Type of Markets

Type of markets

1. Money markets

The market where short-term securities are bought and sold

2. Capital market

The market where long-term securities such as stocks and bonds are bought and sold

Classified as either:

a. Primary market

The market in which new issues of securities are sold to the public

b. Secondary market

The market in which securities are traded after they have been issued

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:

a. Public offering

Firm offers its securities for sale to public investors

b. Rights offering

Firm offers shares to existing shareholders on a pro rata basis( buy shares on the number of shares you own)

c. Private placement

Firms sell securities directly without sec registration to select groups of private investors

Eg. Insurance companies, pension funds

Going public: the IPO process

Underwriting the offering

Promoting the stock and facilitating the sale of the company’s shares

Prospects

Registration statement describing the issue and the issuer

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

January 18

The investment banker’s role

Underwriting the issue

Purchasing the security at agreed-on price and bears the risk of reselling it to the public

Underwriting syndicate

Group formed 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

Investment banker

Typically in the form of a discount on the sale price of the securities

Secondary markets

The market in which...