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The Investment Banker’s Role
• Underwriting the Issue: purchases the security at agreed-on price and bears the risk of reselling it to the public • Underwriting Syndicate: group formed by investment banker to share the financial risk of underwriting • Selling Group: other brokerage firms that help the underwriting syndicate sell issue to the public • Tombstone: public announcement of issue and role of participants in underwriting process
Primary Markets
• Initial Public Offering (IPO)
– First public sale of a company’s stock – Requires SEC approval
• Three Choices to Market Securities in Primary Market
– Public offering – Rights offering – Private Placement
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Table 2.1 Annual IPO Data, 1999–2008
Chapter 2
Securities Markets and Transactions
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Securities Markets and Transactions
• Learning Goals
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Types of Markets
• Money Markets: the market where short-term securities are bought and sold • Capital Market: the market where long-term securities such as stocks and bonds are bought and sold • Primary Market: the market in which new issues of securities are sold to the public
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Going Public: The IPO Process
• Underwriting the offering: promoting the stock and facilitating the sale of the company’s shares • Prospectus: registration statement describing the issue and the issuer
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• Learning Goals (cont’d)
4. Review the key aspects of the globalization of securities markets, and discuss the importance of international securities markets. 5. Discuss trading hours and regulation of securities markets. 6. Explain long purchases, margin transactions and short sales.
1. Identify the basic types of securities markets and describe their characteristics. 2. Explain the initial public offering (IPO) process. 3. Describe broker and dealer markets, and discuss how they differ from alternative trading systems.
• Red Herring: preliminary prospectus available during the waiting period
• Quiet Period: time period after prospectus is filed when company must restrict what is said about the company • Road Show: series of presentations to potential investors
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Figure 2.1 Cover of a Preliminary Prospectus for a Stock Issue
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• Secondary Market: the market in which securities are traded after they have been issued
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