Lecture 6-7

Lecture 6-7 - How Securities Are Traded 1. Primary market:...

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Lily Qiu, Assistant Professor Brown University --- Economics Department EC1710, Lecture 5-6, Spring 2010, page 1 How Securities Are Traded 1. Primary market: to raise capital, firms can sell/float securities -> going public Private placement: no registration requirement, investors hold till maturity. Less cost, poor liquidity -> reduce the price Steps of an IPO: 1, The issuring firm files a preliminary registration statement with the Securities and Exchange Commission (SEC). The preliminary prospectus -> a red herring 2, bookbuilding by the underwriters -> often revise the offer amount and the offer range 3, The statement accepted by the SEC -> prospectus. Shelf registration (2 years). 4, the underwriting syndicate announces the price of the offer. Tombstone advertisements. Firm commitment and best effort. 5, IPO underpricing. Lockup period, usually 180 days. 2. Secondary market: organized stock exchanges NYSE Euronext (New York Stock Exchange), the Big Board www.nyse.com -> listing requirement About 8,500 issuers as of Dec. 31, 2008 Not-for-profit company owned by “seat holders” -> went public in 2006 Only members can execute trades -> a seat is a valuable asset ($4 mil in 2005) As a publicly traded corporation, an annual license permits traders to conduct business. Issuing Firm Lead Underwriter Other underwriters Underwriting Syndiate Private Investors Private Placements Initial Public Offerings(IPO) Seasoned New Issues
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Lily Qiu, Assistant Professor Brown University --- Economics Department EC1710, Lecture 5-6, Spring 2010, page 2 Specialists making the market: brokers will send investor orders to the specialist for a
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This note was uploaded on 07/21/2010 for the course ECON 1710 taught by Professor Qiu during the Spring '10 term at Brown.

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Lecture 6-7 - How Securities Are Traded 1. Primary market:...

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