Chapter Three How Securities are Traded How firms

Transcript:Chapter Three How Securities are Traded How firms:
Chapter Three How Securities are Traded How firms issue securities Primary vs. secondary market Privately held vs. publicly traded companies Initial public offerings Market transactions Short selling and buying on margin Rise of electronic trading and globalization of stock markets https://www.ilsole24ore.com/art/il-bond-italia-dollari-fa-pieno-7-miliardi-e-non-e-autolesionismo-ACegJQq Market regulation Chapter Overview ©2018 McGraw-Hill Education 3-2 Primary Market Market for newly-issued securities Firms issue new securities through underwriter to public Secondary Market Investors trade previously issued securities among themselves How Firms Issue Securities (1 of 6) ©2018 McGraw-Hill Education 3-3 Privately Held Firms Up to 499 shareholders Raise funds through private placement Lower liquidity of shares Fewer obligations to release financial statements How Firms Issue Securities (2 of 6) ©2018 McGraw-Hill Education 3-4 Publicly Traded Companies Public offerings are marketed by underwriters Initial Public Offering: Seasoned equity offering: (= sale of additional shares in firms that already are publicly traded.) Registration must be filed with the SEC How Firms Issue Securities (3 of 6) ©2018 McGraw-Hill Education 3-5 Relationship Among a Firm Issuing Securities, the Underwriters, and the Public ©2018 McGraw-Hill Education 3-6 In a typical underwriting arrangement, the investment bankers purchase the securities from the issuing company and then resell them to the public Shelf Registration SEC Rule 415: Shelf registration is a method for publicly traded companies to register new stock offerings without having to issue them immediately. Instead, the securities can be issued at any time within a two-year period, allowing a company to adjust the timing of the sales to take advantage of more favorable market conditions should they arise. How Firms Issue Securities (4 of 6) ©2018 McGraw-Hill Education 3-7 Initial Public Offerings Road shows to publicize new offering Bookbuilding to determine demand Degree of investor interest provides valuable pricing information How Firms Issue Securities (5 of 6) ©2018 McGraw-Hill Education 3-8 https://www.borsainside.com/mercati_italiani/71154-ipo-yacht-ferretti-su-borsa-italiana-range-prezzo-fissato-quotazione-su-star/amp/ Initial Public Offerings Underwriter bears price risk: IPOs are commonly underpriced compared to the price they could be marketed Example: : Groupon Some IPOs are well overpriced Example: Facebook Others cannot even fully be sold How Firms Issue Securities (6 of 6) ©2018 McGraw-Hill Education 3-9 Types of Markets: Direct search Buyers and sellers seek each other Brokered markets Brokers search out buyers and sellers (typically primary market) Dealer markets Dealers have inventories of assets from which they buy and sell (The main difference between a broker and a dealer is in respect of their role in the market,