Chap03 - Ch3: Security Markets Primary Market versus...

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1 Ch3: Security Markets Primary Market versus Secondary Market Types of Orders U.S. Security Markets Buy on margin Short selling
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2 Primary vs. Secondary Security Sales Primary New issue Key factor: issuer receives the proceeds from the sale Secondary Existing owner sells to another party Issuing firm doesn’t receive proceeds and is not directly involved
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3 How Firms Issue Securities Shelf Registration Private Placements Initial Public Offerings (IPOs)
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4 Role of Investment Banks
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5 Chap 3: Securities markets Shelf Registration It is introduced in 1982 by Rule 415 Public firms can register securities with SEC and gradually sell them to the public for two years following the initial registration Benefit of shelf registration Little additional paperwork Small issues every time without incurring substantial flotation costs
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6 Chap 3: Securities markets Shares are sold directly to a small group of institutional or wealthy investors. Pros and cons No need to register the security with SEC Less restrictive than public offering (i.e. no minimum size requirement) Good for small and mid-sized business Buyers cannot resell the security to the public Private Placements
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7 Chap 3: Securities markets Road show by underwriters Publicize the offering Bookbuilding Underpricing of IPOs IPO price is lower than the closing price of the first day of trading http://www.ipohome.com/marketwatch/marketwatch.asp Why is IPO underpriced? Initial Public Offerings (IPO)
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8 Figure 3.2 Average Initial Returns for IPOs in Various Countries
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9 Figure 3.3 Long-term Relative Performance of Initial Public Offerings
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10 Types of Orders Instructions to the brokers on how to complete the order Market Limit Stop orders
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This note was uploaded on 03/29/2012 for the course ECON 101 taught by Professor Schneider during the Spring '11 term at Kansas State University.

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Chap03 - Ch3: Security Markets Primary Market versus...

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