Bus 315 - Week2 - Week 2 Introduction II Trading on...

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Week 2 Introduction II: Trading on Securities Markets - Bodie et al., Ch. 3 1 Jorge Cruz Lopez - Bus 315: Investments
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Trading on Securities Markets Objective: To explain the institutional details and mechanics of investing in securities. 2 Jorge Cruz Lopez - Bus 315: Investments
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Trading on Securities Markets 1. How Firms Issue Securities 2. Types of Markets and Orders 3. Securities Markets 4. Trading Costs 5. Margin Trading 6. Regulation of Securities Markets 3 Jorge Cruz Lopez - Bus 315: Investments
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1. How Firms Issue Securities 4 Jorge Cruz Lopez - Bus 315: Investments
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Primary vs. Secondary Security Sales Primary New issue Issuing firm receives the proceeds from the sale. Secondary Security holders trade among themselves. There are no new proceeds created for the issuing firm. 5 Jorge Cruz Lopez - Bus 315: Investments
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Investment Banking Arrangements Firm Commitment vs. Best Efforts Firm commitment: Bank buys the stocks from the issuing firm. Best Efforts: Bank helps in the issue without risk of purchase. Negotiated vs. Competitive Bid Negotiated: Issuing firm negotiates terms with investment banker. Competitive Bid: Issuer structures the offering and bankers bid. 6 Jorge Cruz Lopez - Bus 315: Investments
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Primary Market Structure 7 Jorge Cruz Lopez - Bus 315: Investments
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Public Offerings Red herring: It is a preliminary prospectus. Prospectus: States the details of the issue. Short form prospectus (used by the OSC). Public Offerings need to be registered with the OSC (in Ontario) or the SEC (in the US). Initial Public Offerings (IPOs) Evidence of underpricing Performance 8 Jorge Cruz Lopez - Bus 315: Investments
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Private Placements Private Placement: Sale to a limited number of sophisticated investors not requiring the protection of registration.
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