (e-IPO) is a method where securities are offered to the public through online platforms. This method allows investors to apply for shares directly through electronic means.

Why Not: e-IPOs involve direct public offerings and do not involve selling securities in bulk to brokers.

Offer through Prospectus (4)

Definition: An offer through prospectus is a method where the company issues a detailed document (prospectus) that provides information about the securities being offered, the company's financials, and other relevant details. This method is used for both public and private offerings.

Why Not: While this method involves offering securities to the public, it does not specifically involve selling securities in bulk to brokers.

The correct answer is: (2) Offer for sale

This method involves the company selling its securities en bloc at an agreed price to a broker, who then sells these securities to the public. This matches the description provided in the question.