Increased competition has led to lower spreads and

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Increased competition has led to lower spreads and fees Increasing Competition in Underwriting Reasons for increased competition o Rule 415- allows corporation to register a new issue with the SEC and then wait up to 2 years to sell it (which is called shelf registration) Its advantage for issuers- greater flexibility of timing, allowing them to sell when they think market conditions are most favorable. Gives them o Another reason for increased competition- development of alternative markets, such as the market for private placements, the Euro market, and the market for syndicated loans o Alternatives are more relevant for debt than equity The Secondary Market Lending money to a bank or mutual fund- can redeem your loan on demand- called redeemable However, if you have purchased bonds from a corporation, it has no obligation to redeem them at all before maturity, if you purchase stocks it has no obligation to make them redeemable at all- only way to convert into money it to transfer them to someone else who will pay Secondary market allows you to “undo” provision of financing o Market is made by brokers (bring buyers and sellers together without themselves buying or selling) and dealers (set prices at which they themselves are ready to buy and sell) Secondary market is less imp. For short term securities 2 nd market is only way to turn long-term securities into cash basic notes- The Economic Role of Secondary Markets
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Two things that secondary market must do- determine fair price, enable transactions quickly at price Securities firms Broad categories= investment banking and brokerage Investment banking= underwriting, advising on restructuring, and merchant banking Brokerage= wholesale and retail brokerage, market making and trading, and money management Risk management and derivatives= techniques used to protect balance sheet from risks. Securities involvement in risk management has led them into the derivatives market, where they now are among the largest intermediaries for swaps and options The Organization of a Securities Firm The Securities Industry Causes of restructuring- globalization, deregulation, innovation, and the growing importance of institutional investors ECONOMIES of Scale for securities business= financial economies, indivisibility of fixed costs, and reputational economies. Most important arises out of diversification ECONOMIES of Scope- information or expertise acquired in one market or activity is typically useful in another. Customers for investment banking typically are in brokerage - Static econ. Of scope- reduction in costs on one activity because of engaging in another - Dynamic economies of scope- reduction in the cost of entry to a new activity because of already engaging in another
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