1) New Stock Issue Process, Documents Used, & Impact on Shareholders:a) Primary Market – market in which new issues of securities are sold to investorsi) 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 stockb) To sell securities in the public market a firm has three choices:i) Public Offering – firm offers its securities for sale to public investorsii) Rights Offering – firm offers shares to existing stockholders on a pro rata basisiii) Private Placement – firm sells securities directly without SEC registration to select groups of private investors such as insurance companies, investment management funds, and pension fundsc) 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 legitimateiii) 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 ranged) IPO are not necessarily good long term investmentsi) Most companies that go public are small, fast growing companies that require additional capital to continue expanding2) Types of Exchanges & Listings:a) Broker Markets:i) NYSE dominant broker marketii) NYSE, NYSE Amex, Regional, Options, Futures, Foreign Exchange marketsb) New York Stock Exchange i) Most securities exchanges are modeled after NYSEii) Became a publicly traded company is 2006iii) Used to lease 1336 seats(1) Seat comes from the fact that until the 1870’s members sat in chairs while tradingiv) Two main types of floor brokers are commission brokers and independent brokersv) 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 pricevi) Listing:(1) Some firms have dual listing – listing on more than one exchange(2) To be on the NYSE:(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 exchangec) NYSE Amex:i) Organization and procedures similar to those of the NYSEii) Because listing requirements are less stringent, many smaller and younger firms choose to list on the NYSE Amexiii) 500 listed stocksiv) 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 stockvi) Trading in stock options is another large segment of NYSE Amex’s businessd) Regional Exchanges:i) Most modeled after the NYSE, but their membership and listing requirements are considerably more lenientii) Trading costs are also loweriii) Majority of stocks listed on regional exchanges are also listed on the NYSE and NYSE Amexiv) The dual listing may enhance a security’s trading activityv) Intermarket Trading System links nine markets through an electronic communications network that allows brokers and dealers to make transactions at best pricese) Options Exchanges:i) Options allow their holders to sell or buy another security at a specified price over a given period of timeii) Dominant is the Chicago Board Options Exchangeiii) Dual listediv) Usually, an option to sell or buy a given security is listed on all five options exchangesf) 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 priceii) Dominant is the Chicago Board of Tradeg) Dealer Markets:i) No centralized trading floorsii) Made up of a large number of market makers who are linked together via a mass telecommunications network(1) Nasdaq(2) OTC markets3) Bull/Bear Marketsa) Changing market conditions generally stem from changes in investor attitudes, changes in economic activity, and government actions aimed at stimulating or slowing down economic activityb) Bull Markets – markets normally associated with rising prices, investor optimism, economic recovery, and government stimulusc) Bear Markets – markets normally associated with falling prices, investor pessimism, economic slowdown, and government restraintd) Investors experience higher returns on common stock during a bull markete) Some securities are bullish in a bear market or bearish in a bull market4) Identify an Appreciated or Depreciated Currency:a) Currency exchange rate – the relationship between two currencies on a specified datei) EX: on April3,2009 US$ = €.07418 €=US$ 1.3481ii) On that day if you had purchased 100 shares of Guinness, which was trading for €18.75 per share on Euro
View Full Document
Unlocking...