trading - FINANCE431 Investments Lecture 3 Securities...

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FINANCE 431 Investments Lecture 3: Securities Markets
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FIN 431: Investments 2 Primary Market Primary Markets New securities are issued to the public Initial public offerings (IPO) Seasoned equity offerings (SEO) Issuer receives the proceeds from the sale, pays commissions to underwriters . Motivations Raise capital Liquidity Incentive scheme
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FIN 431: Investments 3 Underwriting Investment banks serve as underwriters. File a preliminary prospectus with SEC (a red herring ) Road shows to test market interest Buy shares from firms and resell to investors Firm commitment vs. best-efforts Shelf registration Private placement: sell directly to institutional / wealthy investors under Rule 144A. IPO under-pricing On average, big jump in price on first day of trading Underperformance in the long run
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FIN 431: Investments 4 One-day Wonder? From 1975 to July 2005, the ten biggest first-day percentage increases are (from Jay Ritter’s web site): Va Linux 12/09/99 697.50% Globe.com 11/13/98 606% Foundry Networks 9/28/99 525% Webmethods 2/11/00 507.50% Free Markets 12/10/99 483.33% Cobalt Networks 11/05/99 482% MarketWatch.com 1/15/99 474% Akamai Technologies 10/29/99 458% Cacheflow 11/19/99 426.56% Sycamore Networks 10/22/99 386%.
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FIN 431: Investments 5 Secondary Markets Over-The-Counter (OTC) Markets: informal networks of brokers and dealers Bond Market Foreign Exchange Market Derivatives Market OTC Stock Market NASDAQ: largest OTC market since 1971 Computer-linked system providing information on dealers’ quotation of bid and ask prices Nasdaq National Market System Nasdaq SmallCap Market Lower volume securities OTC Bulletin Board Pink Sheets from NASD
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FIN 431: Investments 6 Exchanges Auction markets with centralized order flow NYSE, AMEX, and regional exchanges Listing requirements “Specialists” at NYSE Have exclusive right to make the market in a specified stock on the NYSE Must maintain a “fair and orderly market” Front-running Traded securities: stock, bonds, futures, options contracts
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FIN 431: Investments 7 Dealer Market Market Maker Market Maker Broker Market Maker Order Order Order
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FIN 431: Investments 8 Specialist Market Broker Specialist Broker - Dealer Order Order
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This note was uploaded on 04/09/2012 for the course FIN 431 taught by Professor Sun during the Spring '12 term at Old Dominion.

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trading - FINANCE431 Investments Lecture 3 Securities...

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