Chapter 3 - How Securites are Traded

Chapter 3 - How Securites are Traded - Chapter 3: How...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Chapter 3: How Securities are Traded Two types of primary market issues of common stock o Initial public offering- stocks issued by a formerly privately owned company that is going public o Seasoned equity offerings- offered by companies that already have floated equity Two types of primary market issues of bonds o Public offering- issue of bonds sold to the general investing public that can then be traded on the secondary market o Private placement- issue that usually is sold to one or a few institutional investors and is generally held to maturity Investment Banking o Preliminary registration statement must be filed with SEC describing the issue and the prospects of the company called red herring. o When statement is in final form and accepted by SEC it is called prospectus o Firm commitment- procedure in which issuing firm sells the securities to the underwriting syndicate for the public offering price less a spread serves as compensation to the underwriters o Investment banker may also receive shares of common stock or other securities of the firm Shelf Registration o Rule 415/ Shelf Registration- allows firms to register securities and gradually sell them to the public for 2 years following the initial registration Private Placements o Private placement- firm sells shares directly to a small group of institutional or wealthy investors o Cheaper than public offerings o Do not trade in secondary markets like stock exchanges; reduces liquidity and prices Initial Public Offerings o Once SEC has commented on registration statement and a preliminary prospectus has been distributed to interested investors, investment bankers organize road shows o Road shows: 1) generate interest in potential investors and provide information and 2) provide information to the issuing firm and its underwriters about the price at which they will be able to market the securities o Book-indication of interest bookbuilding- process of polling potential investors o IPOs have been poor long term investment 3.2 How Securities are Traded Types of Markets o Direct Search Markets Least organized marker; Buyers and sellers seek each other out directly o Brokered Market Brokers find it profitable to offer search services to buyers and sellers Important brokered markets is primary market Large lock transactions- another brokered market More than 10,000 shares per block o Dealer Markets Dealers specialize in various assets, purchase these assets for their own accounts and later sell them for a profit from their inventory o Auction Markets Traders converge at one place to buy or sell an asset Advantage is that one does not have to search across dealers to find the best price Continuous auction markets require very heavy and frequent trading to cover the expense of maintaining the market Types of Orders...
View Full Document

This note was uploaded on 08/07/2011 for the course FIN 380 taught by Professor Winder during the Spring '10 term at Rutgers.

Page1 / 8

Chapter 3 - How Securites are Traded - Chapter 3: How...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online