Chapter 3 - Condensed - Securities Markets Learning Goals y...

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Securities Markets
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Learning Goals: y Describe roll of investment banks y How are shares of a company brought to the public y IPO, y Role of underwriters y Types of markets y Least to most organized y Types of orders you can place in the market y Stop loss, market order, limit order, etc y Trading costs in the market y Short selling
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3.1 How Firms Issue Securities
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Primary vs. Secondary Market Security Sales Primary New issue (i.e. equity) is created and sold Key factor: issuer receives the proceeds from the sale Public offerings: registered with the SEC and sale is made to the investing public Investment bank helps issue the shares to the public Private offerings: not registered, and sold to only a limited number of investors, with restrictions on resale Secondary Existing owner sells to another party Issuing firm doesn’t receive proceeds and is not directly involved
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Primary vs. Secondary Security Sales Equity Primary IPO GCO (Underwritten) Competitive Negotiated Seasoned GCO (Underwritten) Best Efforts Rights Standby & Take-up Secondary Auction NYSE ASE Regionals Dealer NASDAQ OTC Pink Sheet 3 rd market 4th
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Investment Banking Arrangements y Underwritten vs. “Best Efforts” y Underwritten: banker makes a firm commitment on proceeds to the issuing firm y Best Efforts: banker(s) helps sell but makes no firm commitment y Underwriters advise the company y File prospectus y In the case of firm commitment, buy shares of the issuing firm, then sell to the public y Example: Facebook’s IPO
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Figure 3.1 Relationship Among a Firm Issuing Securities, the Underwriters and the Public
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Initial Public Offerings y IPO Process y Issuer and investment banker put on the “Road Show” y
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