Chapter 3 - 3-1HOW SECURITIES ARE TRADEDCHAPTER 33-2Outline...

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Unformatted text preview: 3-1HOW SECURITIES ARE TRADEDCHAPTER 33-2Outline of the Chapter• The methods to issue securities• The methods to trade the securities• Securities Markets in USA, Europe and Turkey• Concepts like– Trading cost– Buying on margin– Short Sales3-3How Firms Issue Securities•Firms raise capital by issuing securities (stocks or bonds)•The new issues of securities are marketed to the public by investment bankers in primary markets•Primary– New issue. Issuer receives the proceeds from the sale– Stocks: Initial Public Offering (IPO) vs Seasoned Equity Offering– Bonds: Public Offering vs Private Placement•Secondary– Existing owner sells to another party (transfer of ownership)– Issuing firm doesn’t receive proceeds and is not directly involved3-4How Firms Issue Securities (Continued)•Investment Banking–Underwriters: Investment bankers responsible from the marketing of public offerings of both stocks and bonds–Underwriting Syndicate: The group of investment bankers formed for marketing of securities–Red herring: Preliminary registration statement filled with the SEC that describes the issue and prospects of the company–Prospectus: The final and accepted by SEC version of the statement–Firm Commitment: Usually investment bankers purchase the securities from the issuing company and then resell them to the public3-5How Firms Issue Securities (Continued)•Private Placements–Sale to a limited number of sophisticated investors –Cheaper than public offerings since SEC allows corporations to make these placements without preparing the extensive and costly registration statement required of a public offering–Not suitable for large offerings- not made available to the general public–Not traded in the secondary markets•reduced liquidity3-6How Firms Issue Securities (Continued)•Initial Public Offerings (IPOs)– First time issuance of securities are managed by investment bankers.– Process • Road shows– Organized when the SEC has commented on the registration statement and preliminary prospectus has been distributed to interested investors– Promote the new securities– Generate interest among potential investors and provide information about the offering– Decide on the price of the securities at IPO3-7How Firms Issue Securities (Continued)• Bookbuilding– Large investors show their interest in purchasing the shares of the company– These indications of interest are called a book– Process of choosing potential investors is bookbuilding• Why underwriters do road shows?– Get information for the issuing firm– Institutional investors have insights about the market demand and prospects of the firm and competitors– Revise the initial estimates for the price and quantity of the security planned to be issued3-8How Securities are Traded•Types of Markets– In which securities are traded1) Direct search markets...
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This note was uploaded on 04/03/2010 for the course FEAS 311.01 taught by Professor Attilaodabaşı during the Spring '10 term at Boğaziçi University.

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Chapter 3 - 3-1HOW SECURITIES ARE TRADEDCHAPTER 33-2Outline...

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