How+securities+are+traded

How+securities+are+traded - How securities are traded...

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How securities are traded Reading: Chapter 3
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2 Primary Markets: placing new securities Government bond issuance Selected brokerage firms participate in the Treasury auction Corporate equity and bond underwriting Public offerings Initial public offerings Private placements Shelf registration Role of investment banks
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3 The Role of Investment Bankers Assist firms in issuing securities Underwritten vs. “Best Efforts” Underwritten: firm commitment on proceeds to the issuing firm Best efforts: no firm commitment Negotiated vs. Competitive Bid Negotiated offer: issuing firm negotiates terms with investment banker Most common Competitive bid: issuer structures the offering and secures bids E.g., the Google offering in 2004
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4 Initial Public Offerings (IPOs) The traditional process Road shows Bookbuilding Why is the traditional process effective and the role of investment bankers important? Underpricing of IPOs Significant market returns over the IPO price Cost to the issuing firm Potential conflicts of interest Alternatives The Google offering
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5 Secondary Markets: trading existing securities Exchanges and over-the-counter (OTC) markets for stocks, bonds, options, and other derivatives Trading prices reflect information flows and changing expectations Provide liquidity for financial assets Broker/dealer systems
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6 Brokers A broker is a financial intermediary that brings together two sides of a transaction together without taking inventories. A broker is compensated by commissions . Real estate agents/Brokerage firms Block trading Party A Party B Broker
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Dealers A dealer is a financial intermediary who facilitates trades by taking either side in a transaction. A dealer does not have to match a buyer and a seller directly by taking on an inventory. They are compensated mainly through the bid-ask spread. Dealer
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This note was uploaded on 01/17/2012 for the course MGMT 141 taught by Professor Chernyshoff,n during the Fall '08 term at UC Irvine.

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How+securities+are+traded - How securities are traded...

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