1 New Stock Issue Process Documents Used Impact on Shareholders a Primary Market market in which new issues of securities are sold to investors i Initial Public Offerings IPO s marks the first public sale of a company s stock and results in the company s taking on public status ii Seasoned Equity Issues sale of additional stock b To sell securities in the public market a firm has three choices i Public Offering firm offers its securities for sale to public investors ii Rights Offering firm offers shares to existing stockholders on a pro rata basis iii Private Placement firm sells securities directly without SEC registration to select groups of private investors such as insurance companies investment management funds and pension funds c Going Public The IPO Process i First must obtain the approval of its current shareholders ii Next the company s auditors and lawyers must certify that all financial disclosure documents for the company are legitimate iii Company then finds an investment bank willing to underwrite the offering 1 Underwriter also assists in filing a registration statement with the SEC One portion is called the Prospectus 2 Prospectus describes the key aspects of the securities to be issued the issuer s management and the issuer s financial position a Red Herring preliminary prospectus 3 After SEC approves the registration statement the investment community begins analyzing the company s prospectus a Quiet Period time from when the company files its preliminary registrations statement until at least one month after IPO is complete the company and the company s lawyers auditors and underwriters must observe a quiet period which there are restrictions on what can be said about the company i Purpose is to make sure all potential investors have access to the same information about the company 4 During the registration period and prior to the actual IPO date the investment bankers and company executives promote the company s stock offering through a road show a Road Show consists of a series of presentations to potential investors around the country and overseas b Also help the investment bankers gauge the demand for offering and set an expected price range d IPO are not necessarily good long term investments i Most companies that go public are small fast growing companies that require additional capital to continue expanding 2 Types of Exchanges Listings a Broker Markets i NYSE dominant broker market ii NYSE NYSE Amex Regional Options Futures Foreign Exchange markets b New York Stock Exchange i Most securities exchanges are modeled after NYSE ii Became a publicly traded company is 2006 iii Used to lease 1336 seats 1 Seat comes from the fact that until the 1870 s members sat in chairs while trading iv Two main types of floor brokers are commission brokers and independent brokers v All transactions on the floor occur through an auction process Goal is to fill all buy orders at the lowest price and fill all sell orders at the highest price vi Listing 2 To be on the NYSE 1 Some firms have dual listing listing on more than one exchange a US firm must have at least 400 stockholders owning 100 or more shares and a minimum of 1 1 million shares of publicly held stock outstanding aggregate pretax earnings of at least 10 million over the previous three years of at least 2 million in the previous two years and positive for the first of the last three years and a minimum market value of public shares of 100 million b Also must pay an original listing fee between 150 000 and 200 000 c Firms that fail to meet specified requirements may be delisted from the exchange c NYSE Amex i Organization and procedures similar to those of the NYSE ii Because listing requirements are less stringent many smaller and younger firms choose to list on the NYSE Amex iii 500 listed stocks iv Focused on more specialized market instruments v Today about 2 3 of its daily volume comes from exchange traded funds ETF s a security pioneered by the NYSE Amex 1 These funds are baskets of securities that are designed to track an index of the broad stock or bond market a stock industry sector or international stock but that trade like a single stock vi Trading in stock options is another large segment of NYSE Amex s business i Most modeled after the NYSE but their membership and listing requirements are d Regional Exchanges considerably more lenient ii Trading costs are also lower iii Majority of stocks listed on regional exchanges are also listed on the NYSE and NYSE Amex iv The dual listing may enhance a security s trading activity v Intermarket Trading System links nine markets through an electronic communications network that allows brokers and dealers to make transactions at best prices i Options allow their holders to sell or buy another security at a specified price over a ii Dominant is the Chicago Board Options Exchange iv Usually an option to sell or buy a given security is listed on all five options e Options Exchanges given period of time iii Dual listed exchanges f Futures Exchange i Futures are contracts that guarantee the delivery of a specified commodity or financial instrument at a specified future date at an agreed upon price ii Made up of a large number of market makers who are linked together via a mass ii Dominant is the Chicago Board of Trade g Dealer Markets i No centralized trading floors telecommunications network 1 Nasdaq 2 OTC markets 3 Bull Bear Markets a Changing market conditions generally stem from changes in investor attitudes changes in economic activity and government actions aimed at stimulating or slowing down economic activity b Bull Markets markets normally associated with rising prices investor optimism economic recovery and government stimulus c Bear Markets markets normally associated with falling prices investor pessimism economic slowdown and government restraint d Investors experience higher returns on common stock during a bull market e Some securities are bullish in a bear market or bearish in a bull market 4 Identify an Appreciated or Depreciated Currency a Currency exchange rate the relationship between two currencies on a specified date i EX on April3 2009 US 07418 US 1 3481 ii On that day if you had purchased 100 shares of Guinness which was trading for 18 75 per share on Euro Market it would have cost you 2 527 69 b Appreciation Depreciation changes in the value of a particular foreign currency with respect to the U S dollar or any other currency i EX on August 21
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