FINA4320 chapter 3 - Class 3 How Securities are Traded I...

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Class 3 How Securities are Traded I
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Primary vs. Secondary Security Sales Primary New issue (marketed by Inv. Bankers) Key factor: issuer receives the proceeds from the sale Secondary Existing owner sells to another party Issuing firm doesn’t receive proceeds and is not directly involved
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Primary Issues: Firms Raise Capital Initial Public Offering (IPO) Privately owned company goes public - issues stock (“floats” stock) Seasoned Issues Firms already have floated equity
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Underwriting Process Underwriters: market public offerings Normally, Underwriting Syndicate (several firms) Lead firm (forms syndicate) Preliminary registration - filed with SEC (Securities and Exchange Commission) In there: “red herring” - evaluation of company’s prospects When approved by SEC: called “Prospectus”
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Investment Banking Arrangements Firm Commitment: Underwriters purchase security from issuer Resell to public Underwriters assume the risk of selling shares Best Efforts agreement: Underwriter does not purchase the issue (does not bear the risk) Is more common
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Public offerings: registered with the SEC and sale is made to the investing public
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This note was uploaded on 02/16/2009 for the course BUSINES 4320 taught by Professor Alexeiboulatov during the Spring '09 term at Houston Baptist.

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FINA4320 chapter 3 - Class 3 How Securities are Traded I...

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